The prolonged battle to close a loophole in Illinois' payday lending reform law is gaining momentum as consumer groups have picked up some much-needed support from lawmakers and select industry groups.
The prolonged battle to close a loophole in Illinois' payday lending reform law is reaching a critical juncture.
In the past week, 11 Senate Democrats have joined State Sen. Kim Lightford (D-Maywood) as co-sponsors of SB 655, which would regulate small-dollar consumer installment loans (CILA) in Illinois. As regular readers may recall, the payday loan industry turned to these installment loans as a way to skirt major payday loan reforms adopted by the General Assembly in 2005. That law defined a payday loan by a term of 120 days or less, which led lenders to move to a similar product with a slightly longer payment schedule. The risk of long-term debt remained the same for low-income borrowers, however, as the Woodstock Institute noted last April:
[T]hese products showcase many of the same concerning features previously associated only with payday products: small principals, considerably higher interest rates, and frequent refinancing.
Lightford's bill is similar to an effort killed by House Democrats last session; it 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. Unlike the House's effort, SB 655 makes clear that Illinois residents would not have to submit a Social Security card when applying for the loans, meaning eligibility would not be restricted for the undocumented. Apparently, that was the justification given by some of the nine House Executive Committee members for voting "Present."
Behind the scenes, consumer groups have picked up the support of some critical partners in this effort: the state's two major installment loan trade associations. The biggest coup is the Consumer Financial Services Association, which represents over half of the stores licensed under CILA in the state, including payday lenders like Advance Cash Express, Check Into Cash, and Check ’n Go.
Why would these big trade associations join hands with Illinois' leading consumer advocates? In short, SB 655 is a moderate bill written to strike a balance between the needs of unbankable consumers and the viability of the payday lending industry. While the Department of Financial and Professional Regulation estimates the measure would save low-income consumers approximately $850 million in fees and interest payments annually, the 99 percent interest cap is still quite high by conventional standards.
Still, some major players remain "vociferously opposed," according to Citizen Action/Illinois' Lynda DeLaforgue. Among those lobbying hard against the bill is the national chain Americash, who is facing a class-action lawsuit in Chicago circuit court based on its predatory lending practices. The Illinois Small Loan Association, which seemed eager to reach a compromise in 2008, isn't happy with the bill either. They've already dished out $43,400 in campaign contributions this cycle (and $850,711 since 2000), including a $7,500 donation to House Minority Leader Tom Cross (R-Osweg0) and a $5,000 gift to Rep. Lou Lang (D-Chicago), who might sponsor the companion bill in the House. Lastly, there is Cottonwood Financial, a Texas-based company that operates lending shops in Illinois. Last year, they enlisted the services of the lobbying firm TaylorUhe. Not so coincidentally, firm founder Rob Uhe served for eight years as chief counsel to House Speaker Michael Madigan (D-Chicago).
This week, the leaders of both Senate caucuses met with proponents and opponents of the legislation. While today marks the deadline for Senate bills to face a floor vote, we're told that the CILA reform package will be granted an extension. Still, advocates say citizens worried about these debt traps should treat the bill as an urgent priority. Just this morning, the Monsignor John Egan Campaign for Payday Loan Reform sent out a notice urging Illinoisans to contact their elected officials today in support of the reform effort.
While momentum is on their side, proponents realize they're still facing a steep road ahead, especially in Madigan's chamber. "This is a very powerful industry and they are well-connected politically," DeLaforge says." We don't take anything for granted."