Paying 521% on a loan?

OSPIRG today released a new report on payday loan shops in Portland. They found that the average loan interest rate in Portland is 521%.

In a typical payday loan in Portland, to borrow $300 for two weeks or less (until payday) a consumer writes a personal check for $360. At the end of the initial period, the consumer often "rolls the loan over" or pays an additional $60 to carry it for two more weeks. As most lenders charge a flat fee based on the loan amount, a loan for less than 14-days can carry even heftier interest rates, which can approach and exceed 1000%.

It's an outrage that these kinds of predatory lending practices are allowed to flourish in our fair city, says OSPIRG staff attorney Shannon Callahan:

"Payday lenders have preyed on our fellow citizens long enough. It’s time for policymakers and regulators to protect consumers by reining in the predatory practices of payday lenders.”

Previously on BlueOregon, contributors Chuck Sheketoff and Jeff Bull have documented the role of Oregon right-wing leaders in protecting this predatory industry.

Discuss.

Comments

  • Sid Leader (unverified)
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    Wanna shut these @ssholes down?

    Google the list of sleazy money stores and their $$$$$ campaign contributions and write the Oregon lawmakers, yes, even when they are in Jamaica or rehab until the next session.

    Wirth is at Hazelden, Hass is in Negril, I believe.

    None of them is working, at all, anywhere, so it's no bother, really!

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    we have all we need to oppose Minnis, but she stopped the legislation to control these bastards. clearly she has the well being of Oregonians high on her agenda.

    (btw, Wirth is not a lawmaker anymore, as of 5pm monday. keep alert.) (you'll never know when you'll need a good lert in times of emergency)

  • sasha (unverified)
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    What's the implied interest rate on a $25 overdraft charge for a $15 bounced check? How is that any different than what the payday loan people are doing?

    All they will do is charge fees instead of interest, you morons. Let the market work. Sure the payday loan crowd is sleazy, but when you try to regulate them away, they change how they operate to comply - and you end up with a host of unintended consequences from whatever regulatory structure you adopt. Not to mention yet another bureaucracy to go enforce the whole thing.

    Liberals never do understand the unintended consequences..... and sure as heck never come up with a coherent framework for what is and what is not a proper exercise of government powers.

    People who use payday loans don't need your well-meaning help. They are not helpless- they are making choices, which you think aren't smart and/or valid, so you try to stop them by making their choices illegal.

    Elitist and patronizing, but heck, those are just synonyms for liberal.

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    Sasha--

    You obviously don't understand the situation.

    First, banks are regulated as to how much they can charge for that bounced check. Payday loan places are not.

    Secondly, a bounced check fee is a fee that is set up front. It's not interest-- it's a fee. What a payday loan place charges is not a fee-- it is interest. This is why they post a sign showing what the annual interest is on the loan-- something that isn't obvious to people when they're only taking out a loan for a short period of time.

    This isn't about regulating them away. Plenty of states have regulated them and the payday loan industry is doing just fine.

    What these places like to do is cash your check early-- so if the set date for cashing is the 15th, they'll cash it on the 10th without warning.

    It then bounces, causing a fee at both the bank and the payday loan place. They'll put it through again and again-- and unless you check your balance online every single day, it may be 2-3 days before you find out about the bounces through the little slip you get in the mail.

    By then the payday loan place may have racked up quite a bit of extra fees for themselves, plus messed up your bank account. Chances are the bounced check fees have drained your account enough so that now other items are bouncing.

    Come payday you don't have enough money to pay the loan (since they racked up so many fees, and you can't make a partial payment), so you have to roll over the loan.

    And what do they do? They try to cash the check a few more times.

    All the while they're racking up all kinds of extra fees and interest for themselves.

    Then when you can't pay they file against you in the local court and get the ability to garnish your paycheck. And of course they add on even more fees.

    By now you've paid more in fees than you ever borrowed.

    And no, often times these people don't have choices. Well, maybe the choice of a place to live or the street; needed medicines or a place to live; fix your vehicle and have a way to work or walk hours to get to work. These are people who often make so little that they live paycheck to paycheck. An illness comes up and they're hit twice-- the cost of doctor/ER and medicines on top of the missed work. These people don't make enough for a rainy day fund. If they had a little extra money, chances are it would mean they could afford to not go hungry quite so often or eat better quality food.

