Thank
you for the opportunity to testify in favor of strong payday loan
consumer protection for Oregon. My name is Laura Etherton, and I’m the
Consumer Advocate with Oregon State Public Interest Research Group
(OSPIRG). OSPIRG is a non-partisan, non-profit public interest
organization with over 30,000 members across the state.
Thank
you for making time during the 73rd Legislative Assembly Special
Session to address the issue of payday loans, and for bringing forward
policies that will bring a measure of fairness to this marketplace. The
proposed protections will bring needed relief to payday loan borrowers,
and on behalf of OSPIRG I urge Oregon to implement these protections as
soon as reasonably possible.
Payday
loan shops were virtually unheard of a decade ago, but since then they
have sprung up on street corners and strip malls in practically every
community across Oregon. They sell short term, high interest rate loans
to consumers desperate for quick cash, who borrow against their next
paycheck. Recent OSPIRG surveys in Portland and in Lane County found
that these outfits commonly charge a staggering 521% annual interest
rate. Payday loans gouge consumers with outrageous interest and fees,
they are very difficult to repay, and they drive consumers into a cycle
of debt.
Here
is how a typical loan works: To borrow $300, a consumer must write a
personal check for $360, post-dated for about two weeks in the future.
Many borrowers cannot repay the loan when it’s due, and most payday
lenders do not accept installment payments. Instead, the borrower is
encouraged to pay another $60 fee to “roll over” the loan to extend it
for another two weeks. If the borrower rolls over the loan the three
times allowed in Oregon, he’ll pay $240 in fees and still owe $300 in
loan principal. To keep up with the mounting fees and debt, many
consumers take out additional payday loans to pay off the first.
Despite
the difficulty borrowers have repaying the initial loan, payday lenders
do not typically require a credit check to determine a consumer’s
ability to pay. Instead, payday loans are uniquely designed to give the
lender direct access to the borrower’s account through a post-dated
check or electronic account access, something uncommon in mainstream
lending. Lenders may present a borrower’s check repeatedly to the bank
for payment, looking for the moment when the account has adequate
funds. The resulting overdraft fees drive the consumer even deeper in
debt.
Given the problems consumers face with payday loans,
momentum has long been building for meaningful reform. The proposed
bill is an important first step. It puts a cap the interest and fees,
sets a minimum loan term to a more manageable 31 days, and sets a limit
of two rollovers.
Thank you again for your work to bring forward these important consumer protections for Oregon.
