Contrary to whatever you may hear from Rep. Luis Gutierrez in Washington, the payday loan reforms on the books in Illinois do not adequately protect consumers. Regulations that were established when the General Assembly passed its major reform bill in 2005 defined a payday loan as one with a term of 120 days or less. Following the passage of this measure, lenders circumvented it by stretching their terms one day beyond that limit, which qualified them as purveyors of "consumer installment loans" under a 1963 law. A recent report from the Woodstock Institute found that these small-dollar installment loans -- including subprime auto loans, retail installment loans, personal lines of credit, and check solicitation loans -- face little oversight and no restrictions on interest rates. 

The Monsignor Egan Coalition for Payday Loan Reform -- a broad coalition of labor, community groups, faith-based organizations, and consumer advocates -- is trying to change that. The group is rallying behind SB 1435, which would reform the Consumer Installment Loan Act (CILA) by establishing reasonable rates and fair finance charges on these products. Specifically, the bill would cap interest rates on installment loans at 99 percent APR, index the loans based on a borrower's ability to pay, and would require loans to be paid off in equal monthly installments with no balloon payments. Rep. Julie Hamos (D-Evanston), a consistent consumer rights advocate and House sponsor of the legislation, explained at a Springfield press conference yesterday that the coalition is trying to strike a balance between the needs of unbankable consumers and the viability of the industry. Unfortunately, the clout-heavy lenders have 60 lobbyists fighting the bill tooth-and-nail. Watch it (full video available on Blue Room Stream):

Establishing a ceiling of 99 percent interest on installment loans is still quite generous. Even so, Deputy Secretary of the Department of Financial and Professional Regulation Brent Adams estimates that SB 1435 would save consumers $850 million per year. Sen. Jackie Collins (D-Chicago), one of the two senate sponsors, says the General Assembly has a "moral obligation" to close the loophole.

In 2007, the House Financial Institutions Committee killed a measure intended to plug the loophole in the original Payday Loan Reform Act.  At the time, some legislators on the committee explained that they would prefer to deal with the issue through CILA.  Now they have their chance.  We'll see if they follow through.