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HomeMy WebLinkAboutItem 3: PH on Ordinance Concerning Payday Loan Establishments 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 Oregon Department of Consumer and Business Services indicated that 74% of payday borrowers surveyed were unable to repay loans when they came due, making rollovers commonplace. Rollovers 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. 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 Following the public hearing, the council may: 1. Approve a local ordinance regulating payday loans in Eugene. 2. Disapprove a local ordinance regulating payday loans in Eugene. 3. Take no action at this time. L:\CMO\2006 Council Agendas\M060710\S0607103.doc CITY MANAGER’S RECOMMENDATION The City Manager recommends that the council adopt the proposed resolution. SUGGESTED MOTION None; this is a public hearing only. ATTACHMENTS A. Proposed Ordinance B. Directory of payday loan businesses operating in Eugene. C. Matrix of current and proposed payday loan laws and ordinances FOR MORE INFORMATION Staff Contact: Jason Heuser Telephone: (541) 682-8441 Staff E-Mail: jason.p.heuser@ci.eugene.or.us L:\CMO\2006 Council Agendas\M060710\S0607103.doc ATTACHMENT A ORDINANCE NO. __________ 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. The City of Eugene does ordain as follows: Section 1. Section 3.005 of the Eugene Code, 1971, is amended by adding a section of definitions for “Payday Loans” in alphabetical order, to provide: Payday Loans: Borrower. A natural person who receives a payday loan. Cancel. To annul the payday loan agreement and, with respect to the payday loan agreement returning the borrower and the payday lender to their financial condition prior to the origination date of the payday loan. City manager. The city manager or the manager’s designee. Payday lender. A “lender” in the business of making payday loans as defined in ORS 725.600. Payday loan. A payday loan as defined by state law. Principal. The original loan proceeds advanced for the benefit of the borrower in a payday loan excluding any fee or interest charge. Section 2 . Sections 3.550 through 3.560 are added to the Eugene Code, 1971, to provide: Payday Loans 3.550 Payday Loans - Purpose. The provisions of sections 3.550 to 3.560 of this code are intended to minimize the detrimental effects that certain payday lending practices have on individuals and families, by regulating payday lenders to require payment of a portion of the original loan amount prior to the renewal of a payday loan, to allow borrowers the ability to cancel a payday loan, and to allow borrowers the ability to convert a payday loan into a payment plan. Except as specifically provided to the contrary, the procedures and requirements of sections 3.015 to 3.080 of this code apply to the activities authorized by sections 3.550 through 3.560. 3.552 Payday Loans - License Required. (1) No person shall operate a payday lending business or loan any funds as a payday loan without a current payday lender license to do business issued by the city. Licenses shall be required for each location a lender operates in the city and shall be renewed annually. Ordinance - 1 of 3 L:\CMO\2006 Council Agendas\M060710\S0607103-attA.doc (2) The city manager shall adopt administrative rules pursuant to section 2.019 of this code, which shall include application criteria and a requirement that the payday lender report its fee schedule in the payday application. (3) The city manager shall adopt the annual cost for the license by administrative order pursuant to section 2.020 of this code. 3.554 Payday Loans - Inspection of Records. The city reserves the right to review and/or copy the records of any payday lender for purposes of auditing or complaint resolution. Such records shall be made available for inspection during normal business hours within 24 hours of written notice by the city manager. 3.556 Payday Loans - Payment of Principal Prior to Renewal. A payday lender may not renew a payday loan unless the borrower has paid an amount equal to at least twenty-five percent (25%) of the principal of the original payday loan, plus interest on the remaining balance of the payday loan. The payday lender shall disclose this requirement to the borrower in a minimum of bold 12 point type. 3.558 Payday Loans - Cancellation. (1) A payday lender shall cancel a payday loan without any charge to the borrower if, prior to the close of the business day following the day on which the payday loan originated, the borrower: (a) Informs the payday lender in writing that the borrower wishes to cancel the payday loan and any future payment obligations; and (b) Returns to the payday lender the uncashed check or proceeds given to the borrower by the payday lender or cash in an amount equal to the principal amount of the payday loan. (2) A payday lender shall disclose to each borrower that the right to cancel a payday loan as described in this section is available to the borrower. The payday lender shall disclose this requirement to the borrower in a minimum of bold 12 point type. 3.560 Payday Loans - Payment Plan. (1) A payday lender and a borrower may agree to a payment plan for a payday loan at any time. (2) A payday lender shall disclose to each borrower that a payment plan described in this section is available to the borrower after the maximum amount of renewals allowed by state law. The payday lender shall disclose this requirement to the borrower in a minimum of bold 12 point type. (3) After a payday loan has been renewed to the maximum amount allowed by state law, and prior to default on the payday loan, a payday lender shall allow a borrower to convert the borrower's payday loan into a payment plan. Each payment plan shall be in writing and acknowledged