Progress Illinois

In 2000, Arizona Governor Jane Hull (R) offered payday loan organizations a 10-year exemption from the state's Consumer Loan Act, which caps the interest rates attached to payday loans at 36 percent. With that exemption set to expire in 2010 -- and current Gov. Janet Napolitano (D) not likely to grant an extension -- the industry is taking some preemptive action. The Community Financial Services Association is throwing loads of capital behind Proposition 200, a ballot initiative that would essentially legalize 400 percent interest rates in the state indefinitely. Of course, the predatory lenders describe this initiative as a means to protect consumers from the insane interest rates they themselves implemented.

Without the resources to launch a traditional PR campaign, a tech-savvy coalition of consumer advocates called Arizonans for Responsible Lending is taking the fight online. After raising $100,000, the organization filmed a 1-minute 36-second ad criticizing Prop 200.  They plan to distribute the message virally on social networking sites.  Check out their web ad, titled "Lenny the Loanshark," below:

Viral advertisements could be a useful tactic here in Illinois, where campaign contributions have stymied real predatory lending reform -- not to mention nationally, as Sen. Dick Durbin fights to cap rates charged by the high-interest-loan industry at 36 percent annually. For more on the predatory lending industry in Illinois, check out our feature article from April.

When cities like Springfield have to propose ordinances stipulating a minimum distance between payday loan, title loan, and installment loan stores.

Image of Springfield loan shops by Flickr user Dabadoo.

Last week, the National Institute on Money in State Politics (NIMSP) identified Illinois lawmakers as having received more campaign contributions from the predatory lenders than in any other state. Their research found that the payday and title loan industry had poured over $2.5 million into Illinois campaign coffers between 1999 and 2006 -- almost twice as much as Florida, the second highest recipient state.

This should come as no surprise. While Illinois passed a law aimed at curbing predatory lending in 2005, it included a crucial loophole. In his feature article on this topic, Mose explained how the state has since become a "dumping ground" for payday loan stores:

After they realized they could exploit this loophole, payday lenders were back in business and Illinois reformers were out of luck. And there were more clouds on the horizon. As other states started cracking down on predatory lending (many simply capping interest rates at 36 percent) more and more payday loan operations began popping up in Illinois.

"We've become the dumping ground," says [Citizen/Action co-director Lynda] DeLaforgue. "It's just the wild wild west. Whatever goes, goes." As of 2005, there were more payday loan storefronts in Illinois than McDonald's franchises.

As the NIMSP report noted, Gov. Rod Blagojevich is the largest recipient of contributions from predatory lenders, accepting over $450,000 from the industry during the previous four election cycles. However, there are numerous other Illinois politicians from both sides of the aisle that have taken the payday lenders' money as well. With NIMSP's assistance, we've compiled a list of the top 20 recipients in Illinois during this time period:

Over these four election cycles, 68 percent of predatory lending contributions went to Illinois Democrats, while 32 percent flowed to Republicans. For more information on which specific companies are sending the most money to Illinois candidates, check out this release (PDF) from the Illinois Campaign for Political Reform.

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.

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Devised as a short-term fix for cash-strapped borrowers, the virtually unregulated payday loan industry has become a key player in the U.S. economy, locking hundreds of thousands of Americans into a vicious cycle of high-interest debt. The industry's growth has been rapid, as well. In Illinois alone, payday loan storefronts outnumber McDonald's franchises. But as more Americans buckle under the weight of housing and health care costs, Sen. Dick Durbin says it's time to implement fair usury laws to protect consumers from predatory lenders:

U.S. Sen. Dick Durbin (D-Ill.) has taken aim at the high-interest-loan industry, introducing a bill proposing to cap rates charged for payday loans, car title loans and other forms of consumer credit at 36 percent annual interest.

Payday lenders typically charge anywhere from 200 percent annually to five times that figure depending on laws in states in which loans are obtained.

In effect, the bill would sweep aside rates higher than 36 percent annually in states where higher percentages now apply, but would not affect those with lower rates.

The bill will certainly face intense opposition from the financial services community, who fought tooth and nail for the bankruptcy bill "reforms" of 2005 and have consistently impeded legislation to tighten usury laws. But several years ago, Congress imposed a similar 36 percent annual interest cap on most loans for military personnel and their families. If it's good enough for soldiers, why not borrowers nationwide? Consumer advocates praised Durbin's move:

"It sets the bar," said Lynda De Laforgue, co-director of Citizen Action/Illinois. "It is really important because it says that this is the direction we are headed."

Image used under a Creative Commons license from Flickr user taberandrew.

Last weekend, the Tribune reported on how the payday loan industry has been pumping campaign contributions into Springfield in advance of legislative efforts to curb predatory lending practices in Illinois. One observer noted that the industry will continue to rake in big profits as long as the pending legislation is postponed:

"If they can delay a policy, then that's to their advantage," [Kent Redfield, a political science professor at the University of Illinois at Springfield] explained. "These are smart people. They wouldn't be giving money if it didn't have an impact."

If delaying reforms was the objective, the industry appears to have accomplished its mission this legislative session. The bill aiming to cap interest rates for longer-term payday loans passed in the Senate earlier this year, but will not come up for a vote in the House before the end of the month, said Rep. Julie Hamos (D-Evanston), who sponsored the House version:

[Hamos] said the issue is too complicated to address effectively before the Legislature's summer adjournment, possibly in the next few weeks. She said the measure may be ready for a final vote when lawmakers return to Springfield in the fall.

"We're just trying to enact some reasonable regulations so borrowers are not getting gouged," Hamos said. "... I'm not trying to drive [payday lenders] out of business."

