Progress Illinois

As you might remember, efforts in the General Assembly to crack down on predatory "payday" lenders were unsuccessful during the spring legislative session. With such broad measures shelved until the fall, the Illinois Department of Financial and Professional Regulation (IDFPR) is doing its part to improve oversight on one element of this industry: car title loans, in which a borrower uses their vehicle as collateral.

As with other predatory lenders, the major problem with title loans is the combination of exorbitant interest rates and meager regulation. Indeed, title loan borrowers are often charged a 300 percent APR and can lose their vehicle even after they've paid back more than they took out. Nowhere is the lack of regulation worse than in Illinois, as McClatchey recently reported:

Of the 16 states that permit high-interest auto loans, Illinois is the only state where there is no limit on the interest rates lenders can charge, and it is the only state without a single consumer protection linked to auto title loans, according to the Woodstock Institute, a Chicago-based community think tank.

To protect Prairie State residents, the IDFPR today filed these proposed rule changes:

- Restrict loans to $4,000 or less.

- Limit the number of times a loan can be refinanced to two times and allow that only when the outstanding balance of the loan has been reduced by at least 20 percent.

- Require the lender to make sure the borrower has not had a title or other short-term loan in at least 15 days.

- Require the lender to give the borrower a toll-free number for the Illinois Financial and Professional Regulation Department, so that any borrower with problems can get help.

Over the next 45 days, interest groups, advocates, and members of the public are able to file comments or request a public hearing on the new rule. Then the Joint Committee on Adminstrative Rules (JCAR) has an additional 45 days to review any amendments or modifications. If at the end of this period JCAR hasn't revoked the rule change, it becomes permanent.

Legislative action will ultimately be required to fix most of the problems with the payday loan industry. As we noted yesterday, Sen. Dick Durbin just introduced federal regulation capping all consumer credit transactions at a 36 percent APR. But while we wait for such efforts to bear fruit, it's good to see the state body stepping up its oversight.

Image used under a Creative Commons license by stevec77.