by both the payday lender and the borrower. (4) The payday lender shall not assess any fee, interest charge or other charge to the borrower as a result of converting the payday loan into a payment plan. (5) The payment plan shall provide for the payment of the total of payments due on the payday loan over a period of no fewer than 60 days in three or more payments. The borrower may pay the total of payments due on the payment Ordinance - 2 of 3 L:\CMO\2006 Council Agendas\M060710\S0607103-attA.doc plan at any time. The payday lender may not assess any penalty, fee or other charge to the borrower for early payment on the payment plan. (6) A payday lender's violation of the terms of a payment plan entered into with a borrower under this section constitutes a violation of sections 3.550 through 3.560 of this code. If a payday lender enters into a payment plan with a borrower through a third party that is representing the borrower, the payday lender's failure to comply with the terms of that payment plan constitutes a violation of sections 3.550 through 3.560 of this code. Section 3. The City Recorder, at the request of, or with the concurrence of the City Attorney, is authorized to administratively correct any reference errors contained herein or in other provisions of the Eugene Code, 1971, to the provisions added, amended or repealed herein. Section 4. Pursuant to the provisions of the Eugene Charter of 2002, this Ordinance shall become effective 30 days after its passage by the City Council and approval by the Mayor except as provided in this Section 4. Notwithstanding the addition of Sections 3.550 through 3.560 to the Eugene Code, 1971, no citations or other enforcement actions shall be issued or taken for violation of Section 3.552 providing the Payday Lender has, within 60 days of the effective date of this Ordinance, applied for and obtained a license from the City to operate as a Payday Lender. Passed by the City Council this Approved by the Mayor this ____ day of ______________, 2006. ____ day of _______________, 2006. _______________________________ ______________________________________ City Recorder Mayor Ordinance - 3 of 3 L:\CMO\2006 Council Agendas\M060710\S0607103-attA.doc ATTACHMENT A Payday Loan Storefronts Operating in Eugene Name of Payday Storefront Name of Company Operating Coporate Loan Storefront Address Storefront Headquartes th Ace Cash Express 895 W. 7 Ave Ace Cash Express Inc. Irving, TX Inc. Advance America 1020 Green Acres Advance America Cash Spartanburg, SC Cash Rd. #4 Advance Centers of Oregon Advance America Inc. Allied Cash Advance 4222 Commerce Allied Cash Advance Oregon Miami, FL St. Unit A LLC Check Into Cash 47 Silver Lane Check Into Cash of Oregon Cleveland, TN Inc. th Check Into Cash 48 W. 18 Ave. Check Into Cash of Oregon Cleveland, TN #2 Inc. Check N Go 1055 Bailey Hill Check N Go of Oregon Inc. Mason, OH Rd. Suite C th The Cash Store 2911 W. 11 Ave. Cottonwood Financial LTD Irving TX The Cash Store 4239 Barger Dr. Cottonwood Financial LTD Irving TX Ace Cash Express 2019 River Rd. Mckenzie Financial Inc. Eugene, OR Ship N Chek 1050 Green Acres Mckenzie Financial Inc. Eugene, OR Rd. #4 Check Cash 1111 Willamette Oak Brook Financial Portland, OR Northwest St. Suite A Corporation th Nationwide Budget 1705 W. 6 St. Oak Brook Financial Portland, OR Finance Corporation Quik Check 315 Coburg Rd. Quik Check Financial Inc. Logan, UT Suite C th Pocket Money of 1699 W. 11 True Financial Incorporated Salem, OR Eugene th US Title Loans 1301 W. 6 St. United States Title Loan Atlanta, GA Company Speedy Cash 485 Hwy 99 Wolf Creek Financial Inc. Eugene, OR ATTACHMENT B Payday Loans: Current and Proposed Laws and Practices ORS 725.622, ORS City of Portland Proposed Initiative 135 SB 545-A (2005 SB 1105 (2006 Special 725.340(1) ordinance(No. 179948, (Our Oregon) Session) Session) (Current Oregon Law) Section 7.26) Proposed Effective In Committee Upon Effective July 1, 2007 Effective April 17, 2006 Date: January 1, 2007 Adjournment PENDING? Interest Rate Cap Unauthorized -- 36% APR + one-time 15% of original loan 36% APR + one-time loan origination fee of amount, 15% of renewal loan origination fee of no no more than $10.00 loan amount more than $10.00 per per $100.000 (391% APR) $100.000 (36% + 117% APR) (36% + 117% APR) Minimum Loan Unauthorized -- 31 days -- 31 days Length Rollovers/Renewals May not renew more than Only if borrower has May not renew more May not renew more May not renew more 3x or make a new loan paid 25% of principal of than 2x or make a new than 3x; may not renew than 2x or make a new until the day after a original loan + interest loan within 7 days of the unless borrower pays loan within 7 days of the previous loan expires day a previous loan 25% of loan and day a previous loan expires interest; must wait until expires day after prev. loan expired to renew Loan Cancellation -- Loan cancelled w/o fee -- Loan cancelled w/o fee -- if prior to close of if prior to close of business following bus. business following bus. day 1) notice in writing day 1) notice in writing to lender and 2) return to lender and 2) return of uncashed check or of uncashed check or proceeds proceeds Payment Plan -- Yes, at any time. In -- Yes, after loan has been -- addition, after loan has renewed 3x; lender may been renewed 3x - Plan charge 1-time fee of not must be at least 60 more than interest on days. No fee. remaining balance Loan Maximum Note: admin rule -- -- $1000 or 25% of the -- mandates than loan may borrower’s mo. income not exceed 25% monthly income Permit/Registration Business license - must Must reg. w/ City, -- Business License w/ -- register with state DCBS $1,500 annual permit DCBS Current fee of $520 fee per storefront. Other limits all other fees except one $20 per 1 returned check or NSF