Payday Loan Times

Erika Silver is a case manager for Human Solutions, a nonprofit group that works with homeless and very low-income people in east Portland and Gresham.

In The Portland Tribune, she tells the story of one homeless family that found housing with her agency’s help – only to fall victim to payday loans with an astronomical interest rate.

“They are homeless again,” she said. “It’s not supposed to work that way.”

Last spring, Gov. Ted Kulongoski and the Oregon Legislature appeared to fix the problems Silver describes – by approving a bill during a one-day special session that was supposed to curb what critics call payday advance loan lenders’ predatory practices.

But today, Silver still can see five payday loan companies from the door of her Southeast Portland office. And she still hears the stories. That’s partly because the bill won’t go into effect until July 2007.

But it’s also because savings account payday loan lenders have figured out a way around the law.

According to data kept by the state Department of Consumer and Business Services, about one-fourth of the payday lenders registered in Oregon have already applied for a type of lending license that would enable them to escape the restrictions adopted by the Legislature in April.

That’s why advocates for the poor are gearing up for another try.

“We need a uniform cap on all [instant cash loans] in Oregon,” said Angela Martin of the economic fairness coalition of Our Oregon, a union-backed nonprofit. She added that most states have taken a more aggressive approach to protect consumers; the piecemeal approach taken in Oregon “has not worked in any state.”

A spokeswoman for the payday loan industry, however, said the crackdown is misplaced.

“The Legislature in the 1980s decided that money was like any other commodity, and the free market should set the rate,” Luanne Stoltz, of the Oregon Community Financial Services Association, said. “It’s never been my experience that government setting the prices for anything has been to the consumer’s advantage.”

A familiar payday lon debate: If the rhetoric on both sides sounds familiar, it should.

Early this year, amid a push by consumer advocates and several cities to adopt tougher regulations, the then leader of the Republican state House, Rep. Karen Minnis of Wood Village, joined Democrats in adopting Senate Bill 1105, regulating providers of payday cash advances.

Among other things, it set a cap of 36 percent per year on loans offered by lenders who had obtained licenses from the state under its “short-term” loan program.

However, the cap does not apply to the state program that regulates loans for so-called “conventional” lenders.

As David Tatman, an administrator for the Oregon Department of Consumer and Business Services, put it, the law adopted last April left “a couple of loose ends that weren’t addressed.”

He said the current trend, in which 91 of the state’s 354 payday advance lenders have applied for a “conventional” license, “defeats the purpose and the intent of 1105.”

To combat what Tatman called “a cycle and spiral of debt,” his agency is formulating a new package of legislation on behalf of Kulongoski.

Among other things, the not-yet-announced bill would:

• Set up a database to track consumers who take out regular and faxless payday loans. This would enable enforcement of SB 1105’s requirement that consumers take a seven-day break between loans, to stop them from taking out one loan to pay off another.

• Tackle out-of-state Internet lenders by requiring them to be licensed in Oregon to offer non-online payday loans here. One way to enforce this, Tatman said, would be to limit out-of-state firms’ access to Oregon courts if they are not properly licensed here.

• Lengthen the terms of the loans and require that consumer payments slowly pay off the principal, not just the interest. Currently, payday loans sometimes do not require payment of the principal until the very end of the loan’s terms, which can lead to default.

• Require fast cash advance lenders to look at consumers’ ability to repay the loans – something that Tatman said the companies currently do not do.

“A payday lender doesn’t take a look at somebody’s financial circumstances,” Tatman said. “They just say, ‘Well, give me a postdated check and we’ll call it good.’ ”