By Adam Doster
April 5, 2010

Consumer advocates are inches away from closing a loophole in the Illinois Payday Loan Reform Act (PLRA) that lenders have perniciously exploited since the law went into effect five years ago.  They are mobilizing around a bill (SB 655) that would place common-sense restriction on consumer installment loans (CILA).  These financial products have longer terms than the regulated payday loans, but similarly exorbitant interest rates and, in many cases, much higher principals.

The measure has been granted an April 15 deadline extension in the Senate and several additional members have signed on as co-sponsors in the past month.  Two major installment loan trade associations support the bill, too.  In the depths of a recession, when economically vulnerable citizens will do virtually anything to make ends meet, the wind is at the backs of reformers.

But standing in their way are some powerful interests in Springfield. Chief among them is Americash, the sixth largest (PDF) CILA lender in the state.  As such, their lending practices deserve serious scrutiny.

Since pushing CILA loans in the aftermath of the payday loan reform bill, Americash has been sued for using virtually the same marketing, application criteria, and interest rates as before.  Moreover, they’ve also spent a great deal of time in court as plaintiffs, according to an in-depth analysis conducted for Progress Illinois by labor and political consultant Don Wiener. It turns out that when poor borrowers across the region default on Americash’s high-interest installment loans, the company aggressively pursues recompense through the judicial process.  And the frequency of such cases has skyrocketed in recent years, suggesting that the CILA loans may be creating even more of a debt trap for consumers than their payday loan predecessors.

Using data from the Circuit Court of Cook County (made available by LexisNexis), Wiener found that Americash filed 1,800 wage garnishment liens or lawsuits in Cook County and (at least) 233 in the four collar counties between 2003 and 2009. By requesting garnishment, the lender is asking the court to deduct money directly from the salary of the borrower to make payments on a defaulted loan. Of the 12 payday loan companies that registered more than 25 lawsuits between 2006 and 2009, Americash filed over seven times more than its next closest competitor. The speadsheet below illustrates this discrepancy:

Wiener did not analyze how many actual liens resulted from this litigious activity or how much the defendants owed on average. But a 2006 study (PDF) by the Woodstock Institute should gives us some idea. Analyzing the court records of 194 cases filed in 2005 and 2006 in which Americash sought damages, the average court award was $1,894. That’s double the average loan principal ($930) owed in those cases. It’s also far more than folks taking out installment loans can afford, particularly because the average attorney fee was $343. Weiner’s more recent research found dozens of garnishments in which the amount sought exceeded $5,000 in value.

Court records also show that only a small portion of Americash garnishments are vacated by a judge. In fact, Woodstock found that 41 percent of cases ended with default judgments in which the judge made a binding judgment in favor of Americash because the borrowers failed to show up for their court date. So it’s safe to assume that Americash wins in the majority of the cases it files.

Who is targeted for garnishment? Women (72 percent) made up the largest portion of loan borrowers taken to court. Sixty-nine percent lived in low- or moderate-income neighborhoods. And almost 90 percent of cases were located in communities of color.

There are a few things to keep in mind when looking through this data. First, while these cases obviously represent some of the more extreme instances of delinquent debt, countless other Americash customers who take out loans with similar terms undoubtedly fall behind on their payments and are forced to take drastic steps to clear their credit.

Wiener’s chart also proves that the number of garnishments increased after the General Assembly passed the PLRA in 2005. That’s exactly why consumer advocates are fighting to regulate the CILA loans that many former payday lenders are using as a substitute product. And the ongoing recession will likely lead to even bigger spikes in garnishments. A New York Times’ piece on Friday reported the downturn “has produced a big increase in the number of delinquent borrowers, and creditors are suing them by the millions.”

Because Cook County is the only county in Illinois to post online all lawsuits and liens filed in civil court, we can’t check whether these trends extend to other parts of the state. But it’s conceivable that other large CILA lenders operating elsewhere could also be garnishing wages at a similar pace.

Meanwhile, as the folks at Americash claw back wages from the working poor, they’re turning around and spending tens of thousands of dollars to bankroll lobbyists and grow the warchests of politicians. Since 2005, for example, the lender has donated $113,750 to Illinois lawmakers, including almost $20,000 this election cycle.

The research from both Wiener and Woodstock is instructive. Even with the PLRA on the books, the small-dollar loan industry is still skirting simple regulations. And when borrowers can’t pay their ridiculous fees and interest rates, lenders like Americash are ruthless about seeking out those debts. The working poor “have difficulties maintaining payments on life’s necessities with their full paycheck,” an Atlanta-based legal aid lawyer told the Times. “You lose 25 percent of it and everything folds.”

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