Of course, the payday loan business model depends on "gouging" borrowers and thus trapping them in a cycle of high-interest debt. As a former industry employee recently told an Ohio ABC News affiliate," That's their bread and butter. That's what they depend on is repeat customers. Every two weeks, you pay it off on a Friday, you come back on a Saturday and re-borrow."

(Image used under a Creative Commons license from Flickr user swanksalot)

Thought the exploitation of subprime mortgage borrowers was over? Tell that to this new breed of scam artists who've emerged from the rubble and made a killing by preying on homeowners facing foreclosure. Stateline reports:

These so-called mortgage-rescue companies promise that for fees of about $1,000 to $2,500, they can negotiate loans with providers to get owners lower monthly payments. Or they offer deals that suggest homeowners temporarily deed their homes to the company or a third party, theoretically to allow the homeowners time to get back on their feet financially [...]

The scammers, on the other hand, find potential victims by combing through public records to see who is in danger of being foreclosed. Then they bombard them with calls or direct-mail solicitations that sometimes look like letters from a government agency. One company that operated in Idaho sent out notices to homeowners falsely claiming that their homes were “scheduled to be sold at auction” and instructing them to call the company. In some cases, consultants have even shown up on owners' doorsteps to drum up business.

Thankfully for Illinois borrowers, Attorney General Lisa Madigan was ahead of the curve. In 2006, the General Assembly passed a bill she drafted that gave homeowners five days to cancel a rescue contract and required rescue firms to pay the homeowner at least 82 percent of the fair market value if he or she cannot buy back a home after signing the deed away. Without such legislation, prosecutors could only pursue the perpetrators by claiming advertising fraud, a difficult allegation to prove beyond a resonable doubt.

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The Tribune reported Saturday that the payday loan industry is flooding Springfield with campaign contributions:

Contributions to state politicians nationwide have mushroomed from just over $1 million in 2000 to $4.1 million in 2006, and Illinois has led all states, with $2.2 million given to politicians since 2000, according to figures from the National Institute on Money in State Politics.

Illinois is the only state in the country with a cap on short-term payday loans (with repayment schedules under 120 days) but none on longer-term predatory loans, meaning lenders can still charge exorbitant interest rates that send cash-strapped residents into a destructive cycle of debt.

At the same time, Illinois is one of only five states with no cap on campaign contributions, meaning the payday loan industry can spend as much as they want to fight efforts to close this loophole.

The spike in contributions is no big surprise. As other states -- most recently Ohio -- tighten controls on payday lending, the industry is clearly becoming more desperate to oppose reform in Illinois. As we previously reported, a bill to cap longer term payday loans passed the state senate earlier this year. It is scheduled for a hearing in the House Executive Committee tomorrow. We'll keep you updated on its progress.

(Image used under a Creative Commons license from Flickr user Geigenot.)

In a blow to predatory lending practices, Ohio lawmakers have passed new measures to curb payday lending in the Buckeye State. The law caps the APR on loans at 28 percent. It also "limits consumer borrowing at $500 or 25 percent of base monthly pay per loan, restricts borrowing to four times per calendar year, and extends the term of loans to 31 days from 14 days," reports the Dayton Business Journal.

The new measures are having immediate effect:

Some [payday loan] companies with shops in the state, including Columbus-based Heartland Cash Advance, have taken the first steps to shutting down with the regulations likely a few months away.

Cleveland, Tenn.-based Check Into Cash on Monday announced it plans to shutter its 93 shops in the state.

Unfortunately, the good news for Ohio might spell bad news for Illinois as long as we don't correct our lending regulations soon. This because payday lenders that leave states with tight restrictions flock to states with loose rules, such as Illinois. In my feature last month on local efforts to end payday lending practices, Citizen Action's Lynda Delaforgue described Illinois as the industry's "dumping ground. It's just the wild wild west. Whatever goes, goes."

Citizen Action and other groups are backing Senate Bill 1993, which closes a loophole that has allowed predatory lenders to escape the tighter restrictions signed into law in 2005. The measure passed the Senate on April 14th. It currently sits in an executive committee in the House. With the clock ticking on this year's legislative session, time is running out to take action.

(Image used under a Creative Commons license from Flickr users fortinbras)

Since arriving on Capitol Hill in March, Bill Foster has been keeping busy. On his first day in office, he cast the deciding procedural vote on an bill championed by House Speaker Nancy Pelosi to create an independent, outside panel to investigate ethics complaints against House members. Since then, as The Beacon News reports, he's turned his attention to the deceptive and exploitative techniques of predatory lenders and credit card companies.

Such regulation is vitally important, especially in times of economic downturn. As Mose reported last month, predatory lending is a growing industry that nudges unknowing low-income borrowers into cycles of debt through loans strapped with exorbitant interest rates. Credit card companies aren't much better: after the industry was throughly deregulated in the late 1970s, banks bilked cash from clients through confusing and punitive measures while simultaneously lobbying Congress to implement bankruptcy reforms that made it even more difficult for working households to crawl out from under their debts.

Using his role on the House Financial Services Committee, Foster is now doing his part to push back, advocating legislation that would standardize credit card service contracts:

"There are a lot of 'gotchas' like double-cycle billing buried in the fine print that nobody ever gets the chance to read," he said. "I don't want to have the situation where credit card companies are competing with each other over who has the cleverest fine print.

"There's a lot to be done to protect credit card consumers."

He also intends to write a bill regulating payday loan businesses, arguing that they represent "an end run around the usury laws. They're siphoning money from communities that can least afford it."

(Image used under a Creative Commons license from Flickr user taberandrew.)