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News - Poor Credit Payday Loans

Durbin seeks cap on loan interest

Proposed law would end rates higher than 36%

July 28, 2008

U.S. Sen. Dick Durbin (D-Ill.) has taken aim at the high-interest-loan industry, introducing a bill proposing to cap rates charged for payday loans, car title loans and other forms of consumer credit at 36 percent annual interest.

Payday lenders typically charge anywhere from 200 percent annually to five times that figure depending on laws in states in which loans are obtained.

In effect, the bill would sweep aside rates higher than 36 percent annually in states where higher percentages now apply, but would not affect those with lower rates.

Under a 2005 Illinois law payday loans are capped at about 400 percent annual interest, but the law applies only to loans spanning 120 days. Payday loan firms get around the cap by offering loans of 121 days or longer, which allows them to charge whatever they want, in some cases as high as 1,000 percent.

An effort to close the gap in the 2005 law recently bogged down in the state legislature as payday loan firms and other lenders rallied to preserve interest rates that do not exist in a number of other states.

"It won't help consumers or the payday loan industry," said Steve Brubaker, a lobbyist for payday loan firms in Illinois, referring to Durbin's proposal.

If loans are capped at 36 percent annual interest, Brubaker said, many firms will "have to close the lights and go out of business."

The payday loan industry has swelled to over 25,000 stores across the U.S. in the past decade, and it has also branched onto the Internet, including operating Web sites outside the U.S.

In describing problems faced by consumers, Durbin pointed to a Tribune story about a 66-year-old retiree whose $1,000 car title loan ballooned to $4,000 over time. Her loan was at 300 percent.

"These excessive rates are often hidden and can have crippling effects on those individuals who can least afford it," Durbin said in a statement. "Congress must enact protections against predatory lending."

The Tribune series noted that as payday lenders have shifted to longer-term loans, Illinois officials have no idea what the lenders are charging, leaving the industry virtually unregulated.

Illinois is one of a few states that allow auto title loans and, according to consumer advocates, is the only state with no basic protections for people who put their cars up as collateral...

Source : http://www.chicagotribune.com