Consumer Protections

About this Policy

We continue to see wealth stripped from communities across Illinois by dangerous and abusive financial products and practices. These financial products and services – including payday and auto title lenders, currency exchanges, and unregulated paid-tax preparers – contribute to the financial insecurity of Illinois families and communities. While often marketed as a way to weather a financial storm or to make it to the next paycheck, predatory loans trap people in a cycle of debt that can take years to recover from.

Predatory products disproportionately strip wealth from communities of color, which contributes to the growing racial wealth gap. To build racial equity, we must advocate for strong consumer protections for predatory products and practices, and begin to create policies that build financial security. It’s time our policymakers put an end to abusive lending practices and predatory financial services that trap families in a cycle of debt and leave communities economically insecure.

 

Policy Highlights

    Wealth Stripping in Illinois

    Predatory financial products and services are stripping wealth from Illinois communities and families.

    Payday Lending: Payday loans in Illinois continue to have interest rates above 300%.  According to IDFPR, between February 2006 through December 2013  900,083 consumers took out 5,229,044 loans, or an average of 5.8 loans per consumer. The average annual income of these borrowers was less than $30,000 per year. Hear one person’s experience with payday loans.

    Auto Title Lending:  The number of auto title loans issued in Illinois and the amount of fees paid by consumers has steadily increased between 2009 and 2013. In 2009, Illinois consumers borrowed an estimated 73,116 title loans. By 2013, that number had increased to 100,698 title loans. Between 2009 and 2013, the average title loan fees increased by 47.9%. In 2013, borrowers paid an average of $25.5 million per month in fees to title lenders. Learn more.

    Policy Priorities

    Illinois should strengthen the Consumer Installment Loan Act (CILA) to require stronger ability-to repay standards, maximum loan terms, and a rate cap of 36-percent APR. Additionally, title loans in Illinois are regulated under CILA, but many of its consumer protections do not currently apply to title loans. Title loans are not subject to a cap on rates or loan terms. The Illinois General Assembly should take legislative action to institute maximum term lengths; strengthen underwriting requirements to include assessment of a borrower’s income and ability to repay the loan, as well as existing expenses and debt; and apply the rate cap of 36 percent to title loans.

    Illinois should strengthen protections for borrowers who default on title loans and have their vehicles repossessed. Illinois policymakers should pass administrative rules or legislation to ensure that no interest accrues on title loans after default, and that borrowers receive any surplus remaining in the event of a default, repossession, and sale of their vehicles. Policymakers should also prohibit title lenders from collecting deficiency balances (where a borrower still owes fees to the lender if the sale of the vehicle did not completely cover the debt), and attorney fees.

    IDFPR should release loan-level data from the state database to allow for a more detailed analysis of title lending in Illinois. Illinois lawmakers should require IDFPR to make the auto title database information available through a Freedom of Information Act (FOIA) request (after redacting personally identifiable information, such as social security numbers). At a minimum, IDFPR should be required to publicly release a report each calendar year showing the loan terms, features, and borrower income for title loans taken out during the previous year.

    Financial institutions should create and market affordable small-dollar loans, with ability to-repay standards, as alternatives to high-cost, predatory products. Local credit unions, community banks, and larger financial institutions should develop safe and affordable small-dollar loans and strategically market them in communities with records of high usage of high-cost, small-dollar loans. Certain credit unions provide loans secured with a consumer’s car title and charge APR’s of less than 25 percent. Other financial institutions offer small-dollar loans with APR’s well below 36 percent. Prudential banking regulators should use the Community Reinvestment Act to assess whether FDIC-insured depository institutions are adequately meeting the credit needs of low- and moderate-income communities – and this should include whether banks are providing access to safe and affordable small-dollar credit. Illinois should cap the annual interest rate (including fees) on all small dollar consumer loans at 36%.

    Stronger Federal Regulations: The Consumer Financial Protection Bureau (CFPB) has the power to protect consumers from abusive and illegal financial practices. They should implement the strongest possible rules to curb predatory lending – including payday lending, auto title lending, car loans, and predatory student loans.

    Defend Existing State Laws: While our existing state laws do not go far enough to protect consumers, the predatory lending industry is constantly working to strip consumers of existing protections. We must strengthen and defend against efforts to weaken existing small dollar loan laws in Illinois.

    Policy Victories

    Strengthened the wage assignment process in Illinois so that borrowers in default understand their rights.

    Protected workers from losing their wages to abusive fees associated with payroll cards, creating the strongest payroll card regulations in the country.

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