Illinois closing "Short Term Loan" Loophole

IDFPR Files New Consumer Protection Rules under Consumer Installment Loan Act
Acting Secretary Martinez Responds to Court Ruling

CHICAGO – The Department of Financial and Professional Regulation (IDFPR) today filed a proposed rule to better protect borrowers against predatory lending practices used by consumer installment loan companies. The new rules ensure that families who need emergency cash loans would not be subject to unlawful and egregious collection practices, including garnishing the wages of members of the armed forces, threatening to use the criminal process to collect on a loan, charging interest on a consumer's wages, or misleading consumers into waiving their rights.

These practices are forbidden under the recently implemented Payday Loan Reform Act (PLRA). However, data collected by IDFPR since December shows that most CILA lenders have been steering their customers to other, non-protected types of loans.

The filing comes in response to a decision made today by the Circuit Court for Sangamon County to impose a restraining order against directives the Department issued in December that provided similar consumer protections.

“We are issuing this rule to protect Illinois borrowers,” said IDFPR Acting Secretary Dean Martinez. “There are too many people who find themselves in a cycle of debt because lenders are engaging in oppressive practices.”

The PLRA was adopted unanimously in the Illinois House last May and received an almost unanimous vote in the Senate. As a result of the strong bi-partisan support to protect Illinois consumers from the worst payday loan abuses, Governor Rod R. Blagojevich directed IDFPR to aggressively enforce the new PLRA when it took effect last December. Today's ruling enjoined the Department's enforcement directives that were aimed at exploitive lending practices. The rule filed with the Secretary of State today is a direct result of concerns that CILA lenders are not offering their customers loans that include these hard-fought consumer protections in the PLRA.

Currently, there are 1301 payday or other short-term lenders in Illinois, a 21% increase over last year. According to industry figures, the average annual percentage rate for short-term loans is 595%, and the average amount of a short-term loan is $380. According to IDFPR, last year lenders made 1.4 million payday loans, which generated $1.3 billion in receivables.

The Rules proposed today would extend important consumer protections to any Illinoisan borrowing money from a CILA licensee, without regard to the type of loan being offered. Once a rule has been filed with the Secretary of State, there is a 45-day 1st Notice period, during which industry groups, advocates and other concerned members of the public may file comments or request a public hearing. During the 2nd Notice period, also 45 days long, the rule, and any modifications or amendments, will be reviewed by JCAR. JCAR can request additional clarification or information from the Department that must be supplied during JCAR's review. At the end of that time, if JCAR takes no action, the rule becomes permanent and any further changes must be filed through a new rulemaking process. In order to stop a rule from becoming permanent, 3/5 of panel must vote to overturn the rule.

The text of the rule follows:



Section 110.275 Consumer Protection Provision

All loans made pursuant to the Act must provide the following consumer protections:

a) Practices concerning members of the military.

1) A licensee may not garnish the wages or salaries of a consumer who is a member of the military.

2) In addition to any rights and obligations provided under the federal Servicemembers Civil Relief Act, a licensee shall suspend and defer collection activity against a consumer who is a member of the military and who has been deployed to a combat or combat support posting for the duration of the deployment.

3) A licensee may not knowingly contact the military chain of command of a consumer who is a member of the military in an effort to collect on a loan.

b) Prohibited acts. A licensee may not commit, or have committed on behalf of the licensee, any of the following acts:

1) Threatening to use or using the criminal process in this or any other state to collect on a loan.

2) Threatening to take any action against a consumer that is prohibited by this Act or making any misleading or deceptive statements regarding the loan or any consequences thereof.

3) Including any of the following provisions in loan documents:

A) a confession of judgment clause;

B) a waiver of the right to a jury trial, if applicable, in any action brought by or against a consumer, unless the waiver is included in an arbitration clause allowed under subparagraph (3)(C) of this paragraph;

C) a mandatory arbitration clause that is oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers; or

D) a provision in which the consumer agrees not to assert any claim or defense arising out of the contract.

4) Collecting treble damages on an amount owing from a loan.

c) If the finance charge of the loan exceeds an annual percentage rate of 36%, the licensee shall not accept any of the following:

1) one or more checks dated on the date written with the agreement to hold them for a period of days before deposit or presentment, or one or more checks dated subsequent to the date written with an agreement to hold them for deposit; or

2) one or more authorizations to debit a consumer's bank account; or

3) an interest in a consumer's wages, including, but not limited to, a wage assignment.