By Steve Rensberrysrensberry@rensberrypublishing.com
(RPC) 6/26/10 — Illinois Gov. Pat Quinn recently signed into law a measure that he and others hope will put the brakes on numerous practices of payday loan companies they consider abusive. The law will go into effect in about nine months, meaning consumers who do use such services will not see much relief until spring of 2011.
Whether you have actually used such services or not, you have certainly seen the signs — bold, urgent and inviting for anyone who is struggling financially or in need of some quick cash.
But the super-high-interest consumer installment loan business has been under increasing scrutiny in recent years, and is often criticized as unfairly trapping people into a viscous cycle that ultimately harms both them and the economy at large.
One of the key elements of the new law is a cap on interest rates, which analysts say can climb as high as 1,000 percent.
“Many consumers who take out short-term loans are doing so as a last resort to pay their bills and provide for their families. It is all too easy for lenders to take advantage of them by raising interest rates and setting very short repayment periods,” Quinn said in a statement released to the public. “It is important that we do everything we can to protect these consumers who are already hurting, by helping to make these loans more affordable.”
House Bill 537 practically sailed through the legislature and had received backing from a host of lenders and consumer groups. It was sponsored by Rep. Lou Lang (D-Skokie) and Sen. Kimberly Lightford (D-Westchester).
Under the new law:
- Rates for loans of $4,000 or less will be capped at 99 percent.
- Rates for loans greater than $4,000 will be capped at 36 percent.
- Lending will be limited to 22.5 percent of a borrower’s gross monthly income.
- The minimum loan term will be six months compared to the current four.
"For too long, Wild West lending practices have dominated the marketplace in Illinois and consumers have suffered as a result — saddled with costly loans that they could never repay," Madigan said in a public statement. "Now that has changed. House Bill 537 reigns in abusive and predatory lending practices and protects consumers. I want to thank Senator Lightford, Representative Lang, the Governor's Office and consumer advocates for their hard work on this important consumer protection legislation."
Illinois Department of Professional Regulation Secretary Brent Adams said they were looking forward to working with lenders and their customers to make sure the law is effectively enforced.
“For too long, Illinois borrowers have been at the mercy of lenders who were free to charge quadruple-digit interest rates,” Adams said.
