Over the past year, we've repeatedly highlighted the significant loopholes in Illinois' Payday Loan Reform Act of 2005, a bill that Rep. Luis Gutierrez has used as a model for the questionable legislation he recently introduced at the federal level. Yesterday, we critiqued one specific provision that defines a "payday loan" as one that must be paid off within 120 days. In Illinois, payday lenders easily evaded the regulation by stretching the terms of their loans one day beyond the limit. What we didn't mention was that the 120-day timeframe also exempts a host of other high-interest loans from any regulation at all.

The Woodstock Institute issued a must-read report (PDF) last month that explores this problem. Titled "Beyond Payday Loans: Consumer Installment Lending in Illinois," authors Tom Feltner and Sarah Duda detail how the lenders licensed under the longstanding Consumer Installment Loan Act (CILA) -- including small-dollar installment loans, subprime auto loans, retail installment loans, personal lines of credit, and check solicitation loans -- are very similar to payday loans, yet face little oversight.

After researching Cook County court documents filed under CILA, Woodstock reached some frightening conclusions about the terms, conditions and default patterns associated with these products:

While the rates and the borrower demographics vary significantly across the various loan products offered by CILA licensees, these products showcase many of the same concerning features previously associated only with payday products: small principals, considerably higher interest rates, and frequent refinancing.

Borrowers using short-term installment loans are predominately lower-income, with a median net income of $34,277 or 89 percent of the Chicago region 2000 median family income.

Used car loans carried extremely high interest rates despite large down payments, and were widely used by very low-income borrowers.

While Gutierrez' piecemeal legislation ignores these instruments, bills sponsored by Rep. Julie Hamos (at the state level) and Sen. Dick Durbin (at the national level) would take them on directly by capping interest rates for all forms of consumer credit at an annual percentage rate of 36 percent.

Image used under a Creative Commons license by Flickr user stevec77.