Critics want to curb payday loans
December 26, 2006 - Olympia, Washington
It seems as though some things never change when it comes to payday lending in Illinois. As soon as Illinois enacted law that makes payday loans a more affordable solution for people who need them, the payday loan industry got greedy. Payday lenders developed new ways of lending leaving consumers out in the cold facing interest rates over 300% this holiday season.
It's important to note that Illinois has a strong payday loan law, the Payday Loan Reform Act. Since its passage, the fee cap and other consumer protections have reduced the cost of borrowing the average payday loan by 39 percent. Also, the Illinois Department of Financial and Professional Regulations (IDFPR) has issued dozens of enforcement actions and levied hundreds of thousands of dollars in fines against payday lenders for violating the Act. The Department's recently released report claims a savings over $6.4 million in loan fees and interest charges in the first 10 months since the Act's passage.
However, because the law ends the industry's free reign in the world of small lending, the industry is doing its very best to avoid the law. The Payday Loan Reform Act regulates loans of 120 days or less. So, the Illinois payday loan industry increasingly offers their customers payday installment loans with terms of 121 days or more --including a significantly higher price tag. Sadly, these loans are designed to trap consumers on a treadmill of indebtedness.
IDFPR's recent report raises an important question. When compared with Florida (which is similar to Illinois in many ways and uses the same reporting service in enforcing payday loan regulations), Illinois appears to be reporting only half the story. Illinois reports having 45,000 to 60,000 loans issued per month compared with Florida's 350,000 per month. Further, Illinois reports $136 million in total amount borrowed over the last 10 months resulting in $20.8 million in fees. In contrast, Florida reports $1.63 billion in total amount borrowed over 12 months resulting in $175.3 million in fees. Clearly, Illinois's most recent report is missing a large segment of the market -- more than likely the new unregulated payday installment loans.
While many payday loan customers will receive the gift that keeps on taking this season, there is great news for some payday loan consumers. Congress recently passed legislation which was signed by President Bush that limits annual interest rates on payday loans to military families to 36 percent and provides additional critical consumer protections. Congress is telling lenders that they must not make loans to members of the military at exorbitant interest rates or under abusive terms.
The Monsignor John Egan Campaign for Payday Loan Reform asks why these important protections ought not to apply to all consumers in Illinois. Illinois should close legislative loopholes and enact strong consumer protections for all payday lending for all consumers in Illinois.
Spokesman Review, Richard Roesler, Staff Writer
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