Payday reform bill on the verge of passing statehouse

By Steve Daniels

The Illinois General Assembly is on the cusp of capping for the first time the interest rates that consumer finance companies can charge borrowers.

Compromise legislation to overhaul two state laws—the Consumer Installment Loan Act and the Payday Loan Reform Act—cleared the state Senate last week on a 58-1 vote and is pending in the House. Representatives of both consumer groups and lenders, which have battled for three years to close what critics have called a loophole in the payday loan law, expect the House to send the bill to the governor’s desk when lawmakers return to Springfield later this month.

The compromise, negotiated by bill sponsor Sen. Kimberly Lightford, D-Maywood, would impose a cap of 99% on consumer installment loans under $4,000 and 36% for those above that threshold. Previously, interest rates under the consumer installment loans were unregulated, leading payday lenders subject to rate caps to offer slightly longer-term loans in order to fall under the less stringent law.

Lenders operating under the consumer installment law charge rates as high as 700%, consumer advocates say.

The Payday Loan Reform Act, meanwhile, would be amended to increase the allowed terms of the loans to six months from four. Remaining the same is the limit of charging no more than $15.50 per $100 loaned out every two weeks.

At the same time, payday lenders won’t be allowed to offer their loans under the Consumer Loan Installment Act, a law that is meant to apply to loans secured by car titles and signed-check loans made by credit-card companies and other consumer finance firms.

“The agreement is historic in Illinois,” says Lynda DeLaforgue, co-director of Citizen Action Illinois. “We will for the first time have set rates on these unsecured loans made to the most vulnerable borrowers.”

A representative of the association representing many of the state’s largest payday lenders called the deal fair, but said it would result in fewer lenders.

“For our association, it’s a very hard to swallow,” said Steve Brubaker, executive director of the Illinois Small Loan Assn. “We do expect to see store closures and job losses. … Hopefully, we’ll have some peace for at least a couple of years.”

Meanwhile, one of the biggest payday lenders in the state, Chicago-based PLS Financial Services Inc., is mulling moving its headquarters out of state in response to financial offers from other jurisdictions, company president Robert Wolfberg said. Mr. Wolfberg declined to identify the suitors.

Named one of the area’s fastest-growing companies on Crain’s annual list for several years, PLS employs 3,100 and has 350 locations around the country, offering loans and check-cashing services. Last year, PLS employed nearly 900 in Illinois.

Mr. Wolfberg emphasized the potential move has nothing to do with the pending legislation; it will come down to economics. “It would be tough to leave Chicago—we were born and raised here—but you have to do what’s best for the business,” he said.

He termed the odds of leaving as “a coin toss.”