SALEM—In
a victory for consumers, Gov. Kulogoski today signed a bill into law
today that will give consumers new protections from payday loans’
previously unlimited interest rates and fees.
“OSPIRG
applauds Gov. Kulongoski for signing, and the Oregon State Legislature
for passing, consumer protections regarding payday loans,” said Laura
Etherton, Consumer Advocate with Oregon State Public Interest Research
Group (OSPIRG), “This action sends a strong message to payday lenders:
Gouging consumers with 500% interest rates and trapping borrowers in a
cycle of debt are unacceptable practices in Oregon.”
Payday
loan outfits sell short term, high interest rate loans to
cash-strapped. The new law sets limits for the first time in Oregon on
payday loans interest rates and fees, setting a maximum rate of 36%
APR, allowing a one-time 10% loan origination fee, and giving consumers
a full 31 days to repay a loan.
Recent
OSPIRG surveys in Portland and in Lane County found that these outfits
commonly charge exorbitant fees and interest -- commonly more than 521%
APR, and some even topping 1000%APR . In addition to high interest and
fees, the studies found the loans trap consumers into an unending cycle
of debt. For example, consumers aren’t allowed to pay in installments
and face a system of rollover charges that don’t pay down the loan
principle.
In
a typical payday loan, a consumer must write a post-dated personal
check for $360 to borrow $300 for two weeks. If the consumer is unable
to repay the entire loan on the due date, he may “roll over” the loan
to extend it for another two weeks, for another fee of $60. If he rolls
over the loan the three times allowed in Oregon, the borrower pays $240
in fees and owes $300 in loan principal. To keep up with the mounting
fees and inescapable debt, a consumer may even take out additional
payday loans to pay off the first.
“Borrowers
take out a payday loan to buy groceries or pay bills, but after paying
fee after fee, they find themselves in a much worse situation than
where they started, and trapped in debt,” said Etherton.
With
widespread media coverage and rising public awareness of unfair payday
loans practices, momentum has grown for meaningful reform. After the
2005 Legislative Session adjourned without passing limits on the loans,
Oregon cities such as Portland, Gresham, Troutdale and Silverton began
passing ordinances to provide local consumer protections and to call
for a statewide interest cap. At the same time, citizens began
gathering signatures to put a question before voters on the 2006 ballot
to enact consumer protections.
“OSPIRG
applauds the legislative leadership for making time during the special
session to enact these reforms,” said Etherton, “We commend each and
every legislator who voted for this important bill.”
