CHICAGO – Illinois borrowers using the title to their car or truck to secure a loan will now have additional protections against predatory lenders who offer to roll over old loans, or urge customers to take a second loan to help make payments. Starting today, Illinois Consumer Installment Loan Act (CILA) licensees will be required to enter data about each loan secured by a vehicle title into a statewide database. Once the information is entered, the secure, online system will issue an authorization code if the loan meets the consumer protection standards adopted last April.
“We recognize that many working families rely on these non-traditional loans, especially as credit card and other lending options have become more restricted during the current economic recession,” said Brent Adams, Acting Secretary of Financial and Professional Regulation. “But without the enforcement mechanism of the statewide database, title loan borrowers have, in the past, found themselves trapped in a cycle of debt, forced to either continually refinance the loan or to default and have their vehicles repossessed.”
The Illinois Department of Financial and Professional Regulation (IDFPR) began implementing its new rules on April 1. A compliance sweep by the Department resulted in over $38,000 in fines against non-compliant lenders. Now that the database is active, lenders will be required to lookup the applicant’s title loan record and enter information about the pending loan. If a new loan violates the rules, the CILA lender will not receive authorization to issue it. Some of the most significant rules include
• The principal amount of a title loan shall not exceed $4,000 and the loan payments shall not exceed 50 percent of the borrower’s gross monthly income.
• Balloon payments are prohibited; the title loan must be repayable in substantially equal installments.
• A title lender cannot issue multiple loans to a consumer. The only type of loan that may be offered to a title loan borrower is a refinancing of an existing title loan. And, the principal balance on the refinancing must be at least 20% less than the principal of the prior loan.