By Kurt Erickson
June 21, 2010
Gov. Pat Quinn signed legislation Monday aimed at reining in high interest rates charged by payday lenders.
Under the measure, interest rates charged by consumer finance companies would be capped at 99 percent.
The law is the result of talks between consumer groups and lenders, who have been criticized for charging interest rates as high as 700 percent. The changes would place a cap of 99 percent on loans of less than $4,000 and 36 percent for those above that amount.
Attorney General Lisa Madigan, who supports the changes, said consumers should still be wary about taking out a loan through a payday lender.
“Payday loans should be your last resort in an emergency,” Madigan said.
The law will allow lenders to increase the term of loans from four to six months. And, in certain cases, it allows them to charge a monthly fee based on the amount of the loan. On a $2,700 loan, for example, the law allows them to charge an extra $100 in fees.
The Illinois Small Loan Association says the changes could result in some consolidation within the industry as the lenders adjust to the new rules and close less profitable stores.
The law doesn’t go into effect until next April.
The legislation is House Bill 537.