Illinois Governor Extends Restrictions on Payday Loans Across State
By J.J. CameronPayday Loan Writer
Illinois Governor, Rod Blagojevich, is serious about ridding his state of payday loans. However, after passing new consumer protections on the cash advances throughout the state, he witessed an unfortunate consequence:
- The number of payday loans went down, but the number of low-dollar "installment" loans charging high interest went up.
Now, the governor is fighting back. Blagojevich is using his rule-making power to extend the aforementioned protections to high-interest installment lending. An editorial in The Southern Illinoisan says this is "a good idea." But refers to Blagojevich's quote about payday loan lending as "legal form of loan-sharking" as a bit over-the-top.
A time and place for payday loans: There are some sharks out there, for sure, but payday advances fill a real need for consumers who live paycheck-to-paycheck. What if a car breaks down? It will cost $100 to fix and payday is a week away. The bank won't make a loan that small, and you don't qualify for a credit card. But the payday loan lender will lend you $100 for $115.50, payable in 13 days.
The problem comes when borrowers make a habit of rolling over payday loans at higher and higher interest. With that in mind, the Illinois legislature passed limits on fees - the size of loans and the number of roll-overs allowed. Borrowers who can't pay up when they hit the rollover limit can pay off the loan over time without additional interest. And lenders can't threaten debtors with jail.
That was good for consumers, but it cut into lenders' profits. A loophole was quickly found. The payday loan legislation applied only to online payday loans for terms of 120 days or less. Thefefore, the lenders made the loans longer and jacked up the interest rates. Uh-oh.
This put borrowers with already shaky finances at an even greater risk of drowning themselves in debt. Mr. Blagojevich wants to extend protections to installment loans charging interest rates above 36 percent. As a result, such lenders wouldn't be able to accept post-dated checks as collateral, automatically debit the borrower's bank account or collect through wage assignments.
Moreoverm, there would be special protections for people serving in the armed forces and in need of military payday loans. That should get the payday industry back to what it ought to be: a reasonably profitable service for people in a temporary jam; rather than an abusive form of lending that ensnares people with bad habits and bad credit in never-ending debt.
