IDFPR files new consumer protection rules under Consumer Installment Loan Act                   

Acting Secretary Martinez responds to court ruling

[FEB. 20, 2006]  CHICAGO -- The Illinois Department of Financial and Professional Regulation filed a proposed rule Friday to better protect borrowers against predatory lending practices used by consumer installment loan companies. The new rules ensure that families who need emergency cash loans would 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.

These practices are forbidden under the recently implemented Payday Loan Reform Act. However, data collected by the department since December shows that most Consumer Installment Loan Act lenders have been steering their customers to other, nonprotected types of loans.

The filing comes in response to a decision made Friday by the Sangamon County Circuit Court to impose a restraining order against directives the department issued in December that provided similar consumer protections.

"We are issuing this rule to protect Illinois borrowers," said Dean Martinez, acting secretary of the department. "There are too many people who find themselves in a cycle of debt because lenders are engaging in oppressive practices."

The Payday Loan Reform Act was adopted unanimously in the Illinois House last May and received an almost unanimous vote in the Senate. As a result of the strong bipartisan support to protect Illinois consumers from the worst payday loan abuses, Gov. Rod R. Blagojevich directed the Department of Financial and Professional Regulation to aggressively enforce the new reform act when it took effect last December. The recent ruling enjoined the department's enforcement directives that were aimed at exploitive lending practices. The rule filed with the secretary of state is a direct result of concerns that Consumer Installment Loan Act lenders are not offering their customers loans that include these hard-fought consumer protections in the reform act.

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.

The rules proposed would extend important consumer protections to any Illinoisan borrowing money from a Consumer Installment Loan Act licensee, without regard to the type of loan being offered. 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 45-day notice period, the rule, and any modifications or amendments, will be reviewed by the Joint Committee on Administrative Rules. The committee can request from the Department of Financial and Professional Regulation additional clarification or information that must be supplied during the committee's 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.

The text of the rule is below.

[Illinois Department of Financial and Professional Regulation news release]

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(Copy of rule text as provided by the Department of Financial and Professional Regulation)

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.