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Short-term lending in Illinois is regulated by two separate laws,
the Payday Loan Reform Act and the Consumer Installment Loan Act.
The Payday Loan Reform Act, which took effect last December,
provides important consumer protections for loans with terms of 120
days or less. Aggressive enforcement of this law has resulted in
tens of thousands of dollars in fines during the first few months it
has been in effect. However, lenders making short-term loans are
still finding ways to circumvent the hard-won protections enacted
last year and are offering almost identical loans under the Consumer
Installment Loan Act, which currently offers few, if any, consumer
protections.
Late Friday, the state filed a revocation order for the licenses
of four locations of Payday Loan Store. The revocation order is
based on a complaint filed with the
Division of
Financial Institutions 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. The Illinois Department of
Financial and Professional Regulation is launching a detailed audit
of all business practices of Payday Loan Store of Illinois Inc. to
determine if other locations are violating state laws.
The order is based on a Consumer Installment Loan Act clause
providing that, had the Division 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:
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A consumer used a
Social Security number that belonged to a deceased person.
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Stores were making
loans to people with Social Security numbers reported to be
invalid.
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All four locations
were engaged in falsifying signatures.
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All four stores
discarded the consumer disclosure statements that stores must
give their customers under the Payday Loan Reform Act.
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 percent 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 Payday Loan Reform Act demonstrates that many
companies, including Payday Loan Store, have begun to sell loans of
121-plus days almost exclusively. Of the recent loans examined at
Payday Loan Store locations, 82 percent of their loans are now
installment loans, or "Smart Loans." This type is a 140-day loan
with fees that exceed the limits established by the Payday Loan
Reform Act. Payday Loan Store, like most Consumer Installment Loan
Act licensees, had rarely offered a loan longer than 120 days prior
to the Payday Loan Reform Act taking effect last December. This
troublesome trend allows companies to take a wage assignment and a
postdated check (just like Payday Loan) but does not hold lenders to
the interest and fee limits included in the Payday Loan Reform Act
or protect borrowers from costly rollovers or court costs associated
with lender collection activities.
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 "We passed payday loan reforms last year to put an end to the
exploitation of consumers," Blagojevich said. "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."
"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
of the Illinois Department of Financial and Professional Regulation.
"Regulations to provide those protections have been proposed, and I
urge the public to share their views on the rules by sending an
e-mail to
rulecomments@idfpr.com."
In addition to making sure consumers do not end up in an endless
debt cycle, the information collected by the Payday Loan Reform Act
database makes it easier for the Department of Financial and
Professional Regulation 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
Store of Illinois.
Currently, there are 1,301 payday or other short-term lenders in
Illinois, a 21 percent increase over 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 Department of Financial and Professional
Regulation, 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 first-notice period, during which industry groups,
advocates and other concerned members of the public may file
comments or request a public hearing. During the second notice
period, also 45 days long, the rule and any modifications or
amendments will be reviewed by the Joint Committee on Administrative
Rules. The committee can request additional clarification or
information from the Department of Financial and Professional
Regulation, and this input must be supplied during the review. At
the end of that time, if the committee takes no action, the rule
becomes permanent, and any further changes must be filed through a
new rule-making process. In order to stop a rule from becoming
permanent, three-fifths of the panel must vote to overturn the rule.
A copy of the governor's proposed rule is
below:
[News release from the governor's
office]
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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. |
