Six years ago, Downstate Springfield woman Billie Aschmeller took out a short-term loan of $ 596 with an insane annual interest rate of 304%. Even if she repaid the loan within the two years required by her lender, her total bill would exceed $ 3,000.
Soon after, however, Aschmeller fell behind on other basic expenses, desperately trying to keep up with the loan so as not to lose title to his car. Eventually, she ended up living in this car.
Aschmeller regrets ever taking the payday lending and car title lending route, with his high interest levels on wear and tear, though his intentions – to buy a winter coat, a cradle and a seat self for her pregnant daughter – were understandable. She is now a staunch advocate in Illinois for cracking down on a small, short-term loan industry that in every way has left millions of Americans like her only poorer and more desperate.
For years, as she told the legislature, she felt “like a hamster on one of these wheels”.
A bill awaiting Gov. JB Pritzker’s signature, the Illinois Predatory Loan Prevention Act, would go a long way to ending this type of exploitation by the financial services industry, and there is no doubt that the Governor is will sign. The bill, which would cap interest rates at 36%, enjoys strong bipartisan support. It was approved unanimously in the House and 35-9 in the Senate.
But two hostile trailer bills – HB 3192 and SB 2306 – have been introduced in the legislature, which would significantly weaken the Predatory Lending Prevention Act, defeating much of its purpose. Our hope is that these two bills are not going anywhere. They would create a loophole in the way the annual percentage rate is calculated, allowing lenders to charge additional hidden fees.
Between 2012 and 2019, as recently reported by the Chicago Reader, over 1.3 million consumers have taken out over 8.6 million payday, auto and installment loans, for an average of more than six loans per consumer. These loans typically ranged from a few hundred dollars to a few thousand, and they carried average annual interest rates – or APRs – of 179% for auto title loans and 297% for payday loans.
Some 40% of Illinois borrowers – an unusually high percentage that underscores the unreasonableness of the burden – ultimately fail to repay these loans. More often than not, they find themselves caught in a cycle of debt, with old loans turning into new ones. At the national level, the Consumer Financial Protection Bureau finds nearly one in four payday loans are borrowed nine or more times.
Studies have shown that payday loan borrowers often fall behind in paying other bills, delay spending on medical care and prescription drugs, and go bankrupt. They are also very often people of color. Seventy-two percent of Chicago payday loans come from black and brown neighborhoods.
The Predatory Loan Prevention Act, an initiative of the increasingly assertive Legislative Black Caucus, would cap interest rates on consumer loans below $ 40,000 – such as payday loans, installment loans and mortgage loans. automobile title – at 36%. This is the same interest rate cap imposed by the US Department of Defense for loans to serving members of the military and their families.
Critics of the bill, i.e. lenders and their associations, insist that they only provide reasonable service to people who find themselves in the worst conditions, desperate to have money. money and nowhere to turn. No bank or credit union, the lenders point out, would provide loans to such high-risk customers.
But in states where triple-digit interest rates on payday loans and auto loans have been banned, studies have shown people are turning to other – and better – alternatives. They use their credit cards, which have lower interest rates. They ask their family and friends for help. They accumulate more savings. And most of all, apparently, they’ve cut back on their spending.
There are also institutional nonprofit lenders in Illinois, such as Capital Good Fund and Self-Help Federal Credit Union, ready to provide small loans at rates below 36%.
Seventeen states and the District of Columbia have already capped interest rates at 36% or less on payday loans and auto titles. In the service of greater racial fairness – and to strike a blow against structural racism, which is really what it is – Illinois should do the same.
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