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Payday loan crackdown blocked: Panel says Blagojevich aide politicizing issue

July 12, 2006 - Chicago, Illinois

Members of a legislative rule-making committee on Tuesday blocked Gov. Rod Blagojevich's administration from imposing highly touted restrictions on short-term lenders and complained that the agency director pushing for the change was politicizing the issue.

Officials with the Department of Financial and Professional Regulation earlier this year proposed rules they said would stop lenders from skirting a new law regulating the terms of "payday" loans. To get around the law, the department said, short-term lenders have been steering borrowers to longer installment loans so they can charge exorbitant interest rates.

The Joint Committee on Administrative Rules voted 9-3 to prohibit the agency's proposed remedy, which would have taken effect next month. Some members questioned whether the Blagojevich administration has authority under the Consumer Installment Loan Act. Other panel members bristled when Dean Martinez, Blagojevich's secretary of financial and professional regulation, launched into testimony about the plight of borrowers before a packed hearing room.

State Rep. Larry McKeon, D-Chicago, called the tack "insulting," while Rep. Dave Leitch, a Peoria Republican, said Martinez acted with "self-righteous arrogance."

"(Martinez) had a big crowd of advocates there, and he was pretty excited," said Sen. Steve Rauschenberger, R-Elgin, another JCAR member. "Nobody gives speeches at JCAR -- or nobody's supposed to."

Rauschenberger said he trusts JCAR staff when they say Martinez's agency has the statutory power to regulate installment loans, but he complained the department did not provide details to committee members before Tuesday's meeting.

Martinez said he did not mean to offend the lawmakers, all of whom supported payday loan reforms, and promised to try to meet with them individually before JCAR's Aug. 8 meeting. It would take at least seven votes from the 12-member panel to lift the rule prohibition, officials said.

"I have deep respect for all of our elected officials -- I actually like 99.9 percent of them," Martinez said. "I know they may feel we put them in a difficult spot, but we're trying to do what's best for consumers."

Meanwhile, JCAR member David Miller, a Democratic state representative from Dolton who backed the agency, is working on a compromise with installment lenders who oppose the new restrictions. He said it would define the "trigger" interest rate under which a lender is barred from using collection techniques such as wage garnisheeing; the Blagojevich agency had proposed 36 percent.

Miller said he hopes the compromise will be ready by Aug. 8, but a representative for payday loan companies expressed doubt it would satisfy his group, the Illinois Small Loan Association.

"Our concern is any compromise reached has to be a legislative compromise" approved by the full General Assembly, executive director Steve Brubaker said. "They can't just take this rule and tweak it and throw it out there."

JCAR is comprised of six Republicans and six Democrats, and it takes a minimum of eight votes to prohibit a rule. The committee's bipartisan blockade against the Blagojevich administration Tuesday comes a couple of weeks after the governor publicly chided the panel for having "a tradition of being friendly" to loan companies. Blagojevich, who has taken campaign contributions from the industry, made the comment to the Associated Press last month while making an argument for the new rules.

"If I was Rod Blagojevich, I would not be making comments like those," said Sen. Dan Rutherford, R-Chenoa, a JCAR member. "We have a separation of powers, and I am a member of a co-equal branch of government."

Some panel members said they're willing to revisit the proposed loan rules as soon as next month, but McKeon, the House Democrat, said he's already convinced Blagojevich needs to bring a fresh bill before the General Assembly, rather than make an end run through JCAR. He said it's not the first time the administration has tried to circumvent the legislative process through rule-making.

"JCAR is not a second bite at the apple," McKeon said.

Martinez said his department not only has statutory authority for the proposed rules but also case law behind it. He said he's not sure what the agency will do if it cannot appease JCAR members.

News Source

The State Journal Register, Mike Ramsey, Copley News Service

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