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Payday Loans Get Scrutiny

Illinois lawmakers this year are revisiting the issue of what some call "predatory" short-term loans, saying reforms passed in 2005 did not go far enough to protect consumers from the stranglehold of high interest rates.

The loans, often called "payday" loans, are aimed at people who need quick, short-term cash. Critics say the store-front industry has taken advantage of poor clients by trapping them into revolving high-interest arrangements and hidden fees.

Illinois lawmakers addressed that in 2005, with new restrictions that capped the fees on short-term loans at $15.50 for every $100 loaned and limited borrowers to two payday loans at a time. However, those restrictions only applied to loans that last under 120 days.

Consumer advocates say that leaves a loophole, with the industry now stretching those loans to slightly longer terms, thus avoiding the caps. Sue Hofer, of the Illinois Department of Financial and Professional Regulation, said the agency has seen interest rates as high as a thousand percent on some loans.

The Illinois Senate in April tried to address that loophole with a bill to apply the existing restrictions to loans lasting longer than 120 days. But it probably will be at least fall before it gets a vote in the House, where officials are trying to balance consumer protections with the industry's fiscal health.

State Rep. Julie Hamos, D-Evanston, the bill's House sponsor, said the issue is too complicated to address effectively before the Legislature's summer adjournment, possibly in the next few weeks. She said the measure may be ready for a final vote when lawmakers return to Springfield in the fall.

"We're just trying to enact some reasonable regulations so borrowers are not getting gouged," Hamos said. "... I'm not trying to drive them out of business."

Payday loan businesses say they are unfairly singled out for legislative scrutiny, in a time when the mainstream banking and housing industries are embroiled in their own crises. They maintain they provide a valuable service to working class customers who need emergency cash and repay it quickly.

News Sources :- http://www.stltoday.com/stltoday/news/stories.nsf/illinoisnews/story
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