Item 3: PH on Ordinance Concerning Payday Loan Establishments

Home Browse Search

ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Public Hearing: An Ordinance Concerning Regulation of Payday Loans and Adding Sections 3.550 through 3.560 to the Eugene Code, 1971; and Providing an Effective Date Meeting Date: July 10, 2006 Agenda Item Number: 3 Department: City Manager’s Office Staff Contact: Jason Heuser www.eugene-or.gov Contact Telephone Number: 682-8441 ISSUE STATEMENT This public hearing provides an opportunity for the Mayor and City Council to consider and enact at this time, or in the future, a local ordinance regulating payday loan operations within Eugene. BACKGROUND The council held a work session May 17 to be apprised of and discuss the current regulation of the payday loan industry at the federal, state and local levels. The council directed the City Manager and staff to prepare a local ordinance regulating payday loans for consideration at a public hearing. Current Status Payday loans are short-term, high interest rate loans, usually requiring a borrower to write a post-dated check for the amount of the loan, plus a fee, in order to obtain a loan. On the due date, usually 7-14 days later, the borrower either redeems the check by paying the face value, or allows the check to be cashed. If the borrower is unable to repay the entire loan on the due date, the payday lender will allow the borrower to pay another fee to “rollover” the loan, extending it for the same short term. This rollover is authorized to occur up to three times, each time with a fee that is equal to the amount of the fee the borrower paid to take out the loan in the first place. The fee on each rollover does not apply against the principal. According to the Oregon Department of Business and Consumer Services, as of December 2005, there were 16 licensed and active payday loan storefronts operating in Eugene. The 16 storefronts are operated by 12 different entities, 10 of which are headquartered out-of-state (see Attachment A). Issues of Concern to Reform Advocates: Annual Percentage Rates (APR): Payday loans differentiate themselves from more traditional loan arrangements. Not only are they for far shorter terms, the APR is several times higher, commonly varying between 400 to 550% in Eugene. For example, a $300 loan over 14 days could carry with it a $60 fee. Rollovers : The short duration of loan terms, without installments, create difficulty in timely repayment of the entire loan as required. Typically, the state of crisis and urgency precipitating a borrower’s need for the loan is not likely to have lessened in the brief timeframe of the loan. In some cases, a payday lender may prohibit prepayment or installment payments - methods more likely to be successful for a borrower - unless accompanied by an additional fee/penalty. As such, a 2004 study conducted by the L:\CMO\2006 Council Agendas\M060710\S0607103.doc