Mar 18, 2006

Payday Loans: Brading vs. Minnis Brush War

Tuesday,we had the first reading of a proposed ordinance to create more regulation for payday loan shops in Troutdale. All of the usual parties were invited to testify- Oregon Food Bank, Ecumenical Ministries of Oregon, State Sen. Monnes Anderson. That is, all the usual parties were invited, EXCEPT any representatives from the payday loan industry.

Ecumenical Ministries brought in Maryann Olson, who took out a payday loan to buy a pair of orthopedic shoes. Olson, whose story was also featured in Willamette Week , told the Troutdale City Council she didn't read the contract for her first payday loan. In the Willamette Week article, Olson admitted "she did not pay attention to the rate she was paying at first. "Being desperate as I was for the shoes, I wasn't as concerned about the rate as I should have been," she says. "Not until this got out of control did I really look at the forms."

Olson handed out copies of her multiple payday loan agreements to the City Council. On all of the agreements, the first thing that jumped out at me was the large type, bold and shaded line that showed the APR and total finance charge. There was also a statement that said something along the lines of "this is a binding contract. Do not sign unless you understand this contract", or something similar.

Contrary to payday loan shop critics who claim that most people can't pay off their payday loans, nearly all payday borrowers pay their debts. According to the Willamette Week article,

"In 2004, for instance, state figures show that payday lenders collected on about 96 percent of the loans they made in Oregon, —which means the payday borrowers default at about the same rate at those with college loans (4.2 percent, according to federal Department of Education figures) even though they pay interest rates 50 to 100 times higher."

Troutdale's proposed ordinance would require payday lenders operating in the City of Troutdale to receive licenses at an additional fee ($1,500.00 set in a fee schedule resolution).

In addition, it will require payment of a portion of the loan principal paid before renewing the loan, it will give borrowers the ability rescind a payday loan within 24 hours, and it will give borrowers the ability to convert a payday loan into a payment plan. Similar language exists in the ordinances recently passed in Portland and Gresham.

In nearly every article that has been written about payday loan "victims", a common theme pops up: the "victims" didn't read the contract, or didn't pay attention to the contract. Does this truly make them "victims"? Is this the fault of the payday lender?

I realize that people going through financial hardships go through a lot of stress, anxiety and worry. When you're under a lot of stress your decision making and judgement can be clouded. It's what makes us human.

Having said that, I have grave doubts that Troutdale's proposed ordinance will help anyone. If we require payday lenders to add a 24 hour backout" clause, or give borrowers the opportunity to convert a payday loan into a payday plan, HOW WILL THIS HELP FOLKS WHO DON'T READ OR CARE WHAT THE CONTRACT SAYS?, Or those borrowers who simply take out subsequent payday loans to pay off old payday loans? It won't.

My gut tells me that this rush to regulate payday loans in east Multnomah County is just a brush war in the Karen Minnis v. Rob Brading race. These ordinances won't help most of the folks who get in trouble with multiple payday loans.

Brading and the other critics of Rep. Minnis, however, are counting on their exploitation of the so-called payday loan "victims" to generate political points against Minnis.

With a likely state legislative special session coming up in June, and a ballot measure dealing with payday loan interest rate regulation likely to get on the November 2006 ballot, I have grave doubts about the wisdom of spending city money or other resources to enact an ordinance that will have little or no effect on people who fail to read their payday loan contracts.

Even if we pass this payday loan ordinance, it could be rendered obsolete by legislative action in June. This would mean all the money and time Troutdale, Gresham and Portland invested into local ordinances would be wasted.

I agree that payday loan APR's of 400-500% are outrageous and should be regulated. But Portland, Gresham, and Troutdale can't regulate interest rates. There is even doubt as to whether cities have the authority to regulate any lending practices such as Troutdale's proposed ordinance.

This is an issue that needs to be resolved in the Oregon legislature or at the state ballot box via initiative, not on a city by city patchwork basis.

Troutdale city attorney Marnie Allen brought up another point that concerns me- the city's insurance policy does not cover defense of this payday loan ordinance should anyone challenge it in court. And she said that it was likely that the payday loan industry would do so.

The ordinance will probably pass, however. It's the "feel good" type of legislation that politicians like to vote for when they're running for office. It's the appearance of helping the poor, the little guy, the "victim" that counts. It doesn't matter if the poor, the little guy, or the "victim" won't really benefit.

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