Payday Loan Practices, Payday Advance Lenders the Focus of Illinois Legislation
By J.J. CameronPayday Loan Writer
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 payday loan lending practices.
At the center of this effort is the Payday Loan Reform Act, passed last year to regulate payday loans with terms of 120 days or fewer. The new law is meant to protect consumers who enter into such long-term contracts with cash advance companies and lenders.
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 payday 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 these rules were in place, payday 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 payday 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 a payday loan agency from accepting post-dated checks, debit authorizations or wage garnishing for any loan with an interest rate higher than 36 percent.
Many smaller 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.”
April 7th, 2006 at 1:41 pm
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May 6th, 2006 at 4:10 pm
[…] As the Illinois legislature debates the issuse of payday loans, an ordinance to extend the moratorim on issuing cash advances was approved last week by City Council members. […]
June 1st, 2006 at 2:38 pm
[…] Circuit Judge Patrick Kelley said revocation by the Department of Financial and Professional Regulation took place weeks after he issued a temporary restraining order blocking the state from enforcing parts of the new Payday Loan Reform Act. […]
June 29th, 2006 at 10:47 am
[…] Just months after Illinois cracked down on the payday loan industry, Gov. Rod Blagojevich is making another push for consumer protections — one the industry says is too extreme. […]