Governor Endorses Tough New Payday Loan Regulations
FOR IMMEDIATE RELEASE
September 12, 2000
Hearing on proposed shortterm lending rules set for September 13th
CHICAGO -- Armed with a study indicating the typical Illinois payday loan customer is a woman in her midthirties earning just over $25,000 per year, with an average of thirteen payday loans at 533% APR, Governor George H. Ryan today announced public hearings on the strict new proposed regulations to protect consumers and curb abusive lending practices in the payday and automobile title lending industries.
"Payday loan customers are often people of modest means that borrow money during times of personal financial crisis," said Governor Ryan. "I have heard heartwrenching stories of consumers who have borrowed modest amounts of money and made an honest effort to repay their debts, only to find themselves caught in a downward spiral of mounting interest and debt that they can't get out from under. The goal of these proposed payday loan rules is to protect these vulnerable consumers."
On May 6, 2000, Governor Ryan signed SB 355, which amended the Consumer Installment Loan Act and authorized the Department of Financial Institutions (DFI) to promulgate rules to protect payday loan customers. The rules proposed by DFI address the core problems that were discovered in the department's earlier study of the shortterm lending industry.
Under the proposed rules, payday loans would be limited to $300 and loans secured by an automobile title would be limited to $2,000. The rules would also establish a 30day coolingoff period between loans. In addition, loans would be limited to two rollovers with a mandatory paydown provision of at least 25% of the debt as a condition for each refinancing.
"After a few rollovers of payday loans, some consumers end up paying two, or even three or more times than the original amount of money they borrowed. Clearly, reasonable regulations that will prevent consumers from being gouged in instances like these are appropriate and necessary," Ryan said.
A typical payday loan customer who borrows $200 at an annual percentage rate (APR) of 521% will owe $240 at the end of two weeks. In six weeks, after two rollovers, this debt increases to $320. At the end of just two months and three loan rollovers, the original $200 loan escalates to a $360 debt.
Payday loans are intended to be shortterm loans that serve as a temporary financial stopgap for cashstrapped consumers. Borrowers write a postdated check against their next paycheck for the loan amount plus the lenders fee. In turn, payday lenders provide cash advances to the borrowers and deposit their postdated checks at the end of the specified loan period generally around two weeks. In exchange for this quick and easy access to cash, consumers pay high interest rates and fees. Problems commonly arise when payday borrowers are unable to cover their postdated checks and repeatedly rollover these loans incurring rapidly mounting debt.
"The Department of Financial Institutions believes the proposed rules will protect Illinois consumers from unscrupulous lending practices, while not unduly interfering
with the legitimate business practices of the many fair and honest lenders doing business in Illinois," said Sarah D. Vega, Director of the Department of Financial Institutions.
Consumers interested in commenting on the proposed shortterm lending rules are invited to testify at a public hearing to be held by the Department of Financial Institutions on Wednesday, September 13, from 2:005:00 p.m. at the James R. Thompson Center, 100 W. Randolph Street, Chicago. In addition, consumers may submit written comments regarding the proposed rules to the Department of Financial Institutions for consideration.