In the long battle over payday loans, we stand at a crossroads. Woodstock Institute is mobilizing an Illinois’ coalition of consumers and concerned citizens to protect the federal payday and title loan protections from repeal by Members of Congress. If such protections had been in effect in 2015, they could have kept 65,000 Illinoisans from borrowing over 200,000 payday loans, which average 323 annual percentage rate (APR). [1] Payday loans and other short-term, high-interest loans are notorious for keeping low-income folks trapped in a cycle of debt, often called the “debt trap.” Woodstock has organized an Illinois coalition to help stop the debt trap and to protect consumers. Contact Jenna Severson at jseverson@woodstockinst.org for more information and to get involved.

Illinois has a variety of consumer protections, but consumers are still at risk of getting a loan that they cannot afford to repay. It is no secret that payday and title loans are expensive. Triple-digit interest rates are the norm. Illinois has the fourth highest payday and title lending fees in the nation, costing Illinois families over a half billion dollars per year – $270,204,194 in payday loan fees and $233,259,868 in title loan fees, according to the Center for Responsible Lending. Illinois law does not require payday and title lenders to determine that the borrower has the ability to repay the loan.

Research[2] from the Consumer Financial Protection Bureau (Consumer Bureau) shows more than four out of five payday loans are re-borrowed within a month, and the majority of payday loans are borrowed by consumers who take out at least 10 loans in a row. Such trends demonstrate why the Dodd-Frank Act gave the Consumer Bureau the authority to regulate payday loans at the federal level.

The Consumer Bureau released its long-awaited final rule on payday and auto title loans on October 5, 2017.  The core of the new rule is the establishment of “ability to repay” (ATR) protections.  This means that for most[3] payday and auto title loans payable in 45 days or less, the lender will be required to determine whether the consumer has the ability to repay the loan based on the consumer’s income and expenses.  “Ability to repay” means the consumer could repay the loan in full when due and still meet basic living expenses and major financial obligations. The rule also creates “payment protections” for both short-term payday loans and longer-term title and installment loans.  A significant payment protection the rule offers against abusive collection practices is its limitation on the number of times (two) a lender can attempt to debit a borrower’s bank account before getting new and specific authorization from the borrower. While not perfect — the protections would not apply to the vast majority of Illinois title loans or installment payday loans (IPLs) — the federal rule is worth preserving.

As part of the Trump Administration’s goal to deregulate financial services and roll back consumer protections enacted under the Obama Administration and its appointees, Members of Congress filed a resolution to repeal the Consumer Bureau’s final payday and title rule on December 1, 2017. If the Congress passes the resolution pursuant to the Congressional Review Act, the payday and title loan protections will be repealed. Further, the Consumer Bureau will be prohibited from enacting any similar protections without specific authorization from Congress. As a result, thousands of Illinois consumers would continue to be trapped in debt through payday loans that they cannot afford to repay. If the payday and title loan rule survives the pending Congressional attack, it will be the first nationwide consumer protections from payday and title loan debt traps.

Please join Woodstock Institute in fighting to preserve the Consumer Bureau’s payday and title loan protections. Contact Jenna Severson at jseverson@woodstockinst.org  or at (312)368-0310 x.2023 to join our coalition and protect consumers.

 

 


[1]  Illinois-specific data can be found in the Illinois Trends Report 4/14/16 published by Illinois Department of Financial and Professional Regulation.

[2]  The Consumer Bureau has a detailed, six page fact sheet.

[3] The rule creates an exception to the ATR requirement for payday loans that meet certain requirements. Under this exception, called the “principal payoff option,” a lender could make three payday loans in succession, but only if the loans are $500 or less and the consumer pays off at least one-third of the original principal with each loan (e.g., Loan #1 = $450; Loan #2 = $300; Loan #3 = $150).

 

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