A Senate committee approved two bills Wednesday afternoon that would block attempts by providers of payday loans and car title lenders to circumvent new caps on high interest rates.
The bills, already passed in the House, would tighten restrictions on conventional consumer loans and limit annual interest and fees on a consumer loan under $50,000 to 30 percent above the federal reserve discount rate, which is now 6.25 percent.
They now go to the Senate floor for a vote, with the Senate Commerce Committee’s recommendation of support, and then back to the House for a concurrence vote on amendments. Gov. Ted Kulongoski has said he will sign both fast payday advance bills if they pass.
Car title and payday lenders now charge triple-digit interest rates on small, short-term loans. Payday lenders on average charge 528 percent annual interest. Regulations passed last year by the Legislature and other bills now moving through the Senate would restrict payday and car title lenders to an initial fee of $10 per $100 of a small loan.
They could charge no more than 36 percent interest on renewals or rollovers of the faxless payday loan.
But those restrictions, which will take effect July 1, apply only to loans made under short-term licenses commonly used by car title and payday lenders. In the last 12 weeks, 138 of the state’s 360 payday lending stores have applied for a conventional consumer license, a different license that would allow them to operate outside the new regulations.
The two bills passed Wednesday by the Senate committee would close that loophole. House Bill 2205 makes the conventional license impractical for short-term personal cash loan lenders, as it requires 90 percent of their loans to be for at least six months. It would also require the lenders to use underwriters, undermining one of the appeals of payday and car title loans: no credit checks.
House Bill 2871, sponsored by House Speaker Jeff Merkley, D-Portland, would put an across-the-board cap on annual interest and fees for all consumer loans under $50,000 set at 30 percent above the federal reserve discount rate. The committee changed the lid from a flat 36 percent to a flexible rate tied to the federal reserve discount to avoid penalizing traditional lenders should interest rates soar as they did in the early 1980s.