April 6, 2006
Editorials, Featured Letter, pg. 34
Unfortunately, these alleged violations do not surprise me.
After a long and challenging history of attempts to enact reforms that were often blocked by the powerful payday loan industry in Illinois, the Payday Loan Reform Act went into effect in December 2005.
The reforms, which were carefully crafted by the Woodstock Institute and the Monsignor John Egan Campaign for Payday Loan Reform, were established in response to consumer, industry and regulatory trends in Illinois.
The act provides key consumer protections for payday loans with terms of 120 days or less, including mechanisms to prevent overborrowing, a fee cap, a cooling off period between loans and a repayment plan. At the time the act was crafted, most payday loans in Illinois had terms of 31 days or less.
Consumer and community organizations as well as state officials were concerned that because the Payday Loan Reform Act applies to loans with terms of 120 or less, the payday loan industry would circumvent the law by making loans with terms over 120 days. Therefore, the state, with the support of the Egan Campaign, developed directives that extended the consumer protections to all payday loans, including those with terms over 120 days. These directives are awaiting approval by state legislators.
It turns out that the Egan Campaign and state regulators were correct to suspect that the payday loan industry would attempt to sabotage the law.
Recent research shows that one-third of payday loans made to Illinois consumers in early February have terms over 120 days. And these lenders not only are subverting the law, they are charging higher prices than ever before for these “look alike” loans, often called “installment” or “checkbook” loans. Just two years ago, a borrower taking out a $300 installment loan for five months would pay just $86 in fees. Now, this same product will cost a borrower $446 in fees.
Illinois consumers deserve the common-sense protections provided by the Payday Loan Reform Act. While the recent enforcement action sends a clear message to payday lenders that the State of Illinois is no place for abusive lending, it is critical that the directives protecting consumers regardless of the type of payday loan they choose be approved.
Marva E. Williams
senior vice president,
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