Item B: Payday Loan Reform Ordinance

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do not require a borrower to pay down any part of the principal. As an example, a borrower might take out a loan of $300 and rollover the loan three times. The borrower, in addition to an original $60 fee, would owe for three rollover fees, each $60. Over the course of 56 days, the borrower would need to repay the $300 principal, as well as $240 in fees, $180 of which comes from three rollovers. Response by Oregon Cities in 2006 and Special Session State Reforms A year ago at the Oregon Legislature, SB 545-A (see Attachment B), would have regulated payday lending, capping interest rates, requiring partial repayment of principal before a rollover, limiting loan amounts, allowing “borrowers remorse” to rescind a loan, and ensuring payment plan options after multiple rollovers. The 2005 Legislative Session did not enact SB 545-A or any of its provisions. At the urging of payday loan reform advocates, in February 2006 the City of Portland became the first city in Oregon to enact a local consumer protection ordinance regulating payday loans, to the extent allowable under state law (see Attachment B). Although Portland could not legally address local caps on interest rates, the ordinance gives consumers the right to cancel a loan within 24 hours, requires that 25% of the principal be paid down prior to each loan rollover, and ensures payment plan options. Subsequently, the cities of Gresham, Troutdale, and Beaverton adopted nearly identical ordinances. Meanwhile, in Spring 2006, as two interim legislative committees held hearings on payday loan reforms, citizen proponents (some from Eugene) were readying a reform package to be considered by Oregon voters in Fall 2006 via the initiative process. In response to these events, the Oregon Legislature passed SB 1105 on April 20(see Attachment B), during a one-day Special Session, to be effective July 2007. This legislation will cap interest rates at 36% plus a one-time origination fee of $10 per $100 borrowed (average APR 156%), establish a 31-day minimum loan length, and allow a maximum of two rollovers. SB 1105 does not address directly the issues of reform enacted in the Portland, Gresham, Troutdale and Beaverton local reform ordinances, nor does it infringe any further upon local authority on payday loan regulation. Groups such as Our Oregon, Ecumenical Ministries of Oregon, the Oregon Catholic Conference, SEIU, the Oregon Food Bank, Food for Lane County and St. Vincent DePaul, have continued to advocate for local reform ordinances to supplement SB 1105. These same groups have requested that cities going forward adopt a homogenous ordinance modeled after the City of Portland’s ordinances. It is possible that the 2007 Legislative Session could enhance SB 1105 prior to its implementation, by adding the provisions found in the local ordinances. RELATED CITY POLICIES There are no City policies directly associated with this item; housing and food insecurity issues are related. COUNCIL OPTIONS 1. Direct the City Manager and staff to prepare a City ordinance for future consideration. 2. Assess and determine the need for a local ordinance regulating the payday loan industry in Eugene. 3. Take no action at this time. L:\CMO\2006 Council Agendas\M060517\S060517B.doc