Consumer Protection and Payday Lenders

Payday lenders can pose serious problems to Illinois consumers who are experiencing financial trouble. According to a recent article in the Washington Post, many states have passed laws to ban or to restrict the power of payday lenders, but borrowers continue to find that these lenders take advantage of them when they’re at their most vulnerable.
High Interest Rates that Hurt Low-Income Consumers
Payday lenders are out to make as much money as possible from the dire financial circumstances of low-income Americans. To be sure, payday loans often come with “triple-digit interest rates,” and they’re frequently “a last resort for the poor.” In addition to very high interest rates, these loans also tend to come with hidden fees. Why do these lenders persist in the market? In short, issuing these kinds of loans is lucrative to the lender, even if it hurts the borrower.
The Illinois Attorney General has emphasized that payday lenders offer products that aren’t as convenient as they may seem. As a press release from Lisa Madigan’s office points out, “if you’re struggling to make ends meet, chances are you’ll be even worse off it you take out a payday loan.”
The federal government is also taking steps to curb payday lending practices. The Consumer Financial Protection Bureau (CFPB) plans to “propose a national set of rules to better regulate the industry.” Likely, the CFPB will focus on “tighter lending standards” as well as “restrictions on how many times a loan can be rolled over.” When payday loans are rolled over, consumers find themselves with impossible interest amounts—money that they’ll likely never be able to repay, given that they had to turn to a payday lender in the first place.
Payday Loans and Illinois Law
What kinds of law exist to protect Chicagoans from the harms of payday lending practices? In March of 2011, a new law went into effect that provides more protection for Illinois consumers. The law does some of the following:
·      Prevents unlimited rollovers;
·      Requires that loans be based on the consumer’s ability to pay; and
·      Creates a “small consumer loan” that’s less expensive than other traditional payday loans.
Even though these protections exist in Illinois, the Attorney General’s office emphasizes that consumers still need to proceed with caution. Consumers should know about the three different kinds of payday-like loans that exist in our state, and it’s important to know the kinds of terms linked to each one. These loans include:
·      Small consumer loan: the least expensive, and Illinois law requires that the lender charge an Annual Percentage Rate (APR) that doesn’t exceed 99%.
·      Payday installment loan: this kind of loan tends to be longer-term loans (generally lasting up to six months), but it’s a very expensive loan. Indeed, payday installment loans can have APRs up to 400%.
·      Payday loan: this type of loan is a short-term loan, and buyers usually must repay within two to four weeks. And similar to the payday installment loan, payday loans can have very high APRs—up to 400%.
When you’re facing the inability to pay off your debts and you’re thinking about going to a payday lender, you should contact an experienced Oak Park consumer protection lawyer. For many Chicagoans, filing for bankruptcy can be a useful tool to handle insurmountable debt. Regardless of how you decide to handle your finances, a consumer protection attorney can discuss your options with you.
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