By Adam Doster

April 29, 2009


Contrary to whatever you may hear from Rep. Luis Gutierrez in
Washington, the payday loan reforms on the books in Illinois do not
adequately protect consumers. Regulations that were established when
the General Assembly passed its major reform bill in 2005 defined a
payday loan as one with a term of 120 days or less. Following the
passage of this measure, lenders circumvented it by stretching their
terms one day beyond that limit, which qualified them as purveyors of
"consumer installment loans" under a 1963 law. A recent report from the
Woodstock Institute found that these small-dollar installment loans —
including subprime auto loans, retail installment loans, personal lines
of credit, and check solicitation loans — face little oversight and no
restrictions on interest rates.

The Monsignor Egan Coalition for Payday Loan Reform — a broad
coalition of labor, community groups, faith-based organizations, and
consumer advocates — is trying to change that. The group is rallying
behind SB 1435, which would reform the Consumer Installment Loan Act
(CILA) by establishing reasonable rates and fair finance charges on
these products. Specifically, the bill would cap interest rates on
installment loans at 99 percent APR, index the loans based on a
borrower’s ability to pay, and would require loans to be paid off in
equal monthly installments with no balloon payments. Rep. Julie Hamos
(D-Evanston), a consistent consumer rights advocate and House sponsor
of the legislation, explained at a Springfield press conference
yesterday that the coalition is trying to strike a balance between the
needs of unbankable consumers and the viability of the industry.
Unfortunately, the clout-heavy lenders have 60 lobbyists fighting the
bill tooth-and-nail. Watch it (full video available on Blue Room

Establishing a ceiling of 99 percent interest on installment loans
is still quite generous. Even so, Deputy Secretary of the Department of
Financial and Professional Regulation Brent Adams estimates that SB
1435 would save consumers $850 million per year. Sen. Jackie Collins
(D-Chicago), one of the two senate sponsors, says the General Assembly
has a "moral obligation" to close the loophole.

In 2007, the House Financial Institutions Committee killed a
measure intended to plug the loophole in the original Payday Loan
Reform Act. At the time, some legislators on the committee explained
that they would prefer to deal with the issue through CILA. Now they
have their chance. We’ll see if they follow through.



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