Closing the Loophole

It is reported that as the comedian W.C. Field lay on his death bed in a Philadelphia nursing home many years ago, a friend walked into his room and was surprised to find him reading the Bible. “Bill, what are you doing?” he asked. “Looking for loopholes,” Field exclaimed.

That is exactly what the payday loan industry in Illinois did in 2005– with self-serving success — when Protestants for the Common Good, as a member of the Egan Campaign for Payday Loan Reform, helped to pass what we all thought would be path-setting legislation.

This coalition was attempting to reform an industry notorious for preying on the poor: asking those in desperate need to post-date their salary checks to receive cash at annualized interest rates of over 700%, rolling over these loans until payment becomes impossible, and moving borrowers into unending cycles of debt.

The 2005 bill addressed the most flagrant abuses by defining the term of a loan as 120 days or less, setting reasonable interest rates, limiting both loan amounts and their length of the debt period.

It was the “120 days” part that turned out to be the problem. Payday loan lenders switched over to loans that were 121 days or more – allowing them to by-pass the protections of the intended reforms.

Since 2005, Courtney Eccles of the PCG staff has been working with the Egan Coalition to draft and gain support for new legislation that will close the loophole and provide additional protections. After two years of negotiations with the lending industry, success seems possible.

The current bill, the Consumer Installment Loan Reform Act requires short-term lenders to follow regulations originally laid out in 2005. For longer-term loans, it sets interest rates from 36% – 99%; caps the total monthly payment at 25% of an individual’s gross monthly income; and eliminates balloon payments at the end of the loan term. Finally, the bill creates a database to which lenders must report, enabling the Illinois Department of Financial and Professional Regulations to monitor lending practices in the future.

The timetable for approval is tight: SB 655 needs to pass both the Illinois Senate and House before session ends in May. We are cautiously optimistic that there is enough support to gain Senate approval. Once the bill passes, it will move to the House chamber where it must pass out of committee and then receive at least 60 votes on the House floor.

For those who live paycheck to paycheck, access to credit for emergencies that arise is crucial. However, it is immoral for lending institutions to trap the needy in loans that can never be paid back. SB 655, the Consumer Installment Loan Reform Act, is a sound solution which deserves our support. PCG will continue to work diligently on SB 655. We urge you to call both your senators and representatives as soon as possible.

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