CHICAGO –Governor Rod R. Blagojevich announced today that the Payday Loan Reform Act (PLRA) he signed into law last year has helped thousands of Illinois borrowers save $6.4 million in loan fees and interest charges in just ten months. According to findings from a report released by the Illinois Department of Financial and Professional Regulations (IDFPR), the savings resulted from the new law’s consumer protections that limit the amount of interest and fees payday lenders can charge their customers. The savings came in spite of concerted efforts by the lending industry to steer consumers away from the regulated payday loans, into longer, less controlled consumer installment loans.
“When a working family looks for financial assistance to help them get through a hard time, they shouldn’t end up in worse debt. But that’s what was happening all over Illinois when payday lenders were free to charge outrageous interest rates and collect hidden fees. We changed that by putting clear limits on the amount they can charge, so when a consumer gets a payday loan, they know up front how much it will cost to pay off the loan. As a result of our reforms, hard working Illinois families have saved more than six million dollars over the past ten months,” said Gov. Blagojevich. “But we still need to do more to prevent lenders from going around the new restrictions and using installment loans to continue charging abusive interest rates and fees.”
The report found that between 45,000 and 60,000 payday loans are issued in Illinois every month, and provided new details about the lending patterns and amounts borrowed by Illinois short-term borrowers. The data for the report was collected by Veritec, the state contractor that manages the loan data base, and covers the 10 months since the new law took effect last December through September of 2006.
In the past 10 months, Illinoisans have borrowed $136 million in payday loans and have paid approximately $20.8 million in loan fees and interest charges. The average Illinois payday loan is for $334.69, and the borrower pays about $51.07 in fees and interest, or $15.30 for every $100 borrowed. Before the PLRA took effect, the average fee for short term loans was $20 per $100 borrowed. Had the law not been in effect, Illinois consumers would have paid $27.2 million in loan fees and interest charges on that money.
Payday loans are defined as loans of less than 121 days secured against a post-dated check, an authorization to automatically debit the borrower’s checking account, or an authorization to deduct payments directly from the borrower’s paycheck. Historically, these loans carry very high interest rates. Such loans become a problem when consumers cannot repay them in the short time allowed, after borrowing a substantial amount against their paychecks. Before this law took effect, consumers had to renew or “rollover” the loan and pay additional fees until they paid the loan back. Under the Payday Loan Reform Act (PLRA), consumers can now opt for a no-interest payment plan which allows them to get caught up without adding extra interest and penalties. The law also caps interest payments and fees to $15.50 per $100 borrowed.
Since the law took effect last December, the Governor has tried to prevent companies from using bait and switch tactics to draw customers into longer loans that do not provide the consumer protections found in the PLRA. In response to evidence that lenders were circumventing the strong consumer protections enacted in the payday loan reform, the Governor proposed new rules that would stop unscrupulous lenders from forcing customers into loans that they cannot afford to repay. The rules filed last summer and still pending before the Joint Commission on Administrative Rules (JCAR) would protect families from unlawful collection practices and impose tougher regulations on lenders who are trying to get around the existing Payday Loan Reform Act.
The Governor has continued to push for stronger consumer protections against consumer installment loan abuses. In September, he urged the United States Congress to adopt tough new protections for military personnel wishing to borrow from short-term lenders and is working with Illinois legislative leaders to enact new legislation and rules that will provide comprehensive consumer protection for all Illinois families who must borrow money short-term
Since the PLRA went into effect in December 2005 the Department has issued dozens of enforcement actions and levied hundreds of thousands of dollars in fines against short term predatory lenders. Some of the enforcement actions include:
- Affinity Credit Services was fined $273,000 for issuing loans at five stores in Central Illinois and suburban Chicago without first obtaining a license.
- Americash was fined $190,000 by the Illinois Department of Financial and Professional Regulation (IDFPR) for failing to comply with PLRA, ignoring consumer protections, and charging finance charges higher than those allowed by law. IDFPR also joined with the Attorney General in filing a complaint seeking injunctive relief with the Circuit Court of Cook County to enjoin the company from continued violations of the law. The court granted the state’s request and ordered Americash to cease making loans that charge fees in excess of what’s allowed by the PLRA.
- Advance America was fined over $75,000 by IDFPR for multiple violations in May 2006. Advance America made loans in excess of the term of indebtedness stipulated.
Since 2003, Gov. Blagojevich has taken executive and legislative action to protect consumers from predatory lending and identity theft. His actions include:
- Protecting vulnerable homeowners against unscrupulous mortgage ‘rescue’ firms. This summer the Governor signed into law SB 2349, giving homeowners new rights when dealing with companies that offer financial assistance to help them save their homes from foreclosure. The law also guarantees that homeowners will receive a substantial portion of their equity in the home from the companies.
- Reducing the number of high-risk home loans: In 2003, the Governor signed the High Risk Home Loan Act to protect consumers from predatory mortgage lending practices. As a result of the Act, the state has seen both a reduction in the number of high-risk home loans and a change in lenders’ business practices so they are no longer offering high-risk loans as defined in the Act.
- Protecting homebuyers in at-risk communities from predatory lenders: In September, HB 4050 took effect to create a pilot program providing borrowers with critical information on home loans and helps state regulators and law enforcement track and crack down on dishonest lenders.
- Protecting Illinois consumers from Identity Theft: During his administration, the Governor has taken several steps to protect personal information and increase penalties for identity theft in the state of Illinois. Through legislative action, Gov. Blagojevich has:
· Required the Illinois Department of Revenue to notify a taxpayer directly if they suspect another person has used their Social Security number to register a business or pay taxes and fees;
· Required companies to notify Illinois consumers if personal information is compromised;
· Allowed victims of identity theft to freeze their credit reports;
· Required the Illinois Department of Natural Resources to phase in new Conservation ID (CID) numbers to replace Social Security numbers on hunting and fishing licenses;
· Prohibited insurance companies from printing or embedding Social Security numbers on consumers’ insurance cards;
· Increased the penalties for identity theft and aggravated identity theft crimes;
· Made unauthorized copying and transmitting of any financial transaction devices including credit and debit cards, or other devices used to make a payment, get cash, or make a deposit, a Class A misdemeanor;
· Prohibited businesses from denying a person credit or utility services, or from increasing a person’s credit limits based solely on their status as an identity theft victim.