Close lender loopholes.

Byline: The Register-Guard

It didn't take long for payday lenders to figure out how to circumvent a new state law that cracks down on the exorbitant interest rates that the industry uses to prey on Oregon's poorest and most vulnerable citizens.

At least a fourth of the state's payday lenders applied for a different license that enables them to continue charging annual interest rates averaging a piratical 528 percent. Fortunately, it didn't take long either for state regulators to figure out how to block payday lenders from dodging the new restrictions.

In a special session last April, the Oregon Legislature passed a law limiting charges on short-term loans to $10 per $100 on original loans and no more than 36 percent annual interest on subsequent roll-overs, which were limited to two. However, those restrictions, which will not take effect until next July, did not apply to conventional lenders who issue longer-term installment loans.

Like rats leaping from a sinking ship, payday lenders across the state began shifting to conventional licenses. While such licenses required longer terms for loans, they still enabled lenders to continue charging shamefully high interest rates.

Enter the Oregon Department of Consumer & Business Services. The state agency last week issued new rules requiring the lenders to make 90 percent of their loans for periods of six months or longer and to take credit and employment histories to verify that borrowers are able to repay loans. The lenders also will be required to employ at least one manager with a minimum three years of experience in traditional lending. In other words, they will have to operate more like traditional lenders and less like loan sharks.

Not surprisingly, payday lenders are squealing that the new rules will drive them out of business. That's the same thing they said when state lawmakers finally were shamed into limiting interest rates - a move that came after cities across the state began adopting their own local ordinances and a statewide coalition of religious groups and charities was preparing to put a statewide initiative measure on the ballot.

The payday lenders didn't go out of business, of course. Instead, they started looking for loopholes - and that's precisely what they'll do this time. Unfortunately, there are still plenty of legal loopholes in Oregon that allow lenders to gouge the poor. For example, some lenders may attempt to skirt the new rules by offering borrowers high-interest lines of credit, as they have in several other states that have adopted tough rules on payday loans. Nor has it escaped some lenders' notice that Oregon's new limits do not apply to car title lenders, who routinely charge more than 300 percent interest on small loans secured by titles to borrowers' cars.

State regulators plan to introduce legislation next year that would extend the 36 percent cap to car-title, out-of-state, Internet and other lenders. That's a good idea, although the most effective solution may be to impose a blanket interest-rate limit on consumer loans of any type. It's hard to think of a good reason why any lender should be allowed to charge predatory interest rates in Oregon.