Thursday, May 31, 2007

A Senate committee approved two bills Wednesday afternoon that would block attempts by providers of payday loans and car title lenders to circumvent new caps on high interest rates.

The bills, already passed in the House, would tighten restrictions on conventional consumer loans and limit annual interest and fees on a consumer loan under $50,000 to 30 percent above the federal reserve discount rate, which is now 6.25 percent.

They now go to the Senate floor for a vote, with the Senate Commerce Committee’s recommendation of support, and then back to the House for a concurrence vote on amendments. Gov. Ted Kulongoski has said he will sign both fast payday advance bills if they pass.

Car title and payday lenders now charge triple-digit interest rates on small, short-term loans. Payday lenders on average charge 528 percent annual interest. Regulations passed last year by the Legislature and other bills now moving through the Senate would restrict payday and car title lenders to an initial fee of $10 per $100 of a small loan.

They could charge no more than 36 percent interest on renewals or rollovers of the faxless payday loan.

But those restrictions, which will take effect July 1, apply only to loans made under short-term licenses commonly used by car title and payday lenders. In the last 12 weeks, 138 of the state’s 360 payday lending stores have applied for a conventional consumer license, a different license that would allow them to operate outside the new regulations.

The two bills passed Wednesday by the Senate committee would close that loophole. House Bill 2205 makes the conventional license impractical for short-term personal cash loan lenders, as it requires 90 percent of their loans to be for at least six months. It would also require the lenders to use underwriters, undermining one of the appeals of payday and car title loans: no credit checks.

House Bill 2871, sponsored by House Speaker Jeff Merkley, D-Portland, would put an across-the-board cap on annual interest and fees for all consumer loans under $50,000 set at 30 percent above the federal reserve discount rate. The committee changed the lid from a flat 36 percent to a flexible rate tied to the federal reserve discount to avoid penalizing traditional lenders should interest rates soar as they did in the early 1980s.

Sen. Roger Beyer, R-Molalla, proposed amending the bill to have it take effect July 1, 2009, rather than July 1, 2007, so that lenders had time to shut down their busineses. But the other four members on the committee voted against the no faxing payday loan change.

“I don’t believe you will see a mass exodus of the financial institutions out of the state based on the passage of HB 2871,” said Sen. Floyd Prozanski, D-Eugene, chair of the committee.

Consumer advocates, religious leaders, food banks, AARP of Oregon and other supporters say the regulations are needed to prevent short-term check cash advance lenders from taking advantage of vulnerable and desperate low-income Oregonians.

The lenders use a car title or upcoming paycheck as collateral on small loans, typically two- or three-week loans for about $300. Payday lenders commonly charge $20 for each $100 they lend and charge the same interest again for each rollover. Critics say borrowers get trapped in a cycle of debt as they borrow from a second lender to pay the first, from a third to pay the second and so on.

These providers of pay day loans argue they offer borrowers a convenient source of money and get few complaints. The new regulations will put them out of business, they say, and will deny Oregonians with poor credit a place to turn for emergency money.

This entry was posted on Thursday, May 31st, 2007 at 6:18 am and is filed under Oregon.