Financial Reform & Predatory Lending Reform
Citizen Action/Illinois continues our work to reform regulations on payday loans in Illinois, which lock Americans into an insurmountable cycle of debt. For more information on the Monsignor John Egan Campaign for Payday Loan Reform, or if you have had trouble with payday, auto title or installment loans, contact Lynda DeLaforgue at Citizen Action/Illinois, 312-427-2114 ext. 202.
The Monsignor John Egan Campaign for Payday Loan Reform
The Campaign for Payday Loan Reform began in 1999, shortly after a poor woman came to confession at Holy Name Cathedral and spoke tearfully of her experience with payday loans. Monsignor John Egan assisted the woman in paying off both the loans and the interest, but his outrage towards the unscrupulous lenders had only begun. He immediately began calling friends, organizations, and associates to try to challenge this contemporary usury. Shortly after his death in 2001, the coalition he helped to create was renamed the Monsignor John Egan Campaign for Payday Loan Reform. Citizen Action/Illinois convenes the Egan Campaign.
Victories for Consumers!
On June 21, 2010 Governor Quinn signed into law HB537 – The Consumer Installment Loan Act. With the passage of HB537, consumer advocates scored a significant victory in a state that, just a few years ago, many industry observers claimed would never see a rate cap on payday and consumer installment loans. The new law goes into effect in March of 2011 and caps rates for nearly every short-term credit product in the state, prevents the cycle of debt caused by frequent refinancing, and gives regulators the tools necessary to crack down on abuses and identify potentially predatory practices before they become widespread. HB537 will also make the Illinois lending industry one of the most transparent in the country, by allowing regulators to collect and analyze detailed lending data on both payday and installment loans.
For loans with terms of six months or less, the law:
- Extends the existing rate cap of $15.50 per $100 borrowed to previously unregulated loans with terms of six months or less;
- Breaks the cycle of debt by ensuring that any borrower choosing to use a payday loan is completely out of debt after 180 consecutive days of indebtedness;
- Creates a fully amortizing payday product with no balloon payment to meet the needs of credit-challenged borrowers;
- Keeps loans repayable by limiting monthly payments to 25 percent of a borrower’s gross monthly income;
- Prohibits additional fees such as post-default interest, court costs, and attorney’s fees.
For loans with terms of six months or more, the law:
- Caps rates at 99 percent for loans with a principal less than $4,000, and at 36 percent for loans with a principal more than $4,000. Previously, these loans were completely unregulated, with some lenders charging in excess of 1,000 percent;
- Keeps loans repayable by limiting monthly payments to 22.5 percent of a borrower’s gross monthly income;
- Requires fully amortized payments of substantially equal installments; eliminates balloon payments;
- Ends the current practice of penalizing borrowers for paying off loans early.
Read about victories for consumers at the Chicago Appleseed blog:
Illinois Payday Loan Reform Takes Hold (May 5, 2011)
Payday Lenders Lose Initial Bid to Block Law (March 24, 2011)
Auto Title Lending
On January 13, 2009, the Joint Committee on Administrative Rules (JCAR) adopted proposed amendments to the rules implementing the Consumer Installment Loan Act issued by the Illinois Department of Financial and Professional Regulation. These rules represent an important victory for consumers in Illinois.
The rules eliminate the 60-day limit from the definition of a short-term, title-secured loan. Given the average title loan in Illinois has a term of 209 days – long enough to ensure that it would not be subject to the rules as currently written – IDFPR rightly deleted the loan term as a trigger for applicability. The deletion of the term from the definition of a title-secured loan gives IDFPR broader authority to regulate industry players and protect consumers. Similarly, to address increasing automobile title loan principals, IDFPR increased the maximum principal amount within the definition to $4,000. The new rules will also require the industry to utilize a consumer reporting service and provide consumers with equal, periodic repayment plans.