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Home My WebLink AboutItem B: Payday Loan Reform Ordinance ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Work Session: Payday Loan Reform Ordinance Meeting Date: May 17, 2006 Agenda Item Number: B Department: City Manager’s Office Staff Contact: Jason Heuser www.eugene-or.gov Contact Telephone Number: 682-8441 ISSUE STATEMENT This work session provides an opportunity for the Mayor and City Council to discuss the issues associated with a possible local ordinance regulating aspects of the payday loan industry as operated in Eugene. BACKGROUND 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 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 L:\CMO\2006 Council Agendas\M060517\S060517B.doc 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 CITY MANAGER’S RECOMMENDATION The City Manager recommends that the council direct staff to prepare a draft ordinance consistent with the model ordinance adopted by other Oregon cities for City Council consideration. SUGGESTED MOTION Move to direct the City Manager to prepare a draft ordinance consistent with the model ordinance adopted by other Oregon cities for City Council consideration. ATTACHMENTS A. Directory of payday loan businesses operating in Eugene. B. 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\M060517\S060517B.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