    These are typically not people who just go out and blow their money and now need to pay their rent.

  • theanalyst (unverified)
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    sasha writes: "People who use payday loans don't need your well-meaning help. They are not helpless- they are making choices, which you think aren't smart and/or valid, so you try to stop them by making their choices illegal."

    I have to wonder, where are the conservative Christians on this issue?

    We don't hear about it today, but one of the main themes in the Bible is the prohibition against usury. Obviously a modern society relies on lending money at interest, but the biblical tradition clearly denounces exploitation of the poor through usury or through any other means. While some, such as sasha, dismiss this as a "liberal" concern, the Bible does not. Without belaboring the point, I found 15 references in the Bible that either extoll the virtue of not charging interest, or that condemn the charging of interest.

    So the exploiting of the poor through usury is consistently condemned in the Bible. This understanding of usury continues into the Christian tradition in the writings of Clement of Alexandria, Tertullian, Commodianus, Cyprian, Lactantius, and the Apostolic Constitutions. For example, Commodianus writes "You have lent on usury. taking twenty-four percent! . . . The Almighty absolutely rejects such works as these."

    Commodianus wrote in the third century CE, and at that time 24 percent interest was considered outrageous. Again, where are the Christians and the "people of faith" on this issue?

  • Tom Civiletti (unverified)
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    It's difficult for liberal humanists to understand the subtleties of fundamentalism. All of the Bible is literally true, but some parts are more literally true than other parts. So, homosexuals and fornicators will surely burn in hell, but usury and mixed fiber clothing are no problem. Eating shellfish is okay, but it might make you sick. This is why fundamentalists need leaders like Pat Robertson: to tell them which parts of the literally true Bible to ignore.

  • Bill Bodden (unverified)
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    If you would prefer a secular opinion instead of the commendable biblical references above, consider Aristotle's opinion of usury: "The most hated sort of wealth getting and with the greatest reason is usury, which makes a gain out of money itself and not from the natural object of it. For money was intended to be used in exchange but not to increase at interest."

    As for sasha's callous assessment about victims of usury being responsible for their predicaments we might give some thought to the old saying about "[t]here but for the grace of God, or the gods or the luck of the draw go I." Not all people are endowed with sasha's superior intellect. Shakespeare was only half right when he had one of his characters say, "Frailty, thy name is woman."

  • Jeremiah L (unverified)
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    Jenni Simonis,

    Payday loan establishments wouldn't find it fruitful to charge interest. Too much time would go into clerical duty that way. The majority of them charge fees, to make them seem more okay to people getting the loans, but they're required to post it in form of interest. That's why the x<14days loans are higher in interest than the x>14 day ones. The fees are the same, just packed into tighter periods, so the effective rate is higher. It seems like you're basing this on personal experiences with a particular store.

    I was thinking about starting a place like this, honestly, and doing it more honestly. Not only would I still have been making money, the lower rates would've attracted more people. That said, I think fee caps would be more effective than more rollover caps. If someone takes a payday loan out and can't pay it off, it won't matter if they take out another one or not, they won't be able to pay it off.

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    Actually, when you talk to the people in the stores, they specifically state that the "fees" are in actuality interest on the loan.

    What they've done is put it into terms that people can easily understand, such as $20/$100 borrowed. If you roll it over, you pay the "fee" again.

    It would be no different than a bank whose interest is 7% telling you that it'll cost $7/$100 if it's paid within a certain time frame. They just perfer to stick with percentages, as many people don't do well with them and won't figure out what the actual interest paid in total will be.

    Everything in the payday loan places is based on a 14-day period-- their "fees," how much annual interest that amounts to, etc. They've just put it down into set numbers per $100 borrowed.

  • Brian Simmons (unverified)
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    What no one has mentioned yet is the reason payday loan places charge such high interest levels. They're not necessaruly trying to profit from others' misfortune, but rahter they're dealing with a substantial amount of credit risk. To hedge against losses from those who never pay back the loans, they have to charge more for everyone.
    People who use short-term payday loan services tend to be a credit risk, and as a result, are going to be subject to higher interest rates no matter where they go. So long as these loan services state the terms and conditions of the loan up front, they have done their job, and it is up to the consumer to decide whether or not the cash advance is really worth it. I've seen several of these outfits pop up in the past few years, so they're obviously providing a service that was in high demand, but not previously available.

