Thursday, June 29, 2006

Just months after Illinois cracked down on the payday loan industry, Gov. Rod Blagojevich (pictured) is making another push for consumer protections — one the industry says is too extreme.

Blagojevich, who has termed the industry a "legal form of loansharking," is trying to use his executive powers to act against the businesses instead of working through the General Assembly. Short-term lenders allege that this is an abuse of his authority.

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

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. Both the administration and community groups claim the cash advance providers are getting around those restrictions by promoting loans that last 121 days or longer.

To counter this, the Democratic governor is proposing new regulations for the industry, rather than a change in the law. That means that he doesn't need the support of the full Legislature, and the only legislative review will be from 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. "But we're going to do everything we can to try to get it done."

Blagojevich's aides conducted a news conference to trumpet the proposed restrictions on payday loans earlier this month after introducing them in February. The state's chief executive is also making a deft political play by challenging Treasurer Judy Baar Topinka, his Republican opponent in the November election, to lobby JCAR to pass the rules.

"Certainly, this governor has a record of diminishing public policy through press conferences and political stunts," said John McGovern, a spokesman for Topinka, who added that the issue should be addressed via the Illinois legislature. "Predatory lending is a serious issue and it deserves a serious debate with the input of the Legislature."

Critics say fast payday loan companies lure unwary customers into a cycle of debt using large interest rates that add up to big balances if they aren't paid off promptly. The restrictions that took effect in December were supposed to prevent that by instituting caps on the assessed fees, overall loan amounts and loan lengths.

Lenders are suing the administration over enforcement of that law, but the governor is undeterred, saying the short-term loan providers changed their tactics as soon as the law went into effect. They began steering people from payday cash loans to what are known as consumer installment loans — a largely unregulated option with egregiously high rates and few limits on how much people can borrow.

• One person borrowed $275, only to end 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.

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

Blagojevich said he decided not to take his proposal to the state's 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 also accepted tens of thousands of dollars from the industry.

Lenders are fighting hard, arguing it would eliminate options for consumers in need of short-term cash, put people out of work as as result, and stem a series of costly lawsuits. The industry asserts that no credit check payday loan firms can't be regulated by Blagojevich under the law, so any new rules must and will be challenged in court. They also insist they're simply following the law, and are not trying to deceive customers.

This entry was posted on Thursday, June 29th, 2006 at 10:47 am and is filed under Illinois.