Payday Loan Times

The ongoing Oregon payday loan fight is getting personal, even religious. A Eugene, Ore., pastor spoke with the Daily News and recalled a parishioner who was living on Social Security and became mired in debt after taking out a couple of payday loans.

"I asked if I could come over and look at the paperwork, and I couldn't believe it. She actually had one loan annualized over 1,000 percent. It took my breath away," said Tom Dodd, pastor at United Lutheran Church in Eugene.

Reformers are taking another shot at regulating Oregon's surging payday loan industry — possibly via a citizen-referred ballot measure — and a growing number of citizens say they're using a religious perspective to really drive home the issue.

"We have a strong tradition against usury — the strong taking advantage of the weak. To me, it's really a central example of how power is misused, and the faith community ought to stand with those on the short end," Dodd said.

But lenders say they're being unfairly demonized for providing a service that consumers demand. They point to the low number of consumer complaints — 17 out of 750,000 loans processed in Oregon — as evidence of their value, especially to people whose bad credit and urgent circumstances might otherwise preclude them from quick cash.

"Oregonians have declared that they like the product, that there's a need for the product, and that they're happy with the product," said Thom Shauklas, president of the Community Financial Services Association of Oregon, an industry trade group.

One thing is not disputed: The payday loan industry is booming.

• There are now more than 360 payday loan stores in the state.
• The industry has more than doubled its Oregon business since 2000.
• Payday cash loan firms made nearly $250 million in loans in 2004.
• The average loan amount climbs each year, reaching $334 in 2004.

Applicants for payday loans typically write a personal check in exchange for a cash loan, with a $15-20 fee tacked on to every $100 loaned. That's an APR of around 360, compared to the average 18 percent rates charged by credit cards. It can get worse, too. If the consumer can't repay the loan, he or she can roll it over up three times — and pay a similar fee.

Oregon is one of only seven states with no caps on payday loan interest rates. The State Senate approved a bill that would have set a 15 percent interest cap last year, but the bill was scuttled in the GOP-controlled House.

PUSHING FOR REFORM

Dodd is among a group of local church and social service leaders who have begun meeting on the issue. One idea is work with two sympathetic Lane County legislators, Rep. Debi Farr (R-Eugene), and Sen. Floyd Prozanski (D-Eugene), who head consumer committees considering more rules. Another idea is to ask cities to impose restrictions, as Portland already has proposed.

But many advocates are putting their all into a proposed ballot measure — Initiative No. 135 — that would cap interest rates and origination fees at 36 percent per year, while extending the payback time to 31 days from 15.

Backers await approval of ballot language from the state attorney general's office, but will soon begin seeking voter signatures. Among the measure's chief petitioners is the Rev. Dan Bryant of Eugene, who thinks that the initiative process is the way to go.

"I'm ready to try a new strategy," he said. "Why are so many of these stores popping up on every corner? It's because people are making big bucks off of this, getting rich off the poor, and we think that's obscene. That's why so many church folks are involved in this. It violates our concept of what's just and fair."

Terry McDonald, executive director of the Catholic-affiliated St. Vincent de Paul agency in Eugene, agrees. He maintains that payday loans rival methamphetamine and other drug use in the extent of damage they wreak.

"One reason people are on our doorstep needing emergency services is because of these kinds of deals," he said.

But industry insiders contend that short-term loans are often the only tool available to people with emergency financial needs.

"I think [reformers] have good intentions, but they don't understand the effect of their proposals," said Mark Thomson, director of government relations for Moneytree.

For instance, a law preventing consumers from rollovers will just force them to go to another payday loan company to pay off the first loan. Payday cash loan advocates say their stores fill a need brought on by economic reality — most banks, credit unions and companies do not provide small, quick and short-term loans. Additionally, bank fees for insufficient funds can actually cost more than payday loans.

At least in part, the state Department of Consumer and Business Services agreed in a 2004 report, concluding that "a dispassionate review reveals a rational basis for the growth of payday lending, and good reasons for the relatively high degree of customer satisfaction."

Thomson says satisfaction is high because payday loans are straightforward and simple. A 2005 FDIC report found that fixed operating costs and loan loss rates justify "a large part" of the high APRs for payday loans. Thus, industry professionals are concerned that they are being singled out and that the proposed interest caps will effectively eliminate the industry.

The Payday Loan Times will continue monitoring the progress of Oregon's legislative battle, as well as the individual ballot initiative, in the coming weeks.