We applaud the recent Portland City Council decision to impose regulations and fees upon the 69 payday lending stores within the city limits. There's a reason that the Bible forbids usury and a reason that laws are in place to protect consumers from predatory lenders — the combination of desperate borrowers and exorbitant interest rates benefits only one side of the equation: the lender.
The council voted to charge each payday lending store a $1,500 annual permit fee, and required lenders to offer borrowers a payment plan — with no fees or penalties — if they have trouble repaying a loan. In addition, the new law gives borrowers the right to change their minds and opt out of a loan, provided they do it within 24 hours.
Perhaps most importantly, the law removes lenders' most pernicious tool — the ability to "roll over" the principal and interest for another pay period if the borrower can't pay. This allows the lender to charge an additional loan fee — typically $20 per $100 borrowed — and charge interest on the new balance. On a standard two-week loan, this adds up to a 521 percent annual interest rate — hardly the mark of a good Samaritan. The new city law would prohibit a rollover unless the lender collects at least 25 percent of the principal first.
And given that payday lending stores are most often located in poorer parts of town — it's easier, after all, to find a down-on-his-luck borrower in a low-income neighborhood — the new city law takes an important step in protecting poor and minority borrowers from situations that can quickly get out of hand.
Just how out of hand can things get? The Skanner has written of borrowers who quickly find themselves hundreds of dollars further behind after a short-term loan is rolled over a few times and are in a hole deeper than the one that prompted them to borrow in the first place. Some even go to another payday loan outlet to pay off the first. Talk about borrowing from Peter to pay Paul.
While the city doesn't have the power to regulate interest rates, the law is nonetheless a positive move. The state Legislature — which can regulate interest rates — is investigating regulations for payday lenders throughout the state. Voters may get a chance to weigh in, too. An initiative is circulating for the November ballot that — if it garners enough signatures to make the ballot and is then passed by voters — would limit annual interest on payday loan extensions to 36 percent, forbid loan terms of less than 31 days and cut payday loan fees by half.
Congratulations to the council for addressing this pressing issue. The city commissioners have clearly heeded the Bible's message about looking out for the least among us. The city councils of Gresham and Troutdale are considering enacting similar laws, and we hope they and other city governments in the area will follow Portland's lead.
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