Progress Illinois

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.

On various business-oriented blogs today, I've seen a lot of griping about the news that Illinois Attorney General Lisa Madigan is suing Countrywide Financial for engaging in deceptive business practices. Some of these complaints have called into question Madigan's decision to target Countrywide, pointing out that the company is one of numerous bad actors in the financial sphere. Others have chalked Madigan's move up to political grandstanding.

But it's important to remember that, in terms of Illinois alone, Countrywide is the biggest fish in the pond. From The New York Times:

For 2004 through 2006, Countrywide was the largest lender in Illinois, selling about 94,000 loans to consumers in the state, the complaint said. The company operated about 100 retail branch offices in Illinois and its loans were offered by many mortgage brokers licensed to do business there. Countrywide also purchased loans through a network of 2,100 correspondent lenders in the state.

More from Illinois Issues:

The company’s practices were particularly harmful to Chicago and the surrounding counties, the suit says.

The Chicago area had the most subprime loans of any metropolitan area in the country, according to a 2006 study by the Chicago Reporter, an investigative magazine. And Countrywide held more of those loans than any other lender. The Chicago area also has one of the highest foreclosure rates in the country.

The attorney general also says her office has received more than 200 complaints about the company since 2005.

University of Illinois law professor Bob Lawless was all set to deliver a statement before the Senate Judiciary Committee on an important topic yesterday -- how the Supreme Court's decisions on cases affecting the the financial services industry revoke state protections against deceptive lending practices. The deregulation of the credit card industry is a prime example:

The Supreme Court ruled in 1978 that banks could charge the maximum interest rate determined by state legislatures in the banks’ home states, not the interest rate of the states in which they do business. Unsurprisingly, credit card businesses moved to Delaware and South Dakota—two states with virtually no interest caps—thus rendering state usury laws worthless.

Twelve years ago, the court applied the same logic to the size of fees a bank can charge. Congress has refused to step in at the federal level, enabling the industry’s thorough deregulation.

With the freedom to act on their own accord, banks have implemented an array of confusing and punitive measures that bilk cash from clients.

But just as Lawless began his remarks, Sen. Sheldon Whitehouse (D-RI) was forced to shut down the hearing after an unnamed Republican senator invoked Senate Rule XXVI, a rarely-enforced procedural requirement that all hearings come to a close within two hours of the Senate convening for the day.

What was there to hide? On the blog Credit Slips, Lawless recounts what was discussed before the hearing was gaveled. It's testimony that would send shivers down the spine of any politician beholden to the financial services industry.

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