CHICAGO –Governor Rod R. Blagojevich today announced that the licenses of four The Payday Loan Stores of Illinois, Inc. (PLS) have been revoked for failing to run their business honestly and fairly under the constraints of the Consumer Installment Loan Act (CILA). In response to evidence that PLS and other lenders are circumventing the strong consumer protections enacted in last year’s pay day loan reforms, the Governor is supporting new rules that would stop unscrupulous lenders from forcing customers into loans that they cannot afford repay.
Short-term lending in Illinois is regulated by two separate laws, the Payday Loan Reform Act (PLRA) and the Consumer Installment Loan Act (CILA). The PLRA, which took effect last December, provides important consumer protections for loans with terms of 120 days or fewer. Aggressive enforcement of the PLRA has resulted in tens of thousands of dollars in fines during the first few months of the new law. However, lenders making short-term loans are still finding ways to circumvent the hard-won protections enacted last year and offer almost identical loans under CILA, which currently offers few, if any consumer protections.
Late Friday, the State filed an Order of Revocation for four PLS locations’ licenses. The revocation order is based on a complaint filed with the Division of Financial Institutions (DFI) and investigated by that division. The stores will be closed until they request a hearing date. Once a hearing is requested, the revocation order is generally stayed until the hearing process is completed. IDFPR is launching a detailed audit of all business practices of The Payday Loan Store Inc. to determine if other locations are violating state laws.
The Order is based on a clause in the Consumer Installment Loan Act (CILA) that provides that had the Department of Financial Institutions known at the time of application for a license the information it knows now, the application would have been denied. The Order Charges that:
o A consumer used a Social Security Number (SSN) that belonged to a deceased person.
o Stores were making loans to people with SSNs reported to be invalid.
o All four locations were engaged in falsifying signatures.
o All four stores discarded the consumer disclosure statements that stores must give their customers under the PLRA.
The Governor’s proposed rules ensure that families who need emergency cash loans will not be subject to unlawful and egregious collection practices, including garnishing the wages of members of the armed forces, threatening to use the criminal process to collect on a loan, charging interest on a consumer’s wages, or misleading consumers into waiving their rights. The rules would also prohibit companies from charging interest rates higher than 36% on loan products that accept wage assignments or access to funds in a borrower’s bank account.
A recent analysis of consumer loans offered to Illinois borrowers after enactment of the PLRA demonstrates that many companies, including PLS, have begun to sell 121+ day loans almost exclusively. Of the recent loans examined at PLS locations, 82% of their loans are now installment loans, or “Smart Loans.” The Smart Loan is a 140-day loan with fees that exceed the limits established by the PLRA. PLS, like most CILA licensees, had rarely offered a loan longer than 120 days prior to the PLRA taking effect last December. This troublesome trend allows companies to take a wage assignment and a post-dated check (just like payday loans) but does not hold lenders to the interest and fee limits included in the PLRA or protect borrowers from costly roll-overs or court costs associated with lender collection activities.
“We passed payday loan reforms last year to put an end to the exploitation of consumers. But now, many of these same companies are using bait and switch tactics to get around the law and charge consumers unaffordable, astronomical fees. That’s why we’re cracking down on lenders who violate the law, and it’s why we need new rules approved that would prevent these lenders from exploiting consumers in the first place,” said Governor Blagojevich.
“Because recent data indicates that most of the loans being offered to Illinoisans are not covered by the Payday Loan Reform Act, it is important that comparable protections be provided to customers of other short-term loans, said Dean Martinez, Secretary IDFPR. “Regulations to provide those protections have been proposed and I urge the public to share their views on the rules by sending an email to Rulecomments@idfpr.com
In addition to making sure consumers do not end up in an endless debt cycle, the information collected by the PLRA data base makes it easier for IDFPR to track the types of loans being offered and has made it easier to detect and prosecute fraudulent lending, like those outlined in the Revocation Order against Payday Loan Stores of Illinois.
Currently, there are 1301 payday or other short-term lenders in Illinois, a 21% increase over 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. According to IDFPR, last year lenders made 1.4 million payday loans, which generated $1.3 billion in receivables.
Once a rule has been filed with the Secretary of State, there is a 45-day 1st Notice period, during which industry groups, advocates and other concerned members of the public may file comments or request a public hearing. During the 2nd Notice period, also 45 days long, the rule, and any modifications or amendments, will be reviewed by the Joint Committee on Administrative Rules (JCAR). JCAR can request additional clarification or information from the Department that must be supplied during JCAR’s review. At the end of that time, if JCAR takes no action, the rule becomes permanent and any further changes must be filed through a new rulemaking process. In order to stop a rule from becoming permanent, 3/5 of panel must vote to overturn the rule.
The text of the Governor’s proposed rule follows:
Section 110.275 Consumer Protection Provision
All loans made pursuant to the Act must provide the following consumer protections:
a) Practices concerning members of the military.
1) A licensee may not garnish the wages or salaries of a consumer who is a member of the military.
2) In addition to any rights and obligations provided under the federal Servicemembers Civil Relief Act, a licensee shall suspend and defer collection activity against a consumer who is a member of the military and who has been deployed to a combat or combat support posting for the duration of the deployment.
3) A licensee may not knowingly contact the military chain of command of a consumer who is a member of the military in an effort to collect on a loan.
b) Prohibited acts. A licensee may not commit, or have committed on behalf of the licensee, any of the following acts:
1) Threatening to use or using the criminal process in this or any other state to collect on a loan.
2) Threatening to take any action against a consumer that is prohibited by this Act or making any misleading or deceptive statements regarding the loan or any consequences thereof.
3) Including any of the following provisions in loan documents:
A) a confession of judgment clause;
B) a waiver of the right to a jury trial, if applicable, in any action brought by or against a consumer, unless the waiver is included in an arbitration clause allowed under subparagraph (3)(C) of this paragraph;
C) a mandatory arbitration clause that is oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers; or
D) a provision in which the consumer agrees not to assert any claim or defense arising out of the contract.
4) Collecting treble damages on an amount owing from a loan.
c) If the finance charge of the loan exceeds an annual percentage rate of 36%, the licensee shall not accept any of the following:
1) one or more checks dated on the date written with the agreement to hold them for a period of days before deposit or presentment, or one or more checks dated subsequent to the date written with an agreement to hold them for deposit; or
2) one or more authorizations to debit a consumer’s bank account; or
3) an interest in a consumer’s wages, including, but not limited to, a wage assignment.