Americash first payday loan lender cracked in $8 billion Illinois industry

[JULY 8, 2006]  CHICAGO -- On Thursday, Americash Loans became the target of the first simultaneous action taken by the Blagojevich administration and Attorney General Lisa Madigan under the Payday Loan Reform Act. In its order assessing a fine of $190,000 against the lender, the Illinois Department of Financial and Professional Regulation charged that Americash Loans issued loans that meet the legal definition of "payday loans," but failed to comply with the terms of the Payday Loan Reform Act and ignored the required consumer protections.

During a routine examination of Americash's store, the Department of Financial and Professional Regulation found flagrant violations of the Payday Loan Reform Act. As a result, the department brought the firm to the attention of the attorney general's office. On Thursday, the attorney general, working with the department, filed a complaint with the Circuit Court of Cook County seeking injunctive relief to enjoin the firm from continued violations of the law.

"Too many people who apply for short-term financial help find themselves in a devastating spiral of debt," Blagojevich said. "We fought hard to pass strong payday loan restrictions in order to help consumers avoid that cycle. Any lender that does what Americash has done by sidestepping consumer protections is going to have to face severe consequences."

"My office is filing this lawsuit today because Americash's actions are a blatant violation of a new law meant to protect consumers from a cycle of debt," Madigan said. "The new law has many consumer protections, which we will enforce vigorously."

The Payday Loan Reform Act was signed into law by the governor in June 2005 and took effect last December. The law caps the fees that payday lenders can charge, limits the number of times a loan can be rolled over and allows customers an interest-free payback option. The law also creates special protections for military service personnel and their families. According to the law, a payday loan is defined as any loan offered for a term of 120 days or less that charges an annual rate of more than 36 percent and allows the lender to access the borrower's bank account, take a wage assignment or accept a postdated check.

The law allows the Department of Financial and Professional Regulation to issue fines of up to $10,000 for each violation. In the Americash case, the department assessed the maximum fine allowed.

Blagojevich directed the Department of Financial and Professional Regulation to aggressively enforce the new Payday Loan Reform Act when it took effect on Dec. 6, 2005. He ordered that particular attention should be paid to lenders who may try to get around the new restrictions. The department has stepped up its enforcement of all short-term lenders since the law took effect last year.

In the order issued Thursday, the department charged Americash with violating the consumer protections created under the Payday Loan Reform Act. During a regularly scheduled inspection of Americash's offices in Springfield, examiners from the Department of Financial and Professional Regulation found that the lender had issued 19 loans of less than 120 days that accepted a wage assignment as security for the loan and had interest rates of 521 percent -- 28 percent higher than the rate allowed under the Payday Loan Reform Act.

"Governor Blagojevich made it very clear that we would aggressively enforce the consumer protections included in the PLRA," said Department of Financial and Professional Regulation Secretary Dean Martinez. "Americash has clearly violated the law, and in addition to changing its business practices, we hope this order sends a clear message to other Illinois consumer lenders attempting to evade the intent of the law."

In 2001, the state had tried to reign in the rapid increase in short-term payday loans through regulations implemented by the former Department of Financial Institutions. At that time, the average length of a payday loan was 14 to 28 days -- one or two pay periods. The rule specifically applied to payday loans of up to 30 days. Within days of the rule taking effect, the payday lending industry responded by extending the length of the loan to 31 days or longer to circumvent a law that had tried to protect consumers.

Currently, there are 1,476 payday or other short-term lenders in Illinois, a 12 percent increase from last year. According to industry figures from 2005, more than $8 billion in receivables is collected from Illinois borrowers. Illinois lenders under the Consumer Installment Loan Act had net receivables of over $4.8 billion last year.

[News release from the governor's office]

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