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Payday lenders look for ways around cap

July 2, 2006 - Salem, Oregon

Some payday lenders may already be maneuvering to skirt a state law that will not take effect for another year, state officials say.

The law, passed by the Legislature in its April special session, would allow payday lenders to charge a one-time fee of $10 per $100 on small loans plus 36 percent annual interest -- a dramatic cut from rates that now commonly exceed 500 percent interest.

But the law applies only to payday lenders, who have short-term licenses and typically make small, two-week loans for an average of about $300. The law doesn't affect consumer lenders, who make longer-term installment loans. The state issues a separate conventional license to lenders who make loans for longer than 60 days.

Payday lenders could buy conventional licenses and, as some car title lenders already do, restructure payday loans into small installment loans that exceed the 60-day limit of a short-term loan. That would exempt them from the payday law and allow them to continue charging high interest rates.

Sixty-six payday lending stores have bought conventional licenses, and 10 more are in the process of applying for the licenses, state officials said.

Interest cap proposed

Consequently, the Department of Consumer and Business Services expects to propose legislation to cap annual interest rates for conventional loans at the same 36 percent level as payday loans, Director Cory Streisinger told a Senate committee in May.

Payday lenders are exploring what "other products we can offer" because the state's new law will destroy their businesses when it takes effect in a year, said Luanne Stoltz, owner of two payday loan stores and vice president of the Community Financial Services Association, which represents the payday loan industry in Oregon.

But Stoltz said she is not banking on a conventional license to bypass the new payday loan law.

"Why would I gear up for a new product that Cory Streisinger has already said she is going to eliminate?" she said.

Stoltz said she instead will close one of her stores in about five weeks and the other when the lease runs out.

"Frankly, we've been the subject of a witch hunt," she said.

Payday lenders didn't go away when Illinois passed a reform law last year that capped interest and limited loan periods to a maximum of 45 days. Now many lenders there are buying different licenses that allow them to make installment loans at high interest rates exempt from the reform law, said Linda DeLaforgue, co-director of Citizen Action Illinois, a statewide public interest group.

The high-interest lenders "morph into other things," she said. "You cut off one tentacle, and they just grow another one."

Aware that this may happen in Oregon, consumer, church, political and social service leaders plan to press the Legislature for more action next year.

"We already know the industry is looking for loopholes," said Angela Martin, economic fairness director for Our Oregon, a nonprofit progressive group in Portland. "We've got to look at a cap on all consumer loans."

News Source

The Oregonian, Bill Graves, Staff Writer

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