Kia Franklin

Oregon Puts Checks on Pay Day Pillaging

I'm feeling very optimistic today for consumer protection: Oregon has enacted legislation to protect consumers against predatory lending practices, focusing on pay-day and auto title loans that impose interest rates as high as 500% APR. Go Oregon!

Check out the Consumer Law and Policy Blog for details. The author spots potential holes left in the law that would allow for further exploitation of the dollar-distressed, but the changes made definitely affect consumers for the better.

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Posted at 4:09 PM, Jun 21, 2007 in Consumer Rights | Legislation
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I have no doubt that some of these loans are abusive. But banning them also has a down side-- that the working poor will not be able to obtain short-term unsecured loans at all.

Posted by: Elliot | June 22, 2007 12:19 PM

Thanks for your comment! I agree that it's really important to make sure that pro-consumer ideas actually translate into pro-consumer (especially pro-poor consumer) realities. This is a point that, surprisingly, often doesn't get due attention.

Banning quick loans completely would be bad for people who are in a tight spot and just need to make use of the service. But my understanding is that this legislation doesn't ban them; it only limits the extent to which these loans take advantage of people.

So the bill's features (in my very, very simple break-down... see the article for more detail): 1) Restrictions on payday and car title loans that Oregonians enter into by phone, internet, or mail, even from out of state lenders. 2)Interest rate cap of 36% apr (plus up to 10% origination fee), minimum loan period of 31 days, and only two renewals allowed for these loans. 3) Interest rate cap on all consumer finance loans (not just payday and car title loans) with principal amounts less than $50,000. Lenders that are not payday or car title lenders cannot charge an origination fee.

But you're right that the legislation will effectively curb profits, and the industry is pushing back, arguing that it will take them out of business. The Consumer Law and Policy blog author, Scott Nelson, makes the point that they'll still be able to charge triple digit interest rates in some instances and should have no problem making profits. But if the drop in profits is significant enough, we have to make sure there are sound alternatives for people who need these loans.

Posted by: Kia | June 22, 2007 4:11 PM