Payday loans are a seemingly simple way for people to get short-term loans in small amounts from private companies. They usually require that a person provide a personal check, authorization for a withdrawal from his or her bank account, or permission for the payday lender to debit the account in return for needed cash. Unfortunately, these loans are often difficult for already financially strapped workers to meet, and may make their situations worse.
Oregon is one of many states that limits the total amount of money that payday lenders can charge for each loan. The Department of Consumer and Business Services states that lenders are limited to charging no more than 36 percent interest per year, along with an origination fee that is up to 10 percent of the loan amount, capped at no more than $30. If the loan is renewed, these fees cannot be recharged. The only other charges a payday lender can collect are a $20 fee for bouncing one check, fees they must pay due to the bounced check, and any court awards they are given due to an unpaid loan.
The danger of payday loans is in the short terms and the high interest rates. Many people who resort to using these loans are financially unhealthy to begin with, and simply add to the debts that they are unable to pay. When they cannot pay the loan when it expires, they often must extend the loan, adding to their total interest, and continuing a cycle that is very difficult to break.
To make the situation worse, many businesses prey on lower income individuals illegally. According to State of Oregon Consumer Financial Protection, many payday lenders are not licensed, so those who choose to use these lines of credit are often charged excessive, illegal fees. These businesses may charge as much as $1,000 for a $300 loan, and when the debtors are unable to pay, they are not afraid of resorting to additional illegal tactics to get what they believe they are due.