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New law puts squeeze on payday lenders

POLK COUNTY -- A recent measure passed by the Oregon Legislature and signed by Gov. Ted Kulongoski is having a quick and deep impact on the payday lending industry.



POLK COUNTY -- A recent measure passed by the Oregon Legislature and signed by Gov. Ted Kulongoski is having a quick and deep impact on the payday lending industry.

Previously, payday lenders had been allowed to charge annual interest rates ranging from 300 percent to 500 percent or more. But the new legislation, which took effect July 1, caps interest rates of payday lenders at 36 percent.

Charles Donald, supervising examiner for the state's Department of Consumer and Business Services, reports that at least 60 Oregon payday loan stores have closed their offices since June 1.

Elizabeth Makhobey, manager at the Dallas Continental Loans office, cited company policy in declining to comment on the new legislation's effect.

But a letter typed on company stationery and placed on the front door of the outlet at 131 SW Court St. in Dallas said the new legislation is forcing the company out of Oregon. It said the Dallas office will close July 27 and refers customers to the Continental office in Keizer.

A representative of the Check Into Cash store in Independence indicated payday loans are not made at that location, and referred customers to the business' outlet in Salem.

But at least one payday lender, Advance America, seems willing to attempt survival under the new restrictions.

"We're currently in the process of evaluating the situation," said Advance America spokesman Jamie Fulmer. "Unfortunately, the new law is very restrictive if not prohibitive. But we have not made any decisions at this point."

Fulmer said Advance America's stance is that customers and the marketplace - and not government - should be left to decide the issue.

"The unfortunate thing is we believe a lack of choice is bad for the consumer. You can do this (pass laws restricting payday lenders), but you do nothing to eliminate the need for the product. Secondly, you might drive people to other more costly options, like bouncing a check.

"Nationwide, the average payday loan costs $15 per $100 loaned per week," Fulmer said. "Compare that to writing a bad check. Nationwide, the average fee charged for one bad check is $27. That doesn't take into account what the business is going to charge.

"You can see why a payday loan might be a more attractive option. It's the same thing with overdraft protection fees, credit card overcharges or missing a house payment. Even worse, a person might turn to an offshore internet product, which often is more expensive and provides the customer with no protection."

Prior to the new legislation, Advance America typically charged $120 in fees and interest for a $300, one-month loan. Under the new law, the company can charge a maximum of $39 for the same loan.

Advance America has a branch located at 170 W. Ellendale in Dallas.

There is another option for persons seeking short-term loans for relatively small amounts of money. OSU Federal Credit Union is one of 23 credit unions in the state offering a similar service.

"We do offer 'payday' loans, and we have for probably a year and a half now," said Peggy Mehl, OSU Federal regional branch manager. "But when somebody comes in for a payday loan, we're trying to get them out of that cycle. We're trying to find the behaviors that are putting people into that situation.

"We're not in it for profit. We're in it to try and end the cycle of payday loans."

OSU Federal charges a flat 18-percent interest rate, with no additional fees, on its short-term loans. The minimum loan amount is $50, and the maximum is $500.

Mehl calculated that a $100, 30-day payday loan at OSU Federal will cost a consumer $2.19. A $100, 14-day loan at Advance America would cost $13.

Credit unions and payday lenders both require borrowers to be employed and to have positive balances on their bank accounts. OSU Federal requires payday borrowers to be members in good standing (at least $5 in an OSU Federal account for 90 days), and to have been on their job for at least six months.

OSU Federal has branches at 210 NE Orchard Dr. in Dallas and at 464 S. Pacific Highway in Monmouth.



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