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Illinois To Enforce New Payday Loan Reform Law
Illinois State Department of Financial and Professional Regulations (IDFPR) are goin to aggressively start enforcing the new Payday Loan Reform law when it goes into effect tomorrow, with particular attention paid to lenders who may try to get around the new restrictions. The law provides new protection against ploys used by lenders to lure borrowers into potentially devastating predatory loans.
Currently, there are 995 payday or other short-term lenders in Illinois, a 23% increase from 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 the Illinois Department of Financial and Professional Regulation, last year lenders made 1.4 million payday loans, which generated $1.3 billion in receivables.
Payday loans are short-term loans secured against a post-dated check that consumers borrow at very high interest rates. Payday loans become a problem when consumers cannot repay after borrowing a substantial amount against their paychecks. Instead, consumers renew the loan and pay additional fees. Before the Payday Loan Reform Act many consumers would have to take out additional loans to pay the fees on their original payday loan. This extends the cycle of debt further, with no resources for recovery periods or optional repayment plans.
There is also a new state database that lenders will use to look up the applicant’s payday loan record. If a new loan violates the rules, the payday lender will not receive authorization to issue it. Borrowers will also receive information – in English or Spanish – that outlines their rights and responsibilities before taking a loan.
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Financial Markets
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