With Lawsuit By Local Businesses Pending, New Illinois Payday Loan Law is Temporarily Shelved
By Desmond CarlislePayday Loan Writer
A Sangamon County (Ill.) judge blocked a state agency from enforcing parts of the new Payday Loan Reform Act — a law designed to protect consumers, but one that some businesses say would cause them irreparable harm.
Consumers typically take out payday loans as advances as their next paycheck, with the expectation of repaying the loans back as soon as they are paid by their employer. But some people have ended up in debt because of their inability to repay the money quickly, according to the Central Illinois Register-Mail.
But Circuit Court Judge Patrick Kelley issued a temporary restraining order against the Illinois Department of Financial and Professional Regulation after a lawsuit was filed earlier this month by seven payday lenders. The businesses argue that portions of the payday loan law, which took effect in December, should not apply to oans with terms exceeding 120 days.
The businesses also contend that the state agency has overreached its regulatory authority by establishing rules stating that certain provisions of the payday loan law also should apply to the longer-term loans. One rule would require reporting the longer-term loans to a new state database designed to track payday loans. A March 14 hearing is scheduled.
"The illegal rules will unfairly impair the ability of (the lenders) to conduct their lawful business in Illinois, as well as deprive consumers of financial products to which the General Assembly intended they have access," the lawsuit states.
But acting secretary Dean Martinez of the Department of Financial and Professional Regulation disagrees, calling the new laws essential for the protection of Illinois citizens.
"Our posture is that we actually followed exactly the intent of the law," Martinez said.
The new law hopes to curb payday loan debt with provisions that will prevent borrowers from having more than two outstanding payday cash advances. The amount of interest charged for each loan will also be limited to $15.50 for every $100 lent. Supporters of the reforms are disappointed with the decision by the judge to issue a restraining order.
"Since the new law applies to loans of 120 days or less, the longer-term products are blatantly undermining the law's intent to end abusive payday loan practices," said Lynda DeLaforgue, co-director of Citizen Action Illinois.
Martinez said his agency filed proposed rules to "better protect borrowers against predatory lending practices" by anyone licensed under Consumer Installment Loan Act. The rules mirror protections already in the Payday Loan Reform Act, but with additional safeguards, like prohibiting businesses from accepting a customer's postdated check for loans with finance charges exceeding an APR of 36 percent.
This is similar to the legislation proposed by other states to better control the payday loan industry. But how far can government go before it intereferes with businesses' rights? It will be interesting to monitor how this Illinois no faxing payday loan fight plays out at the hearing next month.
February 13th, 2006 at 3:32 pm
[…] Esparza said payday advance agencies could continue to do business, but with more consumer-friendly installment loans. This battle between New Mexico legislators and loan providers is similar to many throughout the country, notably a Central Illinois payday loan clash. Will the products offered by cash advance companies be dramatically altered? Only time will tell. « With Lawsuit By Local Businesses Pending, New Illinois Payday Loan Law is Temporarily Shelved […]
February 14th, 2006 at 6:33 pm
[…] What happens next year when legislators attempt to bring this issue back to the floor is uncertain, but it will surely be contentious. How far are both sides willing to bend without breaking? As we are seeing with a proposed Illinois payday loan law, it is often hard for legislation, however well-intentioned, to survive the political process. « Legislators, Payday Lenders Clash in New Mexico […]
February 21st, 2006 at 2:12 pm
[…] As we’ve reported earlier, it can be difficult for payday loan legislation to pass. We’ll follow this story as it develops. « Washington Challenge to Payday Loans Fizzles Out […]
March 5th, 2006 at 11:00 am
[…] The St. Louis Post-Dispatch reports that the payday advance industry is booming in the Show Me State, with agencies offering short-term consumer loans — no credit check required — with a two-to-four-week maturity. The average costs of payday loans in Missouri are $15 per $100 borrowed. At an annual percentage rate (or APR), that translates to 391 percent. Missouri has one of the highest interest rate caps in the country — up to 1,950 percent annualized. By comparison, an Illinois payday loan reform bill was passed in December, capping loans at $1,000 or 25 percent of a customer’s income, whichever is less. […]
April 3rd, 2006 at 1:54 pm
[…] This isn’t the first controversy to take place within Illinois involving the business of payday loans. […]