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"Payday loans are a nightmare for thousands of working families who
find themselves trapped in debts they can't repay," Gov. Blagojevich
said at the ceremony. "Just ask Jodie Ackerman, a working single
mom, who owed thousands of dollars after taking out several payday
loans because she needed extra money to pay her bills. Payday loans
are supposed to help working people cover unexpected costs and
emergencies. They're not supposed to break their bank accounts. We
needed to do something about this, and we have achieved it.
"Thanks to the hard work of Lieutenant Governor Pat Quinn, Attorney
General Lisa Madigan, State Senator Kimberly A. Lightford, State
Representative David E. Miller and the Monsignor John Egan Campaign
for Payday Loan Reform, we can now protect working families from
abusive lenders, outrageous interest rates and endless debt. This
law also helps members of the military. When it becomes effective,
lenders will not be able to garnish their pay, collect when a member
of the armed forces is in a combat zone or contact their commanding
officer."
The Payday Loan Reform Act provides
consumer protections by restricting payday lending in several ways:
- Limits the interest that can be charged for each loan to
$15.50 per $100.
- Sets a cap on total loan amounts to $1,000 or 25 percent of a
customer's monthly salary, whichever is less.
- Prevents borrowers from having more than two loans at a time.
- Provides that payday borrowers cannot have payday loans for
more than 45 days. Once they have reached the 45-day limit, they
must have at least a seven-day loan-free period.
- Creates a new 56-day repayment period with no additional
interest charges for borrowers who have trouble repaying their
loans.
- Protects borrowers from facing criminal prosecution for unpaid
loans and from paying attorney fees and court costs.
- Extends special protections to members of the military,
including a ban on garnishing wages, deferral of collections for
deployed personnel and a prohibition on contacting a borrower's
commanding officer.
In order to enforce these rules, there will be a new state
database that lenders will use to look up the applicant's payday
loan record. If a new loan violates the rules, the payday lender
will not receive authorization to issue it. Borrowers will also
receive information -- in English and Spanish -- that outlines their
rights and responsibilities before taking a loan.
"Payday loans are a temporary product that put me in a permanent
bind," said Jodie Ackerman who, along with her 9-year-old daughter,
joined Gov. Blagojevich at the event. "This law will help make sure
other borrowers can keep these short-term loans, short term." Ms.
Ackerman is a working single mother who needed extra money to pay
her bills and ended up thousands of dollars in debt from taking out
payday loans at interest rates over 700 percent. At one point, she
had three outstanding loans and needed a fourth just to make
payments on her other loans. Currently, she still has two
outstanding payday loans.
Payday loans are short-term loans secured against a postdated
check that consumers borrow at very high interest rates. Payday
loans become a problem when consumers cannot repay after borrowing a
substantial amount against their paychecks. Instead, consumers renew
the loan and pay additional fees. Many consumers take out additional
loans to pay the fees on their original payday loan. This extends
the cycle of debt further, with no resources for recovery periods or
optional repayment plans.
"This legislation will help ensure that payday loans are truly
short-term loans and that they don't catch people in a vicious cycle
of debt," Attorney General Lisa Madigan said. "For too long, payday
lenders have trapped consumers into situation from which they can't
escape, as loans keep rolling over and consumers remain in an
endless state of debt."
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Currently, there are 995 payday or other short-term lenders in
Illinois, a 23 percent increase from last year. According to
industry figures, the average annual percentage rate for short-term
loans is 595 percent, and the average amount of a short-term loan is
$380. According to the Illinois Department of Financial and
Professional Regulation, last year lenders made 1.4 million payday
loans, which generated $1.3 billion in receivables.
"For too long, payday loan operators took advantage of the most
vulnerable consumers, including members of the military," said Lt.
Gov. Pat Quinn. "This legislation curbs the spiral of debt so many
Illinois residents have experience due to predatory lenders. The
late Monsignor Jack Egan, the legendary priest who took on this
industry, would applaud this reform."
The Monsignor John Egan Campaign for Payday Loan Reform was
started by the late Monsignor Egan in 1999, after hearing the story
of one his parishioners who was victimized by a payday loan. 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.
"We want to thank Governor Blagojevich for signing the Payday
Loan Reform Act into law," said Linda DeLaforgue, co-director of
Citizen Action/Illinois. "Monsignor Egan was dedicated to protecting
people who too often, in their hour of desperation, have fallen prey
to unscrupulous lenders. With this bill signing, we have taken a big
step in honoring his legacy."
"Regulation of this corrosive industry is long overdue," said
state Rep. Miller, D-Dolton, the bill's chief sponsor. "A payday
loan should not be a lifetime burden, but the industry would prefer
to bury people under a mountain of debt. Consumers seeking
short-term financial solutions too often find themselves in greater
distress, and the negative effects are destroying our neighborhoods.
Over the last four years, I have worked hand-in-hand with Citizen
Action/Illinois and the Monsignor John Egan Campaign for Payday Loan
Reform to pass legislation that protects both consumers and the
quality of our communities. I thank the members of the General
Assembly, Governor Rod Blagojevich and Attorney General Lisa Madigan
for their leadership in helping make these reforms a reality."
The Payday Loan Reform Act "is the first step to protect
consumers," said Sen. Lightford, D-Maywood, who worked on the
legislation for five years. "Payday loans can cause people's lives
to go into a tailspin because of the constant cycle of debt that the
borrower can never repay. This legislation provides consumer
protection while reining in unscrupulous payday loan businesses that
prey on innocent folks who don't have the collateral or the credit
history to get a traditional loan from a bank."
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," said Illinois Secretary of Financial and
Professional Regulation Fernando Grillo. "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. People who are forced to rely on payday
lenders for emergency loans are particularly vulnerable to threats
and overcharging."
The Payday Loan Reform Act, which was introduced in the state
legislature as
House Bill 1100, passed the House of Representatives unanimously
and the Senate near-unanimously. The act becomes effective 180 days
after being signed into law.
[News release from the governor's
office] |
