Tuesday, July 11, 2006

Two lawmakers from Chicago's south suburbs will be instrumental in helping shepherd the rules proposed by Illinois Gov. Rod Blagojevich to toughen payday loan practices.

The regulations would protect consumers from exorbitant fees and unlawful collection practices by lenders trying to circumvent the Payday Loan Reform Act.

State Sen. Maggie Crotty (a Democrat from Oak Forest) and State Rep. David Miller (a Democrat from Dolton) are members of the Joint Committee on Administrative Rules, which will meet Tuesday and vote on the rules that have been subject to a 45-day comment period.

A super majority of votes, or eight members of the 12-member, bipartisan committee, composed of equal numbers of senators and representatives, is needed to stop the rules from taking effect. Miller is looking for fairness and a sense of standardization within the payday industry, in order to rid Illinois of the bad seeds. Crotty agreed.

"When people (issue) loans, they can see how much that person is making. They are lending money to people who cannot make those kinds of payments," Crotty said.

• The Payday Loan Reform Act was drafted to apply to loans that are made for 120 days or less. Most payday advances are made for 15 days or less.
• Miller was the chief sponsor of the Payday Loan Reform Act, which took effect last year. After its passage, average fees decreased 68 percent.
• Before the passage of the act, $320 payday loans would cost approximately $144 in fees.
• The same loan now only costs $47, according to data from the Woodstock Institute, a Chicago-based non-profit organization promoting reinvestment and economic development in lower-income and minority communities.

That's all well and good, but the governor and his allies say payday loan companies have circumvented the act with "lookalike" loans that have the same high fees and interest rates, but have extended terms to 121 days or more. Therefore, these loans fall under the Consumer Installment Loan Act, which does not afford the same protections — and longer-term installment loans can cost as much as $530 in fees for the same $320 payday loans."Most installment loans that were offered before the Payday Loan Reform Act cost much less than they do now. We see lenders raising their rates." Tom Feltner, Woodstock Institute policy analyst, said.

Dean Martinez, Secretary of the Illinois Department of Financial and Professional Regulation, said the agency has one complaint from a consumer who took out a $275 short-term payday loan online and now owes $2,750.

"They have made over $1 billion in revenue last year in this state alone," he said. "Individuals are being constantly rolled over and the end result is they pay an enormous amount of money on what was supposed to be a small, short-term loan."

Under the proposed rules, companies would be banned from charging interest rates in excess of 36 percent on short-term consumer loans that fall under the Consumer Installment Loan Act. Companies would also be prohibited from claiming the wages of the military or contacting their commanding officers. Companies would also be banned from making threats of criminal charges for failure to pay or coercing borrowers into unfair arbitration proceedings.

"The person who takes out a payday loan is not the person that first comes to mind by the public. It's generally a state or federal employee or military personnel," Martinez said. "They are on leave and they want as much money as they can get, quick, and may not care about the interest rate because then they go back to war."

This entry was posted on Tuesday, July 11th, 2006 at 7:09 am and is filed under Illinois.