07:14 AM PST on Wednesday, March 16, 2005

By CHARLES E. BEGGS, Associated Press Writer

SALEM -- Advocates for clamping a lid on charges for payday loans argued Tuesday that exorbitant rates can worsen low-income people's chronic debt problems.

But representatives for the lending industry told a Senate panel that government regulations already limit some their practices and require they fully disclose their terms to borrowers.

The Senate Commerce Committee is considering a bill to limit interest charges to 15 percent, set a minimum 31-day loan term and require consumers to pay off a quarter of the loan before renewing it.

Backers of the measure said common payday loan rates of 15-20 percent interest for two-week loans, for example, equal annual interest rates topping 500 percent.

"These loans become financial straitjackets that squeeze customers in perpetual debt," said Rep. Chuck Riley, D-Hillsboro. "We must protect Oregonians from legal loan-sharking."

Borrowers who can't pay off loans face renewal charges if they "roll over" the amount, which by state regulations they can do only three times at one lender.

Critics of the business said borrowers who reach that limit can just go to other lenders and start over with a new loans, which are secured by postdated checks to coincide with paydays.

The loans "are very easy to get into, and very difficult to get out of out of," said Angela Martin of the Oregon Food Bank.

Oregon is one of eight states that have no cap on payday loan interest charges, according to the Oregon Department of Consumer and Business Services, which regulates the industry that operates more than 320 loan shops in Oregon.

Department Director Corey Streisinger said the agency supports the bill to cap interest rates at 15 percent.

Opponents of the bill said payday loans provide a welcome service to people who are temporarily strapped for money and can't get conventional loans.

"We never wittingly mistreat" customers, said Luanne Stolz, who operates several Portland-area payday loan stores.

She said lenders often give customers leeway when making repayment plans and frequently waive check overdraft fees for people struggling with their money.

Under questioning, Stolz acknowledged that her sister makes money off of her three payday loan stores in Vancouver, Wash. That state has a 15 percent lid on interest charges for the loans.

Mike Dewey, Oregon lobbyist for the Consumer Lending Alliance, an organization of payday lenders in 22 states, said borrowers look at loan charges as flat fees of, for example, $15 to borrow $100, and not in terms of yearly interest costs because the loans are for far shorter periods.