A new Oregon law took effect June 5 that is designed to strengthen consumer protections by preventing online lenders from charging interest rates that exceed the state’s legal limit.
House Bill 4116 closes a loophole that allowed some internet-based lenders to bypass Oregon’s 36 percent annual interest rate cap on consumer finance loans.
Consumer finance loans are generally unsecured, small-dollar loans with repayment terms of 60 days or longer. Oregon lawmakers established the 36 percent cap in 2007 to protect consumers from predatory lending practices.
According to the Oregon Division of Financial Regulation (DFR), some lenders have recently used partnerships with out-of-state banks to avoid Oregon’s interest rate restrictions. By working with banks chartered in states that allow higher rates, lenders were able to offer loans to Oregon borrowers with annual percentage rates exceeding 100 percent in some cases.
State regulators found evidence of more than 31,000 loans totaling at least $61 million that exceeded Oregon’s interest rate cap since 2020.
The practice relied on a provision in federal law known as the Depository Institutions Deregulation and Monetary Control Act of 1980, or DIDMCA. The law allowed certain state-chartered banks to apply their home state’s interest rates when lending across state lines.
HB 4116 exercises Oregon’s right under federal law to opt out of that provision. The legislation also clarifies that Oregon’s lending laws apply to internet-based lenders serving Oregon consumers.
State officials say the change will prevent lenders from using out-of-state partnerships to evade Oregon’s consumer protections and ensure that the state’s interest rate cap applies equally to online and traditional lenders.
The Division of Financial Regulation has already taken action against lenders accused of violating Oregon’s lending laws. In one recent case, regulators secured a settlement requiring a lender to pay $900,000 in restitution to affected borrowers.
Consumers who believe they have been charged more than 36 percent interest on a consumer finance loan are encouraged to contact the Oregon Division of Financial Regulation for assistance and information about their rights.
State officials say the new law represents another step toward protecting Oregonians from excessive interest rates and unfair lending practices.
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