Consumer advocates say landmark payday loan reforms accomplish goal of ending 700 percent loans, breaking cycle of debt

Written by Monsignor John Egan Campaign for Payday Loan Reform on May 31, 2010 - 12:00am

High-cost consumer credit, extended with no consideration of a borrower's ability to pay it back, has stripped billions in wealth from Illinois communities since the beginning of the economic crisis. While lending reform is still being debated in Washington, the Illinois General Assembly passed strong consumer protections designed to cap rates for the often controversial payday lending industry.

“Capping rates for short-term loans was our number one priority,” said Woodstock Institute Vice President Tom Feltner. “These reforms, passed overwhelmingly by the General Assembly with bi-partisan support, succeed in doing this and will ensure that borrowers are not stuck in long-term, 700 percent loans.”

“Under the provisions adopted today, Illinois lenders would be able to offer two types of products: long-term loans with APRs under 99 percent and higher-cost, shorter-term loans with additional protections for the most credit-challenged borrowers,” said Lynda DeLaforgue, co-director at Citizen Action/Illinois. “With the Governor’s signature, 700 percent interest rates will be a thing of the past.”

Consumer advocates, who have long pushed for an industry-wide interest rate cap of 36 percent, embraced the legislation as a much needed reform to eliminate the worst industry abuses. “Five years ago, we thought that a cap on interest rates could never pass in Illinois. Now we are seeing a meaningful rate cap move to the Governor’s desk,” said DeLaforgue.

The legislation was supported by the Monsignor John Egan Campaign for Payday Loan Reform, a coalition of over 30 consumer and community groups, Illinois Attorney General Lisa Madigan, and Illinois Treasurer Alexi Giannoulias. Illinois Senator Kimberly Lightford (D-4) and Representative Lou Lang (D-16) championed the bill.