Short-term loans come under scrutiny in Oregon

SALEM, Ore. - Bonnie Calnek's troubles began last fall when, short of cash to pay for her 5-year-old son's day care and other household bills, she turned to a Portland check-cashing company for a $500 "payday" loan to tide her over.

Two weeks later, when the loan was supposed to be repaid in full along with 25 percent interest and fees, the 34-year-old single mother still was financially strapped and told the company she needed more time.

"That's when the abusive tactics began," Calnek says. "Just before Christmas, a guy from the company started calling me at work. I begged him to let me make a few partial payments, but he called me names. He called me a loser. It drove me to tears."

In January, she sent a $606 check to the company, hoping that would end the matter. But the dispute between the two sides continues, and the company has since told Calnek she still owes $722.

Consumer activists say Calnek's experience with a payday loan isn't unusual and underscores the need for the state to rein in short-term-loan companies, an industry that has undergone explosive growth in Oregon and around the nation in recent years.

Jason Reynolds of the Oregon Consumer League says problems arise when someone can't afford to repay a loan and is forced to extend or "roll over" the loan by paying another fee. Calculated on an annual basis, the interest on those loans often exceeds 300 percent.

"To lend someone money at 300 percent, is that helping someone get out of debt?" Reynolds asks. "They are preying on people's weaknesses and causing a lot of suffering."

The industry says the short-term loans are a big help for working people who need a source of emergency cash to juggle their household bills until payday. Short-term lenders shouldn't be curtailed or shut down just because a small number of people get into trouble using such loans, a spokesman says.

"Most people can handle the management of their own money and don't need the government interfering in those decisions," says Sam Choate, spokesman for the Community Financial Services Association of America.

Hoping to get a better handle on the situation, the state Department of Consumer and Business Services is working on a new set of proposed rules to regulate payday and so-called car-title loan outlets.

Payday lenders typically accept postdated checks for the loan amount plus fees or interest; car-title lenders accept the title to the borrower's vehicle as security for repayment.

Jim Krueger, who is in charge of the department's rule-making effort, says when he began looking into the issue he was surprised by how large the short-term-lending industry has become.

Last year, he found, the 170 licensed short-term-loan outlets around Oregon made 318,000 loans totaling $81 million.

Among other things, the department's rules, set to be adopted in September, would limit to three the number of times a loan could be rolled over and require the lenders to do some checking on a person's ability to repay before making a loan.

The department began looking into the rules after it became obvious the 1999 Legislature was not going to pass various bills to effectively prohibit short-term loans by capping interest rates.

The bills died in the last Legislature after House Speaker Lynn Snodgrass and other House GOP leaders refused to bring them to the floor for debate.

Snodgrass, who's running for secretary of state, says that the Consumer and Business Services Department is best qualified to draw up consumer-protection rules and that there is no justification for running short-term lenders out of business.

But state Rep. Vicki Walker, a Eugene Democrat who supported the bills last session, says that the rules being proposed by the department "only nibble at the problem" and that tough restrictions, including interest-rate caps, are needed.

"It's like loan-sharking," Walker says. "They don't have a baseball bat in their hands to break your kneecap, but they take whatever means necessary to get their money back."