Rates on Installment Loans Pick Up as Payday Loans are Regulated
By Paul RizzoPayday Loan Writer
The idea of passing a law in Illinois to limit rates on payday advances wasn't meant to have this affect:
The annual percentage rate on installment loans has shot up to more than 300 percent since since.
Consumer advocates complain that lenders are switching from short-term payday loans to longer-term installment loans to get around the restrictions of payday loan reform legislation, which is limited to personal loan durations of 120 days or less.
A joint study by the Woodstock Institute and the Public Action Foundation found that since the law took effect last December, the annual interest rate on payday loans fell to 351 percent from 573 percent. However, interest on installment loans rose to 387 percent from 74 percent, reported The Chicago Sun Times.
"This is a wolf in sheep's clothing," said Lynda De Laforgue, co-director of Citizen Action/Illinois, of the longer-term loans.
The industry says payday cash loans provide a needed service to people who need immediate money for emergencies, but consumer advocates say the loans prey on the poor with triple-digit interest.
The reform law limits the interest that can be charged for payday loans to $15.50 per $100, and caps loans based on a borrower's pay. The law also shields borrowers from court costs, creates a repayment period with no extra interest, and extends special protection to members of the military.
Bob Wolfberg, president of the Illinois Small Loan Association, said the instant cash loan law outlawed a "consumer's choice" product, so now consumers have to choose another product.
"This is about financial freedom and financial choice," Wolfberg said. "Our customers chose which product they want after reviewing the information."
In lieu of payday loans … The purported growth in installment loans is the same thing that happened last time the state passed payday loan rules. A 2000 rule affected loans of 30 days or less. Within days, the lending industry extended loans to 31 days.
Amanda Gutierrez, 30, who managed an AmeriCash Loans store in Peoria until May, said the store put a new policy into place in April that customers could not receive a payday loan without permission from the district manager.
"You were supposed to talk them into an installment loan, and that they were going to be better off," Gutierrez said.
One AmeriCash document showed an installment loan amount of $150, with 12 monthly payments, and a total finance charge of $558.48, making the annual interest 469.29 percent.
AmeriCash Loans Chief Operating Officer Jill Gruchot said there is no policy to discourage no fax payday loan use. Gruchot could not comment on whether the company was making more installment loans than it did in the past.
