Exposing The Payday Loan Trap
In 2005 and 2006, OSPIRG staff and volunteers conducted in-depth surveys of payday loan interest rates and lending practices in two geographic areas with dense concentrations of these lending outfits, the Portland area and Lane County. The Oregonian, The Register Guard and other media outlets covered the reports’ findings that payday loan stores commonly charged annual interest rates reaching 521 percent, and that the loans were often structured to trap borrowers in debt.
For numerous legislative sessions, OSPIRG worked alongside poverty relief advocates, religious organizations, cities and labor leaders to advocate payday loan interest rate limits and other basic protections for borrowers.
When the 2005 Legislature adjourned without passing a payday loan consumer protection bill, reform advocates began the process to put a payday loan interest rate cap on the ballot, and in the meantime, urged local mayors and city councilors to enact payday loan consumer protections at the city level.
Grassroots Support and Local Ordinances Spur Legislative Action
Numerous cities, including Portland, Gresham, Silverton and Eugene, passed ordinances in the fall of 2005 and winter of 2006 to help prevent borrowers from being trapped in debt. Cities also called for statewide interest rate caps, which cities are preempted from enacting at the local level.
Faced with the combination of local ordinances sweeping the state, constant media attention, and a looming ballot initiative, the Oregon Legislature took action. During its two-day special session in April 2006, the Oregon Legislature passed an OSPIRG-backed bill to enact a 36% cap on payday loans.
Following the bill’s passage, however, at least 17 payday lending companies applied for licenses to do business a “conventional consumer finance lenders” which would not be subject to the new law’s interest rate caps. To prevent lenders from evading the new interest rate caps, OSPIRG worked together with groups such as Our Oregon, AARP, SEIU Local 503, Lutheran Advocacy Ministry, Ecumenical Ministries, and Oregon Law Center to advocate a package of bills to extend the interest rate caps to all consumer finance lending.
Central among the package is House Bill 2871, which was signed into law by Governor Kulongoski on June 19, 2007. Under the law, short-term loans from 31 to 60 days are capped at 36 percent annual interest rate, plus a one-time fee limited to not more than $30 or 10 percent, whichever is less. Interest rates on consumer loans over 60 days are capped at 30 percentage points above the federal reserve discount rate.