Congresswoman Suzanne Bonamici, a long-time opponent of deceptive loan lending practices, who helped pass one of the strictest onsite, brick-and-mortar payday loan lending restrictions in 2007 is now taking on the online and offshore loan lending industry. In September, Bonamici introduced the Stopping Abuse and Fraud in Electronic Lending Act, a measure that seeks to eradicate exploitative online and offshore lending practices by capping interest rates and filling in the gaps in payday loan laws that allow unsavory lending to occur.
Bonamici's act aligns with U.S. Senator Jeff Merkley's bill that primarily seeks three new payday loan lender regulations: transparency and disclosure from online lenders in an attempt to end abusive practices that coerce borrowers into paying debts that they do not owe; to close the loopholes in the law that allows offshore lenders to empty consumer's bank-accounts; and to require that all providers are following healthy banking practices.
Following Bonamici's 2007 restrictions on on site lenders, Oregon saw a significant reduction in the amount of payday lender businesses: by 2008, three out of four of Oregon's on site lending businesses closed down, supposedly leading more borrowers to the internet. While many online payday loan lending companies are legitimate and fair, it is common to come by offshore lenders who are unregulated and charge outrageous fees and interest to borrowers. Bonamici seeks to shut down such practices in an attempt to protect consumers. Yet, regulating online lenders is not as easy as managing on site businesses.
For the past few years, Oregon legislatures has been coming down on the online payday loan industry, enacting laws that regulate interest rates, origination fees, and renewal terms. The Oregon Department of Consumer and Business Services has sought out companies that defy state law, filing law suits and charging rouge businesses with significant fines.
For instance, in 2011, one particular payday loan company was fined $ 90,000 for charging over 300% interest on loans, in defiance of Oregon law which caps interest rates at 36%. In trying to protect consumers, law makers such as Bonamici have played an integral role in cracking down on these types of unfair lending practices.
However, Bonamici is faced with opposition, as many fear that the imposition of more restrictions will result in reliance on illegal online loans which charge even higher interest rates. According to a 2011 PEW study, these fears are unsound because, statistically, more government restrictions reduce payday loan reliance rather than leading borrowers to seek alternative loan options.
The study claims that 95 out of 100 borrowers would simply stop using a payday advance altogether and not securing an internet loan. Yet, many claim that the Oregon regulations on brick-and-mortar lending services did lead borrowers to online lenders. Regardless, regulating online services in addition to on site services may help reduce payday advance dependence; if the alternate option is unavailable, borrowers will have to seek other means to make ends meet.
The aforementioned PEW study indicates that when advance options are unavailable, most people cut back on expenses, borrow from family and friends, pawn goods, or delay paying bills to keep above water. While these solutions pose their own challenges, they are much more favorable to relying on unfair online loans that cost borrowers more money than they can reasonably repay. As such, Bonamici's efforts are beneficial to the masses and may help end the cycle of loan reliance.
