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Are Payday Lending 'Debt Traps' Leaving Families Hungry?

The Consumer Financial Protection Bureau is proposing rule changes to the payday-loan industry. (frankieleon/Flickr)
The Consumer Financial Protection Bureau is proposing rule changes to the payday-loan industry. (frankieleon/Flickr)
December 15, 2016

PORTLAND, Ore. -- While the Consumer Financial Protection Bureau mulls over national rule changes to short-term lending, Oregon families have already been hurt and could even go hungry trying to pay back loans.

Oregon offers a little extra protection. It is among the 18 states with some regulations on payday lending, including a 36 percent interest rate cap annually.

But families still fall into the lending "debt trap" and especially are at risk while spending during the holiday season. Oregon Attorney General Ellen Rosenblum said payday loans put people in difficult positions.

"If a debtor is faced with unaffordable payments on their payday-type loans, then they're having to choose between defaulting, between reborrowing, and between skipping their other financial obligations, like their rent or their basic living expenses like food and medical care,” Rosenbaum said.

The proposed CFPB rule changes to payday and car title lending include a requirement that lenders establish a consumer's ability to repay and limiting consumers to one loan at a time. Republican members of Congress have criticized the proposed change as a set of onerous regulations on the industry.

Jeff Kleen, a public policy advocate at Oregon Food Bank, said he spoke to a woman about how she got out from under her short-term lending debt.

"The way that she finally climbed out of that debt trap was to skimp on groceries,” Kleen said. "And this is a single mom with three daughters and all of them had to cut back on the amount of food that they were eating."

He said Oregonians spent $16 million dollars on fees for payday and car title loans last year, before interest payments on those loans even started.

Rosenblum encouraged Oregonians to think long and hard before taking out a short-term loan.

"Please make sure that you do have the ability to repay on the terms that you have committed to,” she cautioned, "because otherwise the collateral consequences - the closing of bank accounts, the seizure of cars and such - is going to unfortunately make for some very unhappy holidays."

New rules from the CFPB are expected to be announced in 2017.

Eric Tegethoff, Public News Service - OR