Financial; Pg. 63
February 4, 2005
coalition of consumer advocates and a group of payday lenders have put
together legislation they say will reform payday lending — preventing
fees on small consumer loans from soaring out of control.
groups say the proposed law, which could be introduced in Springfield
as early as today, is the first time consumer advocates and payday
lenders have joined together on reform legislation. Consumer advocates
behind the proposal say it protects consumers, and is fair to
businesses that offer short-term bridge loans.
wanted to develop consumer protections, but we also wanted to do so in
a way that allows people to take out a payday loan in Illinois,” said
Marva Williams, senior vice president of the Woodstock Institute, a non-profit research organization.
last thing I’m trying to do is put anybody out of business,” said Tony
Colletti, executive vice president of the Community Financial Services
Association, which represents about 60 percent of payday lenders
nationally. “We’re trying to make this work — we’d like to see a
solution in Illinois.”
Problems arise when
a borrower fails to pay back the loan within the agreed-upon time
period and refinances over and over, racking up new fees. A Chicago
Sun-Times investigation last summer found dozens of cases where small
loans turned into enormous debts: One woman who took out a $1,000 cash
loan ended up owing $10,743, mostly in accumulated interest.
attempts at passing payday loan reform legislation have failed. The new
proposed law is named for Monsignor John Egan, a deceased Catholic
priest who championed payday loan reform.
The legislation would:
*Cap finance charges at $16 per $100 loan. The current average fee is $44 for a 31-day loan, according to the Egan coalition.
the amount of debt a consumer could borrow to $1,000 or 25 percent of
his or her gross monthly income — whichever is less — to prevent
individuals from borrowing more than they can repay.
consumers to opt for a repayment plan after 35 days of outstanding
debt, with at least 56 days to repay on an installment plan without
additional interest or finance charges.
*Cap the number of payday loans a consumer can have outstanding, and offer special protections to members of the military.
not just about the interest rate. We attack the cycle of debt,” said
Gregary Brown, legislative liaison for Metropolitan Family Services,
which supports the bill.
“It’s a promising
beginning to reining in an industry which has been been preying on
vulnerable Illinois residents,” said state Sen. Jeff Schoenberg
(D-Evanston), who supports the bill.
Illinois Small Loan Association opposes the bill, saying it would
destroy small neighborhood payday loan stores and as many as 4,000
Illinois jobs. The association said the law will do nothing to protect
against Internet lenders or lenders that use out-of-state banks to
“What’s really happening is
that the CFSA is using the Egan group as their front. It’s attempting
to put us out of business,” said Bob Wolfberg, president of ISLA. He
said CFSA has used similar tactics in Indiana, North Carolina and
Texas. “This is the civil war within the industry.”
Adams, policy director at Citizen Action/Illinois, wrote the proposed
legislation, and said that it also applies to lenders who are not
headquartered in Illinois. About 21 other states have fee caps.
said he was not surprised at ISLA’s arguments. “They’re similar to what
we’ve heard previously. They’re designed to preserve the status quo,
which does nothing but harm Illinois consumers who get trapped in a
vicious cycle of debt.”
Payday Loan Reform
groups supporting a proposed payday loan reform bill include Citizen
Action/Illinois, the Chicago Federation of Labor, Metropolitan Family
Services, the Catholic Conference of Illinois, Protestants for the
Common Good, the Woodstock Institute and Sargent Shriver National Center on Poverty Law.
in support: the Community Financial Services Association, representing
about 60 percent of the national payday-advance business, including
publicly held Advance America Cash Advance Centers Inc.
the Illinois Small Loan Association, representing 80 percent of payday
lenders. The association says the law would force local owners to
eliminate as many as 4,000 jobs.
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