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Payday lenders win one in court

June 1, 2006 - Lincoln, Illinois

A Sangamon County judge has halted the state's attempt to revoke the licenses of four payday loan stores that officials said were trying to circumvent payday loan reforms enacted last year.

Circuit Judge Patrick Kelley said the revocation action by the Department of Financial and Professional Regulation was undertaken weeks after he issued a temporary restraining order blocking the state from enforcing parts of the new Payday Loan Reform Act.

Kelley said the license revocation "could be construed" as an attempt to enforce the payday loan law and related rules issued by the agency "in violation of this Court's February 10, 2006, Temporary Restraining Order and accordingly, constitutes indirect civil contempt thereof."

He vacated the revocation order, but said the state could still try to revoke the licenses if it could find a way to do it without relying on the payday reform law.

DFPR spokeswoman Susan Hofer said the state wants a clarification of the order.

"We are preparing a motion to reconsider," Hofer said. "We fully intend to comply with the temporary restraining order, but we also want to be able to enforce the law. We're confident the judge does not mean to imply the department should not enforce state law."

In late March, the state moved to revoke the licenses of four Payday Loan Stores of Illinois Inc. outlets. Among other things, the state said the stores falsified signatures, made loans to people with invalid Social Security numbers and discarded disclosures statements that must be given to customers under the payday loan reform law.

However, attorneys for the Illinois Small Loan Association said the state was improperly extending payday loan reforms to another class of loans -- called consumer installment loans -- and the companies that issue them. Consumer installment loans are covered by another part of state law. ISLA attorneys said the revocations were invalid because Kelley issued his temporary restraining order in February and the Payday Loan Stores were protected by that order.

"What the state wanted to do is apply the payday loan act to the consumer installment loan act. That's what the court found they could not do," said Steve Brubaker of the Illinois Small Loan Association.

The Payday Loan Stores of Illinois are owned by Robert Wolfberg, who is president of the Illinois Small Loan Association. In court papers, ISLA attorneys said the state began investigating the Payday Loan Stores within weeks of the ISLA joining a lawsuit challenging the way payday loan reforms were being enforced by the state.

After a contentious and lengthy fight, the General Assembly in 2005 approved a series of reforms for payday loans, including a cap on the size of a loan, a limit on the interest that can be charged and restrictions on the number of payday loans a person can have at one time.

The reforms went into effect Dec. 1, 2005. Soon after, the department issued rules that applied certain parts of the payday reform rules to consumer installment loans. Consumer installment loans typically run 120 days or longer, while payday loans by definition are for fewer than 120 days.

State officials argued that the rules would help prevent payday lenders from trying to circumvent the new reforms. However, seven lending businesses filed suit, saying the state's regulating agency overreached its authority by issuing the rules. It was in response to that lawsuit that Kelley issued the temporary restraining order in February.

News Source

Lincoln Courier, Doug Finke, Copley News Service

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