New rules seek to reform small loans
April 5, 2006 - Aurora, Illinois
The recent allegations against the Payday Loan Store of Illinois Inc. are merely the latest step in an effort by the state to reform short-term lending practices.
At the center of this effort is the Payday Loan Reform Act, passed last year to regulate loans with terms of 120 days or fewer. Stores like the ones owned by Payday Loan generally give short-term, high-interest loans, usually for less than $1,000, and the new law is meant to protect consumers who enter into such contracts.
However, according to Dean Martinez, secretary of the Illinois Department of Financial and Professional Regulation, some vendors are finding a way around the new law, which provides many restrictions for short-term loans, including capping finance charges at $15.50 per $100.
"The Payday Loan Reform Act refers to loans that last 120 days or less," he said. "So one could argue that anything over 120 days is not under the PLRA. We're trying to rectify that."
Before the Payday Loan Reform Act, loans were only regulated by the Consumer Installment Loan Act, a relatively permissive law. The act, for example, does not mandate verifying Social Security numbers before accepting a loan application, while the Payday Loan Reform Act does.
Consequently, Martinez said, many lenders are switching to 130- or 140-day loans to circumvent the provisions of the new law.
According to the state, a recent analysis of consumer loans showed that many companies, including Payday Loan, offer 121-plus-day loans almost exclusively. The study showed Payday Loan in particular offering "Smart Loans," which last 140 days and have terms well beyond the reform act limits.
In response, Martinez has proposed new rules to govern Consumer Installment Loan Act loans, and provide further protections to consumers. The new rules would prohibit lenders from accepting post-dated checks, debit authorizations or wage garnishing for any loan with an interest rate higher than 36 percent.
Many smaller loan vendors, Martinez said, offer rates ranging from 700 percent to 1,300 percent.
Gov. Rod Blagojevich supports the proposed rules.
"We passed payday loan reforms last year to put an end to the exploitation of consumers," he said. "But now, many of those same companies are using bait-and-switch tactics to get around the law and charge customers unaffordable, astronomical fees."
Payday Loan Store owner Bob Wolfberg, who is also president of the Illinois Small Loan Association, has opposed reform measures in the past, including the Payday Loan Reform Act, which he has said would destroy the small-loan business and eradicate Illinois jobs. The Illinois Small Loan Association represents, by its count, 80 percent of the small-loan business in Illinois.
Wolfberg said he is in favor of 90 percent of the proposed rules, but takes issue with those regarding post-dated checks and other forms of debt collection.
"We believe those violate the law," he said, "and department rules can't violate state-mandated law. We hope to sit down with the department and show them that these rules are illegal."
The Beacon News, Andre Salles, Staff Writer
Related Stories - Illinois
- Illinois' payday loan problem is far from over [December 27, 2006]
- 'Marketplace' on payday loans: 'Trapped in Financial Quicksand' [November 30, 2006]
- Report blasts payday lenders [November 25, 2006]
- Dan Rather Reports criticizes payday loan industry [November 23, 2006]
- Illinois fines payday lenders $500,000 in 10 months [November 1, 2006]
- Blagojevich's payday lending reforms save Illinois borrowers $6.4 million [October 31, 2006]
- PLS payday loan store donates $18,000 to schools [October 22, 2006]
- Blagojevich calls for federal payday lending protections [September 7, 2006]
- Payday loan crackdown ... Blagojevich aide politicizing issue [July 12, 2006]
- Illinois State: Fine AmeriCash for alleged overcharges [July 7, 2006]
- Blagojevich turns up heat on payday lenders again [June 28, 2006]
- Payday lenders win one in court [June 1, 2006]
- New rules seek to reform small loans [April 5, 2006]
- State revokes licenses [April 5, 2006]
- Payday loan law put on hold [February 11, 2006]
- Illinois issues fines under new payday loan law [December 21, 2005]
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