December 6, 2005 - New rules now protect Illinois consumers from abuse by unscrupulous payday loan lenders. State inspectors are out looking for violations of the new law.
It didn't take long for state examiners to find problems. At one loan store, examiners say there was false advertising of a payday loan, and there wasn't proof of a bond to secure the loans. Examiners inspected facilities throughout the state as the new payday loan reform law takes effect Tuesday.
"We're out here to protect our consumers, to make sure are regulations are being met through our department, and aims basically just to make sure the lenders are doing what they're supposed to as they're advertising," said Deborah Jennett, Illinois Financial and Professional Regulations examiner.
Outside some facilities, consumer advocates passed out flyers with details of the new law so perspective borrowers know their rights.
"Governor Blagojevich has directed the Department of Financial and Professional Regulations to aggressively start enforcing this legislation and to pay particular attention to any lender who may try to get around the new restrictions," said Dean Martinez, Illinois Financial and Professional Regulations secretary.
"The most important thing about the new law is that it will protect vulnerable consumers from getting caught up in an endless cycle of debt," said William McNary, Citizen Action Illinois.
The new law:
limits the interest to $15.50 per $100
sets a cap on the loan amounts to $1,000 or 25 percent of the monthly salary
no more than two payday loans at a time
56-day repayment period with no additional interest
protects borrowers from paying attorneys fees and court costs
"While payday loans are an expensive credit product we believe these key provisions will help keep a short-term loan from becoming a long-term problem," said Tom Feltner, Woodstock Institute.
Consumer advocates caution use of payday loans, even with the new law, because they say the interest rates and fees are higher than other borrowing options.
"Please, please, it will be better to go without this holiday season than to go without for many years to come," said Rev. Jennifer Kottler, Protestants for the Common Good.
Examiners went to more than 50 lending stores Tuesday. Nearly all reportedly had violations of the new law. There will be more surprise inspection over the next few days.
With other regulation lenders were able to subvert consumer protections. This law is tougher and each violation could carry up to a $10,000 fine.
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