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May-03-2007 14:52printcomments

House Approves Predatory Lending Rate Cap

Last year during a special session of the legislature, the House and Senate passed a 36 percent annual interest rate cap on short-term payday loans.

Oregon state capitol
Photo by: Tim King

(SALEM) - The House of Representatives today approved a bill to impose a 36 percent interest rate cap on state-regulated consumer loans in Oregon. The bill, HB 2871, provides strong protections for borrowers of the more than 850,000 short-term payday and car title loans issued each year in Oregon.

"In any other area of the law, no legislator would endorse a system that contributes to bankruptcy, divorce and despair. So we shouldn’t do that with consumer loans either,” said House Speaker Jeff Merkley (D-Portland). "We have a responsibility to provide opportunities for individuals and families to thrive. We need to support systems that build wealth, not strip wealth."

Last year during a special session of the legislature, the House and Senate passed a 36 percent annual interest rate cap on short-term payday loans. Almost immediately, those lenders began to reorganize under the state’s conventional lending laws to avoid that cap. Under that law, a typical 60-day loan subject to the 36 percent cap could be offered without that cap if the lenders simply converted it to term of 180 days or more.

"Colleagues, this comes down to two simple questions,” said Rep. Chris Edwards (D-Eugene). “First, do you believe that there are loopholes in our previously passed legislation that will allow payday lenders to continue to charge exorbitant interest rates? And second, do you believe those loopholes should be closed? My answer to both of those questions is an unequivocal yes."

Oregon is currently one of only 16 states that do not cap interest rates on consumer loans. Oregon had a 36 percent cap on consumer loans until 1981 when the legislature lifted it. Since then predatory lenders have flourished, charging rates on consumer loans that have at times exceeded 500 percent. That means a person who borrows $200 could end up paying an additional $1000 or more for the privilege of borrowing that money.

"In reality, the point of this legislation is to close the loopholes that would allow predatory payday lenders to skirt any of the previous legislation we have approved," said Rep. Paul Holvey (D-Eugene), chair of the House Consumer Protection Committee. "This bill is a real win for Oregon consumers, as well as for the responsible consumer lenders who worked with us to craft the legislation."

Across the country, states that had eliminated caps are reinstating them. Interest rate caps in other states range from 17 percent in Arkansas to 60 percent in Georgia, but most states have determined that a 36 percent rate cap best guarantees access to credit while keeping usury in check. At the federal level, Congress recently enacted a 36 percent cap on consumer loans to all active duty military members and their families, underscoring the problem nationwide.

"I’m glad to see the legislature take on difficult issues and act on behalf of individual Oregonians and families, not for special interests,” Merkley said. “We all have a responsibility to restore fairness and protection for Oregon’s families – particularly those in difficult financial straits."

The Oregon Predatory Lending Cap Act passed the House on a vote of 37-21. It proceeds now to the Senate for further consideration.

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The Editor May 5, 2007 2:13 pm (Pacific time)

Jon, that is a fair request, I'll do my best to respond. Bonnie and I lived in Las Vegas for five years before relocating back to Oregon, and in covering news in "Sin City" we observed time and time again that payday lenders are predatory in nature, and that is a very negative term to live with. I lived in a city where loan sharks used to physically injure people over debts... so what? That is illegal, immoral and reprehensible. In my humble opinion, that is not a realistic alternative to describe. The answer is for institutions like payday loan organizations to be regulated and closed down appropriately when the greed meter hits a given level.

These institutions are based in taking advantage of poor people when the economy sinks. Greed has overtaken our nation as a whole, from the top right on down. You mention religion; do you know what one of the Muslim's primary gripes about westerners is? It is our greed. The Islamic system does not condone "interest" though they believe it is fine to lend people money if they have it to lend. They don't think their creator ever intended for people to earn interest off others who are deprived. I think it is a shame that their philosophy didn't take hold in the world on a bigger scale. My understanding of history is that the main parting between Islamic and Judaic cultures stemmed in part of the Muslim's perception of interest lending as greed.

I do think you made many good points Jon, and it reminds us that open comments on stories allow everyone to state their position. In the initial comment I was just trying to get your goat, it's Saturday after all. But after reading your thoughts again I clearly see that you have strong convictions and while I do not personally agree with you, you certainly allow the subject to be viewed through a different light.


Tim King

Henry Clay Ruark May 5, 2007 11:37 am (Pacific time)

To all: J-S shows distressing naivete re any "free markets" understandings by this statement alone. THEN there's the deeply documented fact of distortion and perversion in practically all markets today -via deep documentation from world-known economists. SO Editor's statement is right on the mark, absolutely true, proven and precisely the proper answer. IF "proof" desired, can send several PDFs from proven sources, on request. Meanwhile hope all such predators choke on their now-proven "ill-gotten gains"! "You either have a free market or you have authoritarianism."

Jon Schultz May 5, 2007 10:59 am (Pacific time)

At least *my* accusation of bias was supported by reasonable arguments. Why don't you respond to them?

The Editor May 5, 2007 10:26 am (Pacific time)

My Jon, what a biased comment!

Jon Schultz May 5, 2007 9:07 am (Pacific time)

What a biased article. A 36% APR rate cap makes it illegal for one person to say to another, "I will lend you $100.00 today if you will pay me back $100.10 tomorrow." That isn't consumer protection, that's authoritarianism. Of course no lender would do that because it costs about $30 to process a loan application. For every story of people who get themselves into trouble by their own misuse of payday loans (and every good thing can be and is abused by some people) there are ten stories of people who have been saved from terrible tragedies because the payday loan option was available to them. Now that option will no longer be available so so-called consumer activists and politicans can pride themselves on what a great job they are doing protecting people from themselves and "payday loan sharks." At least payday lenders make an honest offering, however much they have to charge to make a profit when lending to people who generally have bad credit and whose only collateral is their next paycheck. The critics are dishonest in comparing them to loan sharks - because loan sharks use violence to collect on loans which payday lenders certainly do not - and they are also dishonest in saying that a 3-digit APR means the lender is making a tremendous profit. With a short-term loan that costs the lender over $30 to make it doesn't. The payday loan product has a very high customer satisfaction rate and people who use them do not want them banned. And if the government is allowed to cap how much a lender can charge for his service, why shouldn't it be allowed to cap what any merchant or service provider can charge for any product or service? You either have a free market or you have authoritarianism. Consumer protection should be about curbing deceptive and dishonest advertising, not tell merchants and service providers how much they can charge. Usury is a religious concept that originally meant the sin of charging any interest at all on a loan. It reflects the religious idea that earning money without physical labor is a sin. It has no place in government. But people who don't want to give up their bank interest and capital gains - but want to criticize others as being the immoral ones who don't care about the poor - want to define it as charging "excessive" interest so they can have a target, such as payday lenders, to criticize. They have no faith in a free market but feel they should be the ones to regulate and control everything. It's the same old game.

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