Payday lending still pays

Loophole in new loan rules means little change for industry, consumers

By Nick Budnick

The Portland Tribune, Dec 15, 2006, Updated Oct 30, 2009 (18 Reader comments)

JIM CLARK / PORTLAND TRIBUNE

Erika Silver of the nonprofit Human Solutions can see several payday loan businesses from her office, near Southeast 122nd Avenue and Powell Boulevard. Advocates for the homeless and low-income people say the firms have found a way around recent legislation aimed at curbing lending practices seen as predatory.

Erika Silver says she sees the impacts of payday lenders.

A case manager for Human Solutions, a nonprofit group that works with homeless and very low-income people in east Portland and Gresham, 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 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. In part that’s because the bill won’t go into effect until July 2007. But it’s also because payday 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 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.”

We’ve been here before

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 payday lenders.

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 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:

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