February 5, 2006
The Monsignor John Egan Payday Loan Reform Act, which was signed into law in June by Gov. Rod Blagojevich, recently took effect.
“The most important thing about the new law is that it will protect
vulnerable consumers from getting caught in an endless cycle of debt,”
said William McNary, co-director of Citizen Action/Illinois.
Tom Feltner, policy analyst for the Woodstock Institute, outlined the key consumer protections provided by the law:
- A fee cap to reduce the cost of using payday loans.
- An industry-wide cap on borrowing to prevent over-borrowing.
- A recovery period to break the cycle of debt created by back-to-back loans.
- A repayment plan to help borrowers in over their head make good on their debts.
- Special protections for military personnel.
- A statewide consumer reporting service for enforcement.
The Monsignor John Egan Campaign for Payday Loan Reform was started by
the late namesake in 1999, after hearing the story of one of his
parishioners who was victimized by a payday loan.
He convened a group of religious leaders, consumer advocates, public
interest organizations and social service agencies to form the
campaign. It was named in Egan’s honor after his death in 2001.
Despite the legislation, those from the campaign still caution consumers about similar loans.
“There are still many look-alike products on the market such as auto
title loans, checkbook loans and installment loans,” said the Rev.
Jennifer Kottler, deputy director of Protestants for the Common Good.
“Most likely these loans don’t yet have the same consumer protections
that payday loans will now have. Consumers need to be aware of these
alternative products and steer clear of them, if possible.”
Gregary Brown with Metropolitan Family Services added, “We continue to
urge consumers to contact Metropolitan Family Services or other
agencies that can help them to seek alternatives to payday loans.”
The Monsignor Egan Campaign for Payday Loan Reform offered the following suggestions for consumers:
Seek out reputable consumer credit counseling services to assist with
budgeting and help to work out debt repayment plans that will improve
your financial welfare.
- Look for lower cost sources of credit, such as your credit union, traditional small loans or cash advances on a credit card.
- Arrange overdraft protection at your bank.
- Deal directly with creditors to negotiate a payment plan.
- Obtain a cash advance from your employer.
- Start saving so you can weather unexpected expenses and drops in income.
It is much cheaper to borrow from your nest egg than to pay high fees for two-week or one-month loans.
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