If you've been following our coverage of the effort to rein in payday lending in Illinois, you'll be familiar with the following timeline. In 2005, the state legislature first regulated these predatory financial products with the Payday Loan Reform Act. The bill did ...
If you've been following our coverage of the effort to rein in payday lending in Illinois, you'll be familiar with the following timeline. In 2005, the state legislature first regulated these predatory financial products with the Payday Loan Reform Act. The bill did little to curb the exorbitant interest rates, but included some important protections for consumers. However, the act only applied to loans that had to paid off within 120 days. To circumvent it, many of the same lenders simply extended their payment schedules beyond that time limit, while preserving the same levels of interest.
"In the early 90's they were offering 14-day loans, but they'd roll you over 12 times, so you'd been in debt for 180 days," Citizen/Action Illinois' Lynda DeLaforgue told us last year. "Essentially they just built in the rollover." Public interest lawyer Tom Geoghegan, who filed a class action suit last week arguing that these loans violate the law, echoed DeLaforgue's point. "It's actually a grosser violation to lock people into these long-term agreements than for a shorter period of time, as they did before 2005," he told us earlier this week. For instance, the plaintiff in his case took out a $700 loan through Americash with a 12-month payment schedule and an annual percentage rate of 365 percent.
These longer-term loans fall under a separate law known as the Consumer Installment Loan Act (CILA). In 2007, the House Financial Institutions Committee considered a bill to plug the loophole by applying the Payday Loan Reform Act to any loan with an interest rate exceeding 36 percent. The committee ultimately killed the measure, with several members saying they would rather tackle the issue by reforming CILA.
This session, lawmakers had a chance to do just that. But on Tuesday evening, the industry won out again as the House Executive Committee rejected Rep. Julie Hamos' (D-Evanston) SB 1435, which would have established reasonable interest rate caps and fair finance charges on these largely-unregulated loans. Eight members of the committee voted "Present." "It's a big disappointment for those who have been working hard on the issue for years," Hamos told us from the House floor yesterday.
Here' the roll call:
Julie Hamos (D)
Ed Sullivan (R), Mark Beaubien (R)
Daniel Burke (D), Joseph Lyons (D), Dan Brady (R), Edward Acevedo (D), Luis Arroyo (D), Maria Berrios (D), Bob Biggins (R), Robert Rita (D)
Why did the bill go down in flames? For one, the legislative leadership clearly didn't support the measure, assigning it to the Executive Committee -- where bills without overwhelming support often perish. A more appropriate venue would have been the Financial Institutions Committee, which dealt with that related bill in 2007. "It wouldn't have been a picnic getting the bill through there," Hamos said, "but at least that committee thinks about these kinds of issues."
What's amazing about the bill's defeat is that it's quite forgiving to the industry. As Hamos made quite clear during a press conference in April, negotiators factored in the viability of the lenders when crafting the reform, including a generous 99 percent interest rate cap. Apparently, House Speaker Michael Madigan didn't think it was generous enough.
The lopsided roll call also speaks to the lobbying strength of the lending industry. For example, they hired former Democratic State Rep. Robert Molaro to speak on their behalf during the committee hearing, a move that proved beneficial. "One committee member told me that they weren't going to cross Bobby Molaro," Hamos said. "Too often down here, legislators don't vote on a bill's merits but instead on friendships and relationships."
William McNary of Citizen Action/Illinois agrees. “The Illinois House Executive Committee voted with a small, but well-connected segment of the lending industry -- maintaining the status quo," he said in a statement on Wednesday.
Rep. Daniel Burke (D-Chicago) defends his present vote. He told us that while he supports the bill's mission, the measure did not address the issue of eligibility for the undocumented. Specifically, he would like to ensure that those Illinois residents with a Matricula Consular (an ID card given to Mexican nationals residing outside of their home country) are eligible for the short-term loans.
With only three days left in the session, Hamos is trying hard to revive the bill, reaching out to the Attorney General's office and other sympathetic lawmakers. At the very least, she vowed to reintroduce the bill when the assembly convenes in the fall. But as Suzanne Strassberger of Metropolitan Family Services points out, this new timeline "means that working families in Illinois for at least another year will be preyed upon by high-cost, long-term loan products, which trap borrowers’ in an endless debt cycle."