Oregon needs a rate cap on all consumer loans

From the Statesman Journal, Oregon

MICHAEL LEACHMAN

March 15, 2007

There's an easy way for Oregon to help low-income families in our state be more stable and productive, and to protect middle-income families who get caught by debt problems when, for example, medical bills mount unexpectedly: Oregon could protect these families from irresponsible lenders.

Oregon currently allows most consumer lenders to charge whatever interest rates they can squeeze out of their customers, no matter how desperate those customers may be.

Some Oregonians think that the state Legislature solved this problem last year when it enacted an annual interest-rate cap of 36 percent on payday loans, to take effect this coming July.

Unfortunately, payday lenders have already found a way around the rate cap, even before it goes into effect. Because the rate cap will apply only to "short-term" consumer lenders, payday outfits are avoiding the cap simply by altering their loan product a bit and obtaining a new "conventional" consumer lender's license from the state.

The cap on payday loan interest doesn't protect consumers from other greedy lenders. Car-title lenders, for example, will remain free to charge unlimited rates of interest and fees. Check-cashing outfits also face no limits on their fees; these outfits are not even required to obtain a license from the state.

Gov. Ted Kulongoski has proposed a series of bills to improve the situation. One bill (House Bill 2205) makes it more difficult for short-term payday lenders to avoid the rate cap taking effect in July by morphing into "conventional" lenders. Another bill (HB 2204) extends the 36 percent interest-rate cap on short-term payday loans to short-term car title lenders. A third bill (HB 2202) requires check-cashing outfits to limit the fees they charge to cash government and payroll checks.

Each of the governor's bills won the support of at least two-thirds of the Oregon House of Representatives. They now await action in the Senate.

Low- and middle-income Oregonians can applaud these bills. They would take Oregon a couple of significant steps forward in protecting desperate families from irresponsible lenders.

To fully protect consumers from greedy lenders, though, additional steps are necessary. Most importantly, Oregon needs a reasonable blanket interest-rate cap on all consumer loans. The only way to keep lenders from finding loopholes that allow them to skirt an interest-rate cap is to extend the cap to all consumer loans.

There are now more payday lenders in Oregon than McDonald's and 7-Elevens combined. These outfits are canaries in Oregon's mine shaft, warning us of the dangerous levels of desperation among our families. We can relieve the pressure by cutting down on the profit being made off economically strapped families. It's the responsible thing to do.

Michael Leachman of Portland is a policy analyst for Oregon Center for Public Policy in Silverton. He can be reached at mleachman@ocpp.org.