Consumer advocates complain that lenders are switching
from short-term payday loans to longer-term installment loans to get around the
restrictions of payday loan reform legislation, which is limited to loan
durations of 120 days or less.
A joint study by the Woodstock Institute and the Public
Action Foundation, the research arm of Citizen Action/ Illinois,
found that since the law took effect last December, the annual interest rate on
payday loans fell to 351 percent from 573 percent.
But interest on installment loans rose to 387 percent
from 74 percent, the study found.
"This is a wolf in sheep's clothing," said
Lynda De Laforgue, co-director of Citizen Action/Illinois, of the longer-term
Payday loans are short-term loans for small amounts of
money — usually between $100 and $1,000 — secured against a post-dated check.
The industry says the loans provide a needed service to people who need quick
cash for emergencies, but consumer advocates say the loans prey on the poor
with triple-digit interest.
The reform law limits the interest that can be charged
for payday loans to $15.50 per $100, and caps loans based on a borrower's pay.
The law also shields borrowers from court costs, creates a repayment period
with no extra interest, and extends special protection to members of the
Bob Wolfberg, president of the Illinois Small Loan
Association, said the payday loan law outlawed a "consumer's choice"
product, so now consumers have to choose another product.
"This is about financial freedom and financial
choice," Wolfberg said. "Our customers chose which product they want
after reviewing the information." He said he has not seen an increase in
installment loan interest rates.
The purported growth in installment loans is the same
thing that happened last time the state passed payday loan rules. A 2000 rule
affected loans of 30 days or less. Within days, the lending industry extended
loans to 31 days.
Amanda Gutierrez, 30, who managed an AmeriCash Loans
store in Peoria until May, said the
store put a new policy into place in April that customers could not receive a
payday loan without permission from the district manager.
"You were supposed to talk them into an installment
loan, and that they were going to be better off," Gutierrez said.
One AmeriCash document showed an installment loan amount
of $150, with 12 monthly payments, and a total finance charge of $558.48,
making the annual interest 469.29 percent.
AmeriCash Loans Chief Operating Officer Jill Gruchot said
there is no policy to discourage payday loans. Gruchot could not comment on
whether the company was making more installment loans than it did in the past.