Illinois payday loan

Payday loan reform would limit debts

A coalition of consumer advocates and a group of payday lenders have put together legislation they say will reform payday lending -- preventing fees on small consumer loans from soaring out of control.

The groups say the proposed law, which could be introduced in Springfield as early as today, is the first time consumer advocates and payday lenders have joined together on reform legislation. Consumer advocates behind the proposal say it protects consumers, and is fair to businesses that offer short-term bridge loans.

"We wanted to develop consumer protections, but we also wanted to do so in a way that allows people to take out a payday loan in Illinois," said Marva Williams, senior vice president of the Woodstock Institute, a non-profit research organization.

"The last thing I'm trying to do is put anybody out of business," said Tony Colletti, executive vice president of the Community Financial Services Association, which represents about 60 percent of payday lenders nationally. "We're trying to make this work -- we'd like to see a solution in Illinois."

Problems arise when a borrower fails to pay back the loan within the agreed-upon time period and refinances over and over, racking up new fees. A Chicago Sun-Times investigation last summer found dozens of cases where small loans turned into enormous debts: One woman who took out a $1,000 cash loan ended up owing $10,743, mostly in accumulated interest.

Past attempts at passing payday loan reform legislation have failed. The new proposed law is named for Monsignor John Egan, a deceased Catholic priest who championed payday loan reform.

The legislation would:

*Cap finance charges at $16 per $100 loan. The current average fee is $44 for a 31-day loan, according to the Egan coalition.

*Limit the amount of debt a consumer could borrow to $1,000 or 25 percent of his or her gross monthly income -- whichever is less -- to prevent individuals from borrowing more than they can repay.

*Entitle consumers to opt for a repayment plan after 35 days of outstanding debt, with at least 56 days to repay on an installment plan without additional interest or finance charges.

*Cap the number of payday loans a consumer can have outstanding, and offer special protections to members of the military.

"It's not just about the interest rate. We attack the cycle of debt," said Gregary Brown, legislative liaison for Metropolitan Family Services, which supports the bill.

"It's a promising beginning to reining in an industry which has been been preying on vulnerable Illinois residents," said state Sen. Jeff Schoenberg (D-Evanston), who supports the bill.

The Illinois Small Loan Association opposes the bill, saying it would destroy small neighborhood payday loan stores and as many as 4,000 Illinois jobs. The association said the law will do nothing to protect against Internet lenders or lenders that use out-of-state banks to broker loans.

"What's really happening is that the CFSA is using the Egan group as their front. It's attempting to put us out of business," said Bob Wolfberg, president of ISLA. He said CFSA has used similar tactics in Indiana, North Carolina and Texas. "This is the civil war within the industry."

Brent Adams, policy director at Citizen Action/Illinois, wrote the proposed legislation, and said that it also applies to lenders who are not headquartered in Illinois. About 21 other states have fee caps.

Schoenberg said he was not surprised at ISLA's arguments. "They're similar to what we've heard previously. They're designed to preserve the status quo, which does nothing but harm Illinois consumers who get trapped in a vicious cycle of debt."

Payday Loan Reform

The Players:

*Consumer groups supporting a proposed payday loan reform bill include Citizen Action/Illinois, the Chicago Federation of Labor, Metropolitan Family Services, the Catholic Conference of Illinois, Protestants for the Common Good, the Woodstock Institute and Sargent Shriver National Center on Poverty Law.

*Also in support: the Community Financial Services Association, representing about 60 percent of the national payday-advance business, including publicly held Advance America Cash Advance Centers Inc.

*Opposing: the Illinois Small Loan Association, representing 80 percent of payday lenders. The association says the law would force local owners to eliminate as many as 4,000 jobs.