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Oregon gets tough on cash advance loans
New law tries to curb predatory lending?
After months of wrangling, Oregon legislators have passed a tough new law that puts some serious regulations in place regarding payday loans. It remains to be seen if it will be effective, as many lenders have found workarounds in other states.
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Quick cash loans now cheaper in Oregon - maybe
The state of Oregon has just passed a tough new law intended to dramatically reduce the number of payday loans offered within the state by imposing some lending restrictions that will probably make such lending impractical. The new law, which takes effect in July 2007. restricts interest rates on such loans to 36% per year, a fraction of the amount currently charged in practice.
Payday loans, also known as quick cash or cash advance loans, are short term loans, usually of two weeks in duration. The amounts lent can vary, but typically range from $100-500. The lending institution, usually a payday loan store rather than a bank, charges fees that can vary from $15-35 per $100 borrowed. On an annual basis, these fees are the equivalent of 400-1000% interest per year. The lending industry defends the practice, saying that they offer only to willing customers that can demonstrate that they have a job and can repay the money. They also point out that the loans aren’t offered for more than two weeks, which makes comparisons with annual interest rates irrelevant.
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That may be true, but the lenders do tend to issue more loans to the poor than to the rich, and stories of loans of hundreds of dollars that turned into debts of thousands of dollars are common. The new law hopes to put a stop to that by implementing the following restrictions:
- The maximum interest rate allowed would be 36% per year.
- Currently, borrowers can keep a loan for another two weeks by paying the interest a second time and may do this up to three times. The new law would permit customers would be allowed to “roll over” or retain a loan only twice.
- The new law will permit borrowers to take up to 31 days to repay their loans, rather than two weeks.
In Oregon, as in most states, the number of stores offering such loans has exploded in the past five years as Republican legislatures all over the country roll back lending laws. Some states now have no interest rate caps at all. What citizens of Oregon may find out is that the law may not prevent such high-interest lending. The high default rate on these loans doesn’t make them all that profitable at 36% per year, but in other states, lenders have found ways to work around restrictive lending laws. They simply arrange financing through banks located in states that permit higher interest. In Oregon’s case, lenders may soon be offering loans through South Dakota or Utah banks, thus skirting the law.
It seems far more likely that lenders will try to go this route than they are to offer loans at 3% per month. Then again, it may not be necessary, as the industry lobbies the legislature heavily and there is a great likelihood that the law will be addressed again in next year’s legislative session.
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