Governor Blagojevich calls on Congress to pass
federal payday lending protections for Military Personnel;
Files new state rules increasing protections
for Illinois servicemembers

Recent Pentagon study shows one in five members of Armed Services fell prey to payday loan centers set up near military bases;
Increased rates of indebtedness impacting military operations
and soldiers’ personal finances

CHICAGO – As Congress reconvenes this week, Governor Rod R. Blagojevich called on the chairmen and ranking members of the Department of Defense Reauthorization conference committee to protect members of the military and their families from the predatory practices of payday loan stores. In a letter sent today, the Governor urged lawmakers to support passage of a provision that would cap interest rate payday lenders could charge military personnel. The provision is backed by the Pentagon and consumer rights advocates, and comes in the wake of a report showing a growing number of members of the U.S. Armed Forces are falling into serious debt as a result of aggressive payday loan tactics targeted at military personnel.  In addition, The Illinois Department of Financial and Professional Regulation also filed new rules at the Governor’s direction that would protect Illinois servicemembers from predatory payday lending practices. 

A recent Pentagon report found that as many as one in five members of the Armed Services have been targeted by payday loan centers that set up near military bases and charge cash-strapped military families interest of 400 percent or more. Not only does this impact soldiers, who find their families sucked into a dangerous cycle of debt, but it impacts the military overall, which is finding more and more of its servicemen and women ineligible for security clearance because of their indebtedness.

In his letter, Gov. Blagojevich urged conferees to make sure that the provision to cap interest rates for installment loans to members of the military at 36 percent APR remains in the defense authorization conference report.  This provision was included in the Senate version of the bill as the Talent/Nelson amendment and used language identical to H.R. 97, a measure that was introduced in the House of Representatives and has 71 co-sponsors. 

“The payday lending industry has waged an aggressive battle in Illinois to try to stop or circumvent the tough consumer protections we’ve adopted.  I’m sure they will be no less dogged in their effort to stop Congress from limiting their ability to make huge profits on interest and fees charged to members of our armed services,” Gov. Blagojevich wrote.  “In this time of war, while our men and women serving in the military are protecting us, we have the responsibility to protect them from loan sharks who prey on their families.”

Also today at the Governor’s direction, state regulators filed new rules with the Joint Commission on Administrative Rules (JCAR) that would protect military personnel and their families from payday loan sharks by restricting collection procedures and payment requirements in certain circumstances.  The Governor is also supporting HB 5831, introduced by state Representative John Fritchey (D-Chicago), which would codify consumer protections for military personnel. 

“We owe it to the men and women who protect us every day to do what we can to assist them in return.  The systematic targeting of military personnel by payday lenders is inexcusable, and we will not give up our efforts to protect them and all Illinois families from these practices,” said Rep. Fritchey. 

Over the past several years, the Blagojevich administration has worked with Illinois lawmakers and through the rule-making authority granted by the Consumer Installment Loan Act (CILA), to create new payday loan restrictions that limit interest rates and protect borrowers from the worst excesses of the short-term loan industry.  

The Payday Loan Reform Act (PLRA) took effect in December 2006, and applies to loans with terms of up to 120 days.  Regulators estimate that almost 75 percent of short-term loans written today are structured so they deny customers the consumer protections included in that law.   As soon as the PLRA took effect, the industry began offering loans with terms of 121 days so they could resume charging interest rates of 500 percent or more. 

To counter that industry action, state regulators introduced administrative rules to ensure that all installment loans are covered by consumer protections, and to specifically prohibit companies from garnishing the wages of members of the military or contacting their commanding officer, threatening consumers to use the criminal process if they fail to pay, and requiring consumers to agree to unfair arbitration proceedings.  Within weeks of the State’s response, short-term lenders sued to halt the rules.

State regulators continue to aggressively enforce payday and short-term lending laws and have collected tens of thousands of dollars in fines during the first year of the new law.  In addition to today’s rule filing, new tools to protect Illinois consumers are being considered. However, lenders making short-term loans are still finding ways to circumvent the hard-won protections enacted last year and offer almost identical loans under CILA, which currently offers few, if any consumer protections. 

There are 1,341 payday or other short-term lenders in Illinois.  According to industry figures the average amount of a short-term loan is $380 and interest rates range between 500 and 1,000 percent per year. According to state regulators, last year lenders made 1.4 million payday loans, which generated $1.3 billion in receivables.

Following is the text of the Governor’s letter:

Dear Member of the DOD Authorization Conference Committee:

According to a recent Pentagon report, as many as one in five members of the Armed Services have been targeted by payday loan centers that set up near military bases and charge cash-strapped military families interest rates of 400% or more.  Not only does this impact our soldiers, who find their families pulled into a dangerous cycle of debt, but it impacts our military, which is finding more and more Service-members ineligible for security clearance because of their indebtedness.

While we continue our efforts to strengthen regulation of predatory short-term lenders in Illinois, I am asking for your help to strengthen protections against predatory lenders for military personnel nationwide.  I urge you, as leaders of the Department of Defense Authorization conference committee, to make sure that the provision to cap interest rates for installment loans to members of the military at 36% APR remains in the defense authorization conference report that Congress plans to adopt before it adjourns.  This provision was included in the Senate version of the bill as the Talent/Nelson amendment and used language identical to H.R. 97, a measure that was introduced in the House of Representatives and has 71 co-sponsors. 

The payday lending industry has waged an aggressive battle in Illinois to try to stop or circumvent the tough consumer protections we’ve adopted.  I’m sure they will be no less dogged in their effort to stop Congress from limiting their ability to make huge profits on interest and fees charged to members of our Armed Forces. 

As soon as we instituted new payday loan restrictions that limit interest rates and apply to loans with terms of up to 120 days, the industry began offering loans with terms of 121 days so they could resume charging interest rates of 500% or more.  We quickly introduced administrative rules to ensure that all installment loans are covered by our consumer protections, and to specifically prohibit companies from garnishing the wages of members of the military or contact their commanding officer, threatening consumers to use the criminal process if they fail to pay, and requiring consumers to agree to unfair arbitration proceedings.  Within weeks of our action, the industry sued to halt the rules.

We will continue to pursue tougher regulations on the payday lending industry here in Illinois.  I have ordered state regulators to file new rules that would protect military personnel and their families from payday loan sharks, and support legislation being introduced by State Representative John Fritchey that would codify the consumer protections we’re seeking.  But the most effective and thorough way to make sure our men and women of the Armed Forces are safe from predatory lenders is for you, as members of Congress, to pass the Talent/Nelson amendment.

In this time of war, while our men and women serving in the military are protecting us, we have the responsibility to protect them from loan sharks who prey on their families.

Sincerely,
Rod R. Blagojevich
Governor

To view the proposed 210 270 Payday Loan Amendment please click here.

To view the proposed 110 280 CILA Rules please click here.