CC Minutes - 05/17/06 Work Session

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B. WORK SESSION: Payday Loan Reform Ordinance City Manager Taylor commented that the work session was requested by the council and introduced Intergovernmental Relations Manager Jason Heuser to present the issue. Mr. Heuser said he had been tracking activity on the issue at both the local and State level. He introduced Laurie Trieger of FOOD for Lane County, and an advocate for payday loan reform who was available to answer questions. He said that the payday loan industry was used by a growing segment of the population who lived from paycheck to paycheck as they were part of the lower wage service sector economy. He said that payday loans were short-term, high-interest rate loans used by people who were cash insecure, lacked credit, and were “unbanked.” He said many people used payday loans as an alternative to banking and the average customer took out 11 loans per year. Only two percent of customers were one-time users. He said that roughly eight percent of American families held no financial assets such as bank accounts, retirement accounts, or life insurance and they missed out on the long-term convenience, security and efficiency, counseling and wealth-building opportunities that banks and credit unions could offer to consumers. Payday lending practices placed borrowers at risk of greater indebtedness and long-term credit problems, although they do meet a certain need. He related that a survey of borrowers revealed that 74 percent were unable to repay loans when they came due. He said that banks and credit unions had been unwilling to enter into the payday loan business and offer loans at lower rates. Mr. Heuser said there was a long-term strategy to address the problem that included new or improved services from traditional banks and credit unions and publicizing those services to low-income individuals. Until that strategy was implemented, governments were beginning to take action to balance consumer health with industry profitability. He said that Oregon lagged behind the rest of the country in regulating payday loans and only four cities—Portland, Gresham, Troutdale and Beaverton—had taken steps to bring the industry closer to more mainstream financial services by enacting local ordinances requiring a 25 percent pay down of principle as requisite for each loan renewal, establishing payment plan options and allowing a loan to be canceled within 24 hours (buyer’s remorse). He said that in April 2006 the Oregon Legislature capped high interest rate down to 153 percent APR (annual percentage rate) over a specified minimum loan term of 31 days, but did not address any of the other issues contained in local ordinances. Mayor Piercy called on the council for questions. Ms. Solomon asked why Portland had not included a cap on the interest rate in its local ordinance. Mr. Heuser said that State law prohibited local governments from exercising that authority. Mr. Kelly thought that payday loan practices were immoral and Eugene should move forward with a local ordinance similar to those enacted by other cities. He noted that the Portland ordinance required a $1,500 annual permit fee per storefront and asked if other local ordinances imposed something similar. He also asked how the permit fee was used. Mr. Heuser said he would research the issue and provide a response when the issue was again considered by the council. Mr. Papé was in favor of taking whatever local action was necessary to prohibit usury and expressed disappointment in the legislature’s failure to effectively address the issue. He said if the State took reasonable and timely action to regulate the industry, the City should back away from local ordinances and let State law prevail. MINUTES—Eugene City Council May 17, 2006 Page 7 Work Session