Payday Loan Lenders Seek Ways Around Cash Advance Caps
By J.J. CameronPayday Loan Writer
As Oregon attempts to set regulations on payday loans, lenders from the business aren't just sitting back and accepting their fate.
A handful of cash loan companies are maneuvering to skirt a state law should take effect for some time next year, state officials say.
The law, passed by the Legislature in its April special session, would allow payday loan lenders to charge a one-time fee of $10 per $100 on small loans plus 36 percent annual interest - a significant cut from rates that now commonly exceed 500 percent interest.
The law, however, applies only to payday advance lenders, who have short-term licenses and typically make small, two-week payday loans for an average of about $300. It does NOT affect consumer lenders, who make longer-term installment loans. The state issues a separate conventional license to lenders who make loans for longer than 60 days.
In response, no credit check payday loan lenders could buy conventional licenses and, as some car title lenders already do, restructure payday loans into small installment loans that exceed the 60-day limit of a short-term loan. Already, sixty-six payday lending stores have bought conventional licenses for just such a reason.
Interest cap proposed: Meanwhile, the Department of Consumer and Business Services expects to propose legislation to cap annual interest rates for conventional loans at the same 36 percent level as payday loans, Director Cory Streisinger told a Senate committee in May.
Payday loan lenders are exploring what "other products we can offer" because the state's new law will destroy their businesses when it takes effect in a year, said Luanne Stoltz, owner of two pay day loan stores and vice president of the Community Financial Services Association, which represents the payday loan industry in Oregon.
Stoltz said, instead of going for a consumer loan license, she instead will close one of her stores in about five weeks and the other when the lease runs out.
Cash advance lenders didn't go away when Illinois passed a reform law last year that capped interest and limited loan periods to a maximum of 45 days. Now many lenders there are buying different licenses that allow them to make installment loans at high interest rates exempt from the reform law, said Linda DeLaforgue, co-director of Citizen Action Illinois, a statewide public interest group.
The high-interest lenders "morph into other things," she said. "You cut off one tentacle, and they just grow another one."
Aware that this may happen in Oregon, consumer, church, political and social service leaders plan to press the Legislature for more action next year for a lot more action regarding online payday loans and other resources.
"We already know the industry is looking for loopholes," said Angela Martin, economic fairness director for Our Oregon, a nonprofit progressive group in Portland. "We've got to look at a cap on all consumer loans."