  • lola (unverified)
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    Brian, you are making a lot of assumptions about the risk levels involved in payday loans, thus justifying the high interest rates and the other predatory lending practices the payday lenders use. But check out the article below from Motley Fool. The president of the nations largest payday lender, Advance America, characterized the risk level involved in payday lending at a 2% default rate.

    http://netscape.fool.com/news/commentary/2005/commentary05072907.htm

  • Bill Bodden (unverified)
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    Earlier this year after the banking industry had purchased legislation from Congress to make usury and other abuses legal, David Reinhard of The Oregonian wrote a column decrying usury. If Reinhard was moved to write a column criticizing usury by banks and the Republican wing of our corporatocracy in Congress that made this legal then it had to be really bad.

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    Brian--

    Actually, the vast majority of people do indeed pay their loans off. The people that default are sued and their paychecks are garnished. Even if it takes years, the companies make sure they get their money through garnishing your checks multiple times.

    And for some of these people, their car's title is on the line. Don't pay and you lose your car.

    Banks have offered this service, but the number of banks who do this is not very large. Most want to just focus on the bigger loans-- cars, mortgages, business, etc.

    Wells Fargo offers a similar service for those with direct deposit. You can borrow against your next deposit at a cost of $2/$20 borrowed. Wells Fargo automatically takes it out of your next check. If your paycheck isn't enough to cover it, they take the entire check and then the remaining balance out of your next one. They don't take an extra fee for having to wait extra time for their money.

    Thus far it's the only bank I've seen that has that available, although people I've spoken with at Bank of America think it's a great idea and say they'll bring it up at the next meeting where they discuss possible new services. After all, who hasn't had an expense come up between checks (especially after just paying all your bills/rent/mortgage)? It'd be nice to be able to get an advance on your next deposit so that you can replace your tire, go to the doctor's, etc. and not worry about getting ripped off by a payday loan place.

    This has absolutely nothing to do with them having a high default rate. This has to do with them providing a service they know is needed by many poor people and then charging them outrageous interest for it. In states where they've been regulated, they still continue to give loans to the exact same people they did before-- and profits are doing fine. They're just not as high as they were when they were changing 500%+ interest.

  • BlueNote (unverified)
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    I thought we liberals/progressives/Democrats were for freedom of choice, freedom of speach and freedom of action. I am. Laws that attempt to protect people from their own choices and their own poor judgment have been a horrible failure and I hate to see my leftie friends jump on this particular bandwagon. What's next? Why not outlaw the sale of liquor to poor people? Alcohol causes a heck of a lot more problems than rip off interest rates on short term loans. Social engineering is bad! Freedom from government interference is good!

  • Tom Civiletti (unverified)
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    Well, BlueNote, while progressives generally agree with libertarians on social issues, they diverge on the matter of business regulation. Limitations on interest charges have a long history and are common.

    Social engineering is not necessarily bad.

    There are, by the way, laws against selling alcohol to drunk people.

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    BlueNote--

    I don't know why people keep harping on bad decisions and judgement.

    What is a person to do if they suddenly need surgey and have to put down their $150 co-payment first? People who live paycheck to paycheck don't have this kind of money.

    And not everyone who is poor is there because of bad decisions/judgement. A lot of people have lost high paying jobs over the past 5 years and have been unable to replace them with jobs anywhere near what they were paying. Unemployment numbers going down don't show the true story-- many people are now underemployed.

    There are also those with health problems that don't qualify them as disabled, but they can't hold down a job because the health problem makes them miss too much work. There are a good number of people who fall into this category. They end up doing odd jobs here and there, holding down a job temporarily while they have some "good days," etc.

    For many people payday/title loans are their only option if something unexpected comes up and they need money right away. We're not suggesting that they be done away with. What we're suggesting is that they be regulated so that they can't make up the rules as they go along and purposefully put people further in debt.

