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Time for limits on payday loans

A bill before the Legislature would impose reasonable caps on interest

It's time for Oregon to join its neighbors in limiting the interest and fees so-called payday lenders may charge customers for short-term loans.

Payday lending businesses have proliferated in the state since Oregon removed limits on loan interest in the 1980s. But the growth of this industry has been especially rapid in the past few years.

In 1999, when similar legislation was proposed, there were fewer than 200 payday loan stores in the state. Now there are 323.

Payday loans require only proof of employment and a personal check postdated for the day the loan comes due. Lenders charge interest of 15 percent or more for the service.

In principle, there is nothing wrong with issuing short-term loans to people who need cash between paydays and charging them interest on the money loaned. Clearly the service is in high demand.

In practice, the people who need these loans the most are also the most likely to find themselves unable to pay back the loan on payday. The lender then renews the loan for another two-week period and tacks on an additional fee.

— Interest rates on these loans, when figured annually, can range from 300 to 600 percent.

Existing law already limits renewals to three. But it places no limit on the fees and interest the lender can charge.

A bill now before the Legislature would limit the interest rate to 15 percent, and prohibit any fees other than interest. Interest on renewals would be limited to 10 percent.

Also, the bill would set a minimum term of 31 days for payday loans, and renewals would not be allowed unless the borrower repaid at least 25 percent of the principal plus interest on the remaining balance.

The payday loan industry claims the legislation is unnecessary. We've had very, very few complaints, industry spokesman Thom Shauklas said.

Complaints? From people who owe you money and can't pay it back? What a surprise.

The fact is, Washington and California have similar limits on the books, and payday lenders there are doing just fine, thank you.

Shauklas argues that the marketplace should determine how much people are willing to pay for a short-term loan. That argument might hold water if payday loan customers had anywhere else to turn. Most don't.

According to a state survey, three quarters of borrowers have been turned down for other credit. A person with no options isn't likely to argue over the terms when he needs money for gas to get to work, groceries for his family or electricity for his home.

The proposed limits on interest and fees are reasonable, and will protect the most vulneable Oregonians. The Legislature should adopt them without further delay.