Car title loans still expensive in Oregon

   Oregon recently became the latest state to clamp down on expensive payday loans when the legislature passed a law limiting interest rates to 36% per year. This represented a dramatic cut in the rates charged by short term lenders, which averaged nearly 400% annually. The loans are offered by freestanding stores for two week periods of time. Borrowers who can demonstrate that they are steadily employed may write a check for amounts of several hundred dollars plus lender fees and postdate it. In two weeks, they can pay off the loan or allow the lender to cash the check. The fees, which average about $15 per $100 borrowed, represent interest rates of 391% per year. This is often regarded as predatory lending, and borrowers often find themselves taking out a second loan to repay the first one.

The legislature put a stop to that, and interest rates are now capped at 3% per month, or 36% annually. Consumer advocates hail this as a great step towards better consumer protection. Lenders have complained loudly, saying that the interest rates are necessary to as insurance against deadbeat borrowers.

What isn't well advertised, however, is that the new law affects only payday loans, and not car title loans. Car title loans work in much the same way as payday loans, with one major exception. While a payday loan, also known as a cash advance loan, is an unsecured loan, a car title loan is secured. In exchange for the short term advance of cash, the borrower puts up the title to his or her automobile as collateral.

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