By Jennifer Golz
July 10, 2006
Two south suburban lawmakers will be instrumental in helping shepherd Gov. Rod Blagojevich’s proposed rules to toughen "payday" lending practices in what has become a billion-dollar industry.
The rules are in the form of an amendment to the Consumer Installment Loan Act and would protect consumers from exorbitant fees and unlawful collection practices by lenders that are trying to get around the Payday Loan Reform Act.
State Sen. Maggie Crotty (D-Oak Forest) and state Rep. David Miller (D-Dolton) are members of the Joint Committee on Administrative Rules, which will meet Tuesday and vote on the proposed rules that have been subject to a 45-day comment period.
A super majority of votes, or eight members of the 12-member bipartisan committee, composed of equal numbers of senators and representatives, is needed to stop the rules from taking effect.
Miller said he is looking for fairness and a sense of standardization within the payday loan industry, as "there are some bad apples."
"When people (issue) loans, they can see how much that person is making," she said. "They are lending money to people who cannot make those kinds of payments."
Payday loans are short-term loans, typically 15 days, in exchange for a post-dated check. Because the loans are high risk, they carry higher fees and interest rates than bank loans.
Miller was the chief sponsor of the Payday Loan Reform Act, which took effect last year. After its passage, average loan fees decreased by 68 percent.
A $320 payday loan before the passage of the act would cost approximately $144 in fees, but after the act became law, the same loan only cost consumers about $47, according to data from the Woodstock Institute.
The institute is a Chicago-based nonprofit organization that promotes reinvestment and economic development in low-income and minority communities.
The Payday Loan Reform Act was drafted to apply to loans that are made for 120 days or less. Most payday loans have terms of just 15 days.
But payday loan companies have circumvented the act with "lookalike" loans that have the same high fees and interest rates, but have extended terms to 121 days or more. Therefore, these loans fall under the Consumer Installment Loan Act, which does not afford the same protections.
The longer-term installment loans can cost a consumer as much as $530 in fees for the same $320 payday loan.
"Most installment loans that were offered before the Payday Loan Reform Act cost much less than they do now," Tom Feltner, Woodstock Institute policy analyst, said. "We see lenders raising their rates."
It is not uncommon for the payday loan industry’s "lookalike" loans to quadruple fees.
Dean Martinez, secretary of the Illinois Department of Financial and Professional Regulation, said the agency has one complaint from a consumer who took out a $275 short-term installment loan and now owes $2,750.
"They (payday loan companies) have made over $1 billion in revenue last year in this state alone," he said.
"Individuals are being constantly rolled over and the end result is they pay an enormous amount of money on what was supposed to be a small, short-term loan," Martinez said.
Under the proposed rules, companies would be banned from charging interest rates in excess of 36 percent on short-term consumer loans that fall under the Consumer Installment Loan Act.
Companies would also be prohibited from garnisheeing the wages of military members or contacting their commanding officers.
And companies would be banned from making threats of criminal charges for failure to pay or coercing borrowers into unfair arbitration proceedings under the proposed changes.
"The person who takes out a payday loan is not the person that first comes to mind by the public," Martinez said. "It’s generally a state or federal employee or military personnel."
For many, an untimely bill will warrant the use of a payday loan but members of the military have been a target of the industry simply because of their situation, he said.
"They are on leave and they want as much money as they can get, quick, and may not care about the interest rate because then they go back to war," Martinez said.