    Payday loan places know exactly what they're doing when they put through your check before the agreed upon date-- they'll get more fees out of you. You'll have to pay returned check fees to them (which are more than they pay the bank for it), a rollover fee since you'll not have enough to pay back the loan since they cost you fees on your bank account, etc.

    Regulating the industry won't stop people from getting the loans, as for many people there is a legitimate need for short term loans. What it will do is keep the industry from ripping people off.

  • Jon (unverified)
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    I have to wonder, where are the conservative Christians on this issue?

    We don't hear about it today, but one of the main themes in the Bible is the prohibition against usury. Obviously a modern society relies on lending money at interest, but the biblical tradition clearly denounces exploitation of the poor through usury or through any other means. While some, such as sasha, dismiss this as a "liberal" concern, the Bible does not. Without belaboring the point, I found 15 references in the Bible that either extoll the virtue of not charging interest, or that condemn the charging of interest.

    Applying this today wouldnt work since it has "Christian" or "bible" attached. The ACLU (and most Progressives I would think) would cry foul if rules were applied based on that religion. (except of course for Muslims....some lenders already have special plans now that give them "no-interest" home loans because of similar religious beliefs regarding paying interest. But this is just fine and dandy. Go figure.)

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    I don't think the idea was basing rules on the Bible.

    I think the person was pointing out the hypocrisy of them not being vocal against something like this to which Jesus was so vocally against.

  • BlueNote (unverified)
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    Isn't regulation of short term loans just a means of addressing one symptom rather than trying to solve the core problem? It is tragic that some people need to go to legalized loan sharks to cover their food or medical bills. Rather than worry about the loan sharks, I would rather work to fix the fact that the "richest country on earth" has citizens who are too poor to eat or to go to the doctor. There are a million examples of people who take advantage of the poor. Ever check out those used car operators on 122nd or 82nd? They take a car they bought at wholesale for $1500.00, sell it to someone with poor credit for $4000.00, require a down payment of $1000.00 and then charge you 30% interest on the $3000 remaining balance for 5 years. I think they make more money than the short term loan guys, especially when the buyer misses a payment or two, the dealer forecloses on the car and then sells it again to the next victim / customer.

  • Jon (unverified)
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    I think the person was pointing out the hypocrisy of them not being vocal against something like this to which Jesus was so vocally against.

    I think they probably are, but most realize that being "religiously vocal" in today's society is taboo. Its not hipocrasy, they just get tired of being told to shut up and butt out. (except of course for the nutcases like Pat Robertson and Jerry Falwell, who say whatever pops in their swelled head and make real Christians look bad.)

    The problem is that you would have to find a lender who feels equally. Unfortunately, lenders are more interested in making money. And they wouldnt be in business if they didnt.

    Churches used to be the first place to go when someone needed food or other help. But nowadays, the gubmint has the long lines.

  • Jon (unverified)
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    Ever check out those used car operators on 122nd or 82nd? They take a car they bought at wholesale for $1500.00, sell it to someone with poor credit for $4000.00, require a down payment of $1000.00 and then charge you 30% interest on the $3000 remaining balance for 5 years. I think they make more money than the short term loan guys, especially when the buyer misses a payment or two, the dealer forecloses on the car and then sells it again to the next victim / customer.

    1. As long as the $4,000 is the fair market value of the car, thats not a problem. And if you agree to pay more than FMV, you get what you deserve.

    2. A down payment is a show of good faith to the lender. (although you can still get a good loan without one.) Besides, they would be paying the 30% interest on $4,000 if they didnt make the down payment.

    3. As for the 30% interest, I bet its not the dealership carrying the loan. They work with companies like Reliable Credit of Portland, who routinely charge high interest rates (as high as 50%) for auto loans. I found out the hard way, many years ago my first car came from a similar dealership on McLoughlin, who sent the loan thru Reliable. I paid 32% interest. But in the end, I signed the form, and agreed to pay that. Thats how it works. Nobody is forced to do anything.

  • Bill Bodden (unverified)
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    Blue Note wrote: "I thought we liberals/progressives/Democrats were for freedom of choice, freedom of speach and freedom of action. I am. Laws that attempt to protect people from their own choices and their own poor judgment have been a horrible failure and I hate to see my leftie friends jump on this particular bandwagon."

