Proposal designed to protect borrowers from predatory lending
practices
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[October 25, 2008]
CHICAGO -- To solidify the
consumer protections for customers who need to borrow money against
the value of their car, the Illinois Department of Financial and
Professional Regulation has forwarded revised rules on title loans
to the Joint Committee on Administrative Rules. Title loans are
short-term loans with interest rates that often exceed 300 percent
per year and can, if unpaid, allow the lender to repossess the
vehicle and leave the borrower without the means to get to and from
work. Families across the state have turned to these nontraditional
types of loans as credit card and other lending options have become
more restricted.
"Our goal is to make sure that people who use title loans are
able to repay the loan successfully. We think these rules make
important changes that protect consumers so that they can keep their
vehicles," said Dean Martinez, secretary of the Department of
Financial and Professional Regulation. "We received comments from
community groups and lenders and made changes based on the
information we received."
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After the first 45-day comment period, the department strengthened
the proposed rule to better protect Illinois families who borrow
against the value of their car or truck. The changes that were made
reflect comments from both consumer groups and industry
representatives. The rules, if they take effect, would (1) cover all
title loans regardless of the length of term of the loan; (2)
require the loan to be cleared through a statewide database before
it could be made; and (3) structure loan payments so that the
borrower makes progress on reducing the principal with each payment
instead of only paying interest costs.
In 2001, Gov. Ryan filed a similar rule but had included a
provision that defined title loans as being for 60 days or less. At
that time the average length of title loans was 30-60 days. Much as
members of the payday loan industry changed the terms of their loans
to avoid consumer protections encompassed in the Payday Loan Reform
Act, the title lending industry responded by extending the length of
loans to 61 days or longer to circumvent a rule that had tried to
protect consumers. Additionally, industry representatives sued the
state to overturn the rule, arguing that it was an unconstitutional
encroachment by the governor on the powers of the legislature. In
2004, the Illinois Supreme Court affirmed a lower court's ruling
that upheld the rule.
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Once a rule has been filed with the secretary of state, there is a
45-day initial 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 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 rulemaking process. In order to stop a rule
from becoming permanent, three-fifths of the panel must vote to
block the rule.
[Text from
Illinois
Department of Financial and Professional Regulation
file received from
the
Illinois Office of
Communication and Information]
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