SPRINGFIELD – Governor Rod R. Blagojevich, Lieutenant Governor Pat Quinn and Illinois Attorney General Lisa Madigan today commended the General Assembly and the Monsignor Egan Coalition for Payday Loan Reform on the passage of House Bill 1100, which will for the first time regulate the payday loan industry in Illinois and strengthen consumer protection against predatory and abusive practices.
“It’s awful when someone needs a loan, agrees to terms they really can’t afford, and then they get trapped in an endless cycle of borrowing and debt. It’s time we do something about that and with this bill, we can finally protect consumers from becoming the victims of predatory lending,” said Gov. Blagojevich. “I would like to congratulate State Representative David E. Miller, State Senator Kimberly A. Lightford and the Monsignor John Egan of Campaign for Payday Loan Reform for their hard work in passing this bill through the legislature. I’m looking forward to signing it into law.”
HB 1100, also known as the Payday Loan Reform Act, provides consumer protections by restricting payday lending in the following ways: it limits the interest that can be charged for each loan to $15.50 per $100; it limits total loan amounts to $1,000 or 25% of a customer’s monthly salary, whichever is less; it prevents borrowers from having more than two loans at a time; and it only allows borrowers to refinance their loan twice before they have to pay the loan off and then be loan-free for at least seven days before they can take another loan. These protections were created to prevent borrowers from being trapped in a cycle of debt with escalating interest costs and no restrictions on the number of loans they could have. To enforce these rules there will be a new state database that lenders will use to lookup the applicant’s payday loan record. If the new loan will violate the rules then the payday lender will not receive authorization to issue the loan. Borrowers will also receive information – in both English and Spanish – that outlines their rights and responsibilities before they take the loan.
Currently in Illinois there are no interest rate limits for payday loans. There are also no limits on the amount that can be loaned or on the number of loans a borrower can have at one time. There are 995 payday or other short-term lenders in Illinois, a 23% increase from last year. According to industry figures, the average annual percentage rate for short-term loans is 595%, and the average amount of a short-term loan is $380. The Illinois Department of Financial and Professional Regulation reports that last year lenders made 1.4 million payday loans, which generated $1.3 billion in receivables. Of that, 52% ($712 million) were customer payments for principal and 48% ($666 million) were payments towards interest.
“Payday Loan Reform is about protecting consumers from abuse by lenders, but it’s also about educating them about their rights so they can get out of debt sooner and regain control of their lives. Nobody can pay interest rates up to 720% on a loan. But until today, people were prosecuted on those debts, and had to pay additional court costs and attorneys fees. Payday loan reform is long overdue in Illinois, and has been accomplished with critical input from the Egan Coalition for Payday Reform, elected officials and lenders,” said the Governor.
“This vote is a clear victory for Illinois consumers. Until now, payday loans have been unregulated in Illinois because lenders have been able to use a loophole in the law. This has allowed unscrupulous lenders to gouge borrowers who find themselves in desperate need of short-term emergency cash. These borrowers became trapped in an endless cycle of debt, rolling over each old loan with a new one every time they became due. This new law will allow borrowers who cannot pay back the loan at the end of their third loan term to get out of debt by opting into an interest free repayment program during which no new loans can be written and the consumer has time to repay without any new fees or other costs being added to the loan,” said Attorney General Madigan.
“The bill also outlaws many oppressive collection practices that have been used by payday lenders to collect on their loans in the past, gives the Attorney General enforcement powers, makes violations subject to the sanctions and remedies in the Consumer Fraud Act and provides for a system to track the payday lending activity of lenders for enforcement purposes with the use of a real-time on-line reporting and data base,” Madigan added.
The new Payday Loan Reform Act also protects consumers by prohibiting the most abusive lending and collection practices now used by some lenders. Borrowers will no longer face criminal prosecution for bouncing a check and additional charges for damages, attorney’s fees and court costs because of the criminal prosecution. In the worst cases these additional charges can result in borrowers owing many times the original amount they borrowed. The bill also creates a new 56-day repayment period with no additional interest rate charges for borrowers who have trouble repaying their loans.
“For too long, payday loan operators took advantage of the most vulnerable consumers, including young members of the military,” said Lt. Gov. Pat Quinn. “This legislation curbs the spiral of debt so many Illinois residents have experienced due to predatory lenders. The late Monsignor Jack Egan, the legendary priest who took on this industry, would applaud this reform.”
“The passage of the Monsignor John Egan Payday Loan Reform bill means that Illinois families will no longer be trapped in high interest predatory payday loans. The Egan Coalition for Payday Loan Reform thanks the Governor and his staff for their leadership in helping to bring these much needed consumer protections to our state. We know that the late Msgr. Egan, who began this campaign six years ago, must be bursting his buttons with pride up in heaven. Father Egan was dedicated to protecting people who too often, in their hour of desperation, have fallen prey to unscrupulous lenders. We have taken a big step in honoring his legacy with the passage of this bill,” said Lynda DeLaforgue, co-director of Citizen Action/Illinois, one of the leading groups in the Coalition.
The Msgr. John Egan Campaign for Payday Loan Reform was convened by the late Msgr. Egan in 1999, after hearing the story of one his parishioners who was victimized by a payday loan. Msgr. Egan was outraged at the story and took on payday loan reform as one of his last fights for social justice. He convened a group of religious leaders, consumer advocates, public interest organizations and social service groups to form the Campaign for Payday Loan Reform, renamed after Egan following his death in May of 2001. Leaders of the coalition include Citizen Action/Illinois, The Woodstock Institute, Metropolitan Family Services, and Sargent Shriver National Center on Poverty Law.
“Regulation of the short-term payday loan industry is long overdue,” said State Rep. Miller (D-Dolton), the bill’s chief sponsor. “Consumers across the state, who have sought the services of a payday loan lender to solve a short-term financial problem, often find themselves facing greater financial difficulty. Over the last four years, I have worked with the Monsignor John Egan of Campaign for Payday Loan Reform/Citizen Action Illinois to pass meaningful reform legislation. I thank the leadership of the Governor, Attorney General and the General Assembly who helped overwhelmingly pass legislation to protect the citizens of Illinois.”
“Payday loans can cause people’s lives to go into a tailspin because it is a constant cycle of debt that the borrower feels like he can never repay. Many times consumers will take out additional loans to pay the fees of their original payday loan. It is a never ending financial battle,” said Sen. Lightford (D-Maywood), the bill’s chief sponsor in the Senate.
The Illinois Department of Financial and Professional Regulation will license payday lenders and enforce the new Payday Loan Reform Act. “Payday lending is one of the fastest growing types of consumer credit in Illinois. For too long, there has not been adequate protection for the borrowers and too much control by the lenders. This bill ensures that loan borrowers receive the protection they deserve,” said Illinois Secretary of Financial and Professional Regulation Fernando Grillo. “People who are forced to rely on payday lenders for emergency loans are particularly vulnerable to threats and overcharging.”
HB1100 passed House concurrence today by a vote of 116-0, after passing the Senate last week by an almost unanimous vote.