    Laws have been protecting people from their own choices and their own poor judgment from the time they were children until they died. Laws laid down by parents kept most kids from getting in trouble. Traffic laws keep people from driving in ways that would endanger their own lives. Certainly there are many people that ignore laws and sound advice and probably deserve suffering from the consequences they get themselves into, but that is not always the case. It's against the law for con-artists to rip off people. Should we scrap that law and tell some octogenarian who fell for a con job that she made the decision herself and that's her problem? It should be against the law for loan sharks to charge usurious rates whether they call them fees or interest or easy money.

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    on the theory of some contributors to this thread, we should go ahead and dismantle the FDIC as well. Why should we protect people from their poor choice of lending institution or inpropitious decision to invest during a bank run? If you put your money in a bank that mismanages it--heck, no one FORCED you to use that bank!

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    ...and the FDA, and the FTC, and the SEC, and the...

    I sure do love the right-wing wacko view that everyone can make their own choices and damn the idea of regulating any industry.

    Except abortion clinics.

    And prime-time television.

    And unions.

  • Tom Civiletti (unverified)
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    Hey, BlueNote, I'm with you in wanting to address the root causes of poverty in a rich nation. Many people have been working on that for several centuries. It's hard work, as the exalted Shrub often says. As much as I depise such things, I'm afraid it may take the construction of guillotines in city squares before the the required economic reforms are realized.

  • BlueNote (unverified)
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    I don't necessarily fit the category of right wing wacko. I am a former Dem. precinct committee officer and I gave lots of my hard earned money to Dem. candidates last year. Planned Parenthood is my wife and my largest single charity. I hate Republicans in general.

    Yes, I agree we need a safe and sound banking system, stock market, and legal system. Yes, I like the fact that the government prohibits the unlicensed sale of explosives or poison, and I like safety regulations that keep me from being electrocuted in my hot tub and I like land use regulations that keep my neighbor from erecting a crematorium in his back yard. But once you move down to the level of regulating interest rates on 14 day loans, I personally believe that the government has gone too far.

    Which is more dangerous to society, the 14 day loan at 300% interest or the bag full of 2000 calorie burgers from Carls Jr. that you could buy for your kids with the money you borrowed? Should burger calorie content be regulated by the government? I say no, but I think some of you would say yes. Just a difference of philosophy I guess.

    What happened to the concept of learning from your (non-fatal) mistakes? Is that a Republican viewpoint? I like the saying that "that which does not kill me makes me stronger". When I was a starving student I used pawn shops near campus to get money from time to time (usually for unhealthy weekend partying purposes). I lost some stuff and I paid a lot of fees, but I eventually learned that it was a bad idea to let my finances get to a place where I needed to go there to borrow money. What's the harm in allowing others to learn the same lesson?

  • Bill Bodden (unverified)
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    Blue Note: You are into rationalization of a simplistic theory based on the narrowness and limits of your own experience that you are trying to apply to the rest of the world. It is human to err but inhuman to punish someone mercilessly for shortcomings that may not be entirely his or her fault.

  • Jeremiah L (unverified)
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    Bill B: I don't see how high interest for an unnecessary service could be counted as any form of punishment, let alone for any sort of shortcomings. When I last researched the prospects of check-cashing/payday loans, many people using these services aren't the poor person, or the average person. There are just as many well-off people taking these as any other person. Now, not well off like doctor well off, but well off like upper middle class.

    I still don't think taking the time to regulate these businesses is a good use of time or of money. Since someone mentioned banks that offer similar services, why don't we just try to push more banks to open similar services for low amount loans? I'm sure if banks realized they could be taking even a fraction of the business away from the loan stores, they'd be happy with it.

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    The times I've been in payday loan places and listened to people getting their loans, not a single one of them made more than $10/hour. And that's based on several dozen people I heard getting loans.

    Everyone I've known who has ever gotten one here or in Texas did not make more than $10/hour.

    The numbers I've seen in studies regarding the payday loan industry showed that the vast majority of people using this service made well under $30K per year.

    <h2>Well off people do not typically use this service, as they have credit cards that they can get cash advances from, can get a title loan from their bank because their car is newer (has to be less than 10 years old for a bank), etc. There's no reason for them to resort to a payday loan place that will have much higher interest rates.</h2>
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