Kirk Donald was stuck in financial quicksand and sinking fast.
He hustled harder on his daytime sales job, worked night security at a nursing home and delivered papers at dawn. He emptied his family's insurance policies and retirement savings, borrowed from family and friends, and went short of food.
Why? To keep up with $2,000 in loans he had taken out without realizing that the 701 percent annual interest rate meant he would have to repay $5,848 in 4 1/2 months.
Consumer advocates are trying to protect borrowers like Donald, waging a tug-of-war with the loan industry in the Illinois legislature in an effort to close a loophole in the 2005 payday loan reform law.
The 2005 law capped rates on one type of loan: short-term "payday" loans taken out for up to 120 days are limited to 403 percent annual interest. The law also imposed protections aimed at keeping borrowers from falling into debt traps, such as limiting the number of loans to two and allowing borrowers to work out a repayment plan.
Soon after the law took effect, however, many lenders began directing borrowers to loans of 121 days or longer that did not include such safeguards, consumer advocates say. State officials acknowledge they have received complaints from consumers who claim they were shifted to the costlier loans.
Illinois is the only state with a cap on payday loans but no cap on longer-term loans.
Dispatches from Chicago's south side.
Monday, May 12, 2008
Payday loan law loophole swallows borrowers whole
I've been hearing about the issues with such businesses for years. It's unfortunate that there are those out there that want quick money but without realizing the price that is paid for it. From the Tribune:
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This article inaccurately portrays the payday lending industry.
ReplyDeletePayday advances are small, unsecured, short-term loans, usually due on the borrower’s next payday. The average loan is $300 and the typical fee is $15 per $100 borrowed. In most of the 37 states that regulate payday lending, rollovers or loan extensions are either limited or prohibited. In states without limits, Community Financial Service Association (CFSA) members limit the number of rollovers to four. It is not possible for someone to rollover an advance for an entire year or to accrue the kinds of fees claimed by payday lending critics.
In addition, under our Best Practices, any customer who cannot payback their loan when due has the option of entering into an extended payment plan, allowing them to repay the loan over a period of additional weeks. This option is provided to customers for any reason and at no additional cost.