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Payday loan law put on hold

February 11, 2006 - Springfield, Illinois

A Sangamon County judge on Friday blocked a state agency from enforcing parts of the new Payday Loan Reform Act, a consumer-protection law that some loan businesses say would cause them "irreparable harm."

Consumers typically take out payday loans as a short-term form of borrowing that leverages their next paycheck. The loans are supposed to be repaid within 120 days, but some people have ended up thousands of dollars in debt because of their inability to repay the money quickly.

Circuit Court Judge Patrick Kelley's temporary restraining order against the Illinois Department of Financial and Professional Regulation came in response to a lawsuit filed earlier this month by seven lending businesses. He scheduled a March 14 preliminary injunction hearing in the case.

The businesses argue that portions of the payday loan law, which took effect in December, should not apply to consumer-installment loans or other loans with terms exceeding 120 days. A different part of state law, the Consumer Installment Loan Act, regulates lenders of loans with terms between 120 days and 181 months, according to the lawsuit.

The businesses contend that the state agency overreached its regulatory authority when it issued rules saying that certain provisions of the payday loan law also should apply to the longer-term loans. One of those rules would require reporting the longer-term loans to a new state database for payday loans.

"The illegal rules will severely and unfairly impair the ability of (the lenders) to conduct their lawful business in Illinois, as well as deprive numerous consumers of financial products to which the General Assembly intended they have access," the lawsuit said.

But Dean Martinez, acting secretary of the Department of Financial and Professional Regulation, disagreed.

"Our posture is that we actually followed exactly the intent of the law," Martinez said in a telephone news conference.

The new law also includes provisions that prevent borrowers from having more than two outstanding payday loans and that limit the amount of interest charged for each loan to $15.50 for every $100.

The seven plaintiffs in the lawsuit are Americash Loans LLC, CMK Investments Inc., B and B Investments, Midwest Money Store Inc., Cashmart Corp. Cash Loans Today Inc. and Universal Cash Express Inc.

Supporters of the payday loan reforms said Friday they are disappointed with the judge's decision to issue a temporary restraining order.

Since the law took effect in December, lending businesses have been making more installment loans and other longer-term loans, said Lynda DeLaforgue, co-director of Citizen Action Illinois.

"Since the new payday loan law applies to loans of 120 days or less, the longer-term products are blatantly undermining the law's intent to end abusive payday loan practices," she said.

Martinez said his agency on Friday filed proposed rules to "better protect borrowers against predatory lending practices" by anyone licensed under Consumer Installment Loan Act.

The rules largely mirror consumer protections already in the Payday Loan Reform Act, Martinez said. But they also include additional safeguards, such as prohibiting consumer installment loan businesses from accepting a customer's postdated check for any loan with a finance charge exceeding an annual percentage rate of 36 percent.

The rules would prevent lending businesses from skirting the payday loan restrictions, Martinez said.

News Source

The Register-Mail, Adriana Colindres, Copley News Service

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