Governor Blagojevich announces that payday lending reforms have saved Illinois borrowers $20 million

CHICAGO– Governor Rod R. Blagojevich today announced that the Payday Loan Reform Act (PLRA) he signed into law in 2005 has helped thousands of Illinois borrowers save more than $20 million in loan fees and interest charges in the past 18 months. According to findings from a report released by the Illinois Department of Financial and Professional Regulation (IDFPR), the savings resulted from the law’s consumer protections that limit the amount of interest and fees payday lenders can charge their customers. 

“Payday loans are supposed to help working people cover unexpected costs and emergencies. They’re not supposed to leave them in a debt they can’t repay. Back in 2005, we signed a law that put clear limits on the amount lenders can charge, so when a consumer gets a payday loan, they know up front how much it will cost to pay it off. And thanks to our reforms, consumers are better protected from falling into an endless cycle of debt, and hard working Illinois families have been able to save more than $20 million,” said Gov. Blagojevich

The report found that the average finance charge, inclusive of all interest and fees, charged for a loan under the PLRA was $15.36 per $100 borrowed.  That works out to an APR (annual percentage rate) of 350% for a 16-day loan.  In 2002, an IDFPR survey of payday loan practices found the average cost of a short-term loan was 525% APR.

Comparing the two rates, IDFPR estimates that Illinois consumers have saved over $20,569,299 in finance charges since the implementation of the PLRA on December 6, 2005.  This amount does not include the additional savings to consumers that have resulted from the PLRA’s prohibition on charging interest beyond the term of the loan, collecting recurrent insufficient funds (NSF) fees, and collecting attorney’s fees and court costs incurred in connection with the collection of a payday loan. 

“It is clear that this law is working as intended.  Thousands of Illinois families are better off because of this law and the enforcement of its provisions,” said Dean Martinez, Secretary, IDFPR. “We have worked hard to educate consumers and lenders about the benefits of the PLRA, and that effort has been effective in protecting borrowers from paying more than necessary for their loans.”

In the past 18 months, 763,701 payday loans were made in the State of Illinois.  Illinoisans have borrowed $267.9 million with finance charges of $41.2 million.  The average Illinois payday loan is for $350.87, and the borrower pays about $53.90 in finance charges, or $15.36 for every $100 borrowed.  Before the PLRA took effect, the average finance charge for short term loans was $20 per $100 borrowed for a 14-day loan and $45 per $100 borrowed for a 31-day loan.  

The report noted that the number of loans issued each month varies but that on average between 45,000 and 60,000 payday loans are issued in Illinois every month. It also provides new details about the lending patterns and amounts borrowed by Illinois short-term borrowers. The data for the report was collected by Veritec, the state contractor that manages the loan data base, and covers the 18 months since the new law took effect last December. 

Payday loans are defined as loans of less than 121 days secured against a post-dated check, an authorization to automatically debit the borrower’s checking account, or an authorization to deduct payments directly from the borrower’s paycheck.  Historically, these loans carry very high interest rates.  Such loans become a problem when consumers cannot repay them in the short time allowed, after borrowing a substantial amount against their paychecks.  Before this law took effect, consumers had to renew or “rollover” the loan and pay additional fees until they paid the loan back.  Under the Payday Loan Reform Act (PLRA), consumers can now opt for a no-interest payment plan which allows them to get caught up without adding extra interest and penalties. The law also caps interest payments and fees to $15.50 per $100 borrowed. 

The Governor has continued to push for stronger consumer protections against consumer installment loan abuses.  Last year, he supported action taken by the United States Congress to adopt tough new protections for military personnel wishing to borrow from short-term lenders. 

Since the PLRA went into effect in December 2005 the Department has issued dozens of enforcement actions and levied hundreds of thousands of dollars in fines against short term predatory lenders.  Some of the enforcement actions include:

• Global Payday Loan, LLC, d/b/a/Payday-Loans-Yes.com, an unlicensed internet payday lender, was ordered to stop issuing loans to Illinois residents and fined $234,000 for charging Illinois customers excessive interest rates and ignoring the hard-won consumer protections established in the PLRA.
• Advance America was fined over $75,000 by IDFPR for multiple violations in May 2006.  Advance America made loans in excess of the term of indebtedness stipulated.
  
  
• Illinois Title Loans, Inc. was fined $27,500 for failure to enter PLRA loans in the statewide database.