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Blagojevich turns up heat on payday lenders again

June 28, 2006 - Springfield, Illinois

Just months after Illinois cracked down on the short-term loan business, Gov. Rod Blagojevich is making another push for restrictions to protect consumers--a push the industry says goes too far.

Blagojevich, who calls the industry a "legal form of loansharking," is trying to take action by using his executive powers instead of working through the General Assembly.

Short-term lenders accuse him of abusing his authority.

"I think they just need to take a civics lesson over there," said Steve Brubaker of the Illinois Small Loan Association.

The restrictions that took effect in December apply to loans of up to 120 days and are meant to keep borrowers from getting in over their heads. The administration and community groups claim payday lenders are getting around those restrictions by promoting loans that last 121 days or a little longer.

The Democratic governor is proposing new regulations for the industry, rather than a change in the law. That means he doesn't need the support of the full Legislature, and the only legislative review will be from a panel known as the Joint Committee on Administrative Rules.

"JCAR has been a committee that has had a tradition of being friendly to that industry, so we expect this will be a tough battle," Blagojevich said last week in an interview with The Associated Press. "But we're going to do everything we can to try to get it done."

Blagojevich aides held a news conference to trumpet the proposed rules earlier this month after introducing them in February. Blagojevich is also making this a political issue by challenging his Republican opponent in November's election, state Treasurer Judy Baar Topinka, to lobby JCAR to pass the rules.

Topinka will examine the proposal, but spokesman John McGovern said the issue should be addressed legislatively.

"Certainly, this governor has a record of diminishing public policy through press conferences and political stunts," McGovern said. "Predatory lending is a serious issue and it deserves a serious debate with the input of the Legislature."

Critics say short-term lenders lure unwary customers into short loans with large interest rates that add up to big debt if they aren't paid off promptly. The restrictions that took effect in December were supposed to prevent that by capping fees, loan amounts and loan lengths.

Lenders are suing the administration over enforcement of that law.

Blagojevich and community groups say short-term lenders changed their tactics as soon as the law went into effect. They began steering people from payday loans to unregulated consumer installment loans with exorbitant interest rates and few limits on how much people could borrow.

One person borrowed $275 and ended up owing more than $2,700, according to one complaint filed with the state. Another took out $150 and is supposed to repay more than $1,000.

"It's a slightly more complicated way of keeping people in the cycle of debt," said Greg Brown of Metropolitan Family Services in Chicago, which offers financial counseling.

The administration filed rules with JCAR in February to apply many of the payday loan restrictions to the longer installment loans. The changes would prevent companies from garnisheeing borrowers' wages or tapping into their bank accounts. They would also provide protections for military members with loans.

JCAR members say they haven't discussed the issue yet.

Blagojevich said he decided not to take his proposal to the General Assembly because the loan industry has significant influence there, partly because of its campaign contributions to lawmakers.

"They have friends in high places, so while we tested the waters legislatively, we felt the fastest way was to do this administratively," said Blagojevich, who has accepted tens of thousands of dollars from the industry.

Lenders are fighting the change hard, arguing it would eliminate options for consumers in need of short-term money, put people out of work and generate costly lawsuits. The industry says Illinois law doesn't give Blagojevich authority to regulate this kind of loan, so any new rules would be challenged in court.

They also insist they're simply following the law, not trying to deceive customers.

"They have a menu of options for customers when they come in," said Brubaker, whose association has 50 members with 600 stores statewide. "I don't think there's any coercion."

News Source

Chicago Sun-Times, Ryan Keith, AP Writer

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