Metropolitan Family Services

July 6, 2008

Policy initiatives

VOTE FOR SB1468 — Make sure that the Payday Loan Reform Act Covers All Payday Lending

In 2005, after several years of hard work, the Illinois General Assembly voted overwhelmingly to pass comprehensive legislation to regulate payday lending and protect consumers from the worst abuses of the industry. This was a major victory for working families of Illinois. Now, less than two years after the law's passage, the payday loan industry has moved to evade the important protections included in the Payday Loan Reform Act leaving unsuspecting customers vulnerable to the very abuses the General Assembly worked to prevent.

Payday lenders are now offering expensive and dangerous longer term payday loans to get around Illinois law. Since the Payday Loan Reform Act regulates loans of 120 days or less, a majority of the Illinois payday loan industry has moved to new products with terms of 121 days or more. These "look alike" loans have a significantly higher price tag than payday loans regulated by the PLRA.
The treadmill of indebtedness returns as a disturbing trademark of the longer term payday loans. These long term predatory loans are actually traditional payday loans with multiple built in renewals. For example, one major Illinois lender offers a 140 day loan requiring nine biweekly interest payments with a final balloon payment of the entire principal amount. This loan is essentially a 14-day payday loan with 10 built in rollovers.

SB 1486 removes "a term of 120 days or less" from the definition of products subject to the Payday Loan Reform Act ensuring the Act covers the lending it was always intended to cover.

SB1486 extends the important consumer protections in the Payday Loan Reform Act to all payday lending in Illinois including:

Loan amounts indexed to borrower's ability to repay
Loan term and renewal limits enforced through consumer reporting service
Limit on finance charges and fees
Available interest free repayment plan
No attorney fees; no mandatory arbitration

Extend critical consumer protections in the Payday Loan Reform Act to all payday lending in Illinois.

**PLRA legislation already provides for exemptions for traditional national installment lenders such as Wells Fargo and Household Finance.

Payday Installment Loan v. Traditional Installment Loan

	Payday Installment Loan	Installment Loan
Interest Rate	391% and up	40% to 168%
Loan Term	Minimum of 13 days	1 to 18 months
Loan Amount	$100 and up	$100 to $1500
Credit Check	No	Yes
Securitization	Post-dated check Authorization to debit bank account Interest in consumes wages	Signature loan-no collateral required
Exempt from PLRA	All payday loans that have a loan term greater than 120 days	PLRA Section 1-15 allows for the following exemptions: (c) Retail sellers who cash checks incidental to a retail sale & charge no more than fees provided by the Check Cashing Act per check (d) Banks, savings banks, savings and loan associations, credit unions, and insurance companies organized, chartered, or holding a certificate of authority to do business under Illinois or U.S. law.