In one of the least surprising elements it turns out that payday loan companies are skirting recent regulations in Illinois by increasing the length of loans by one day,
Illinois regulations aimed at reining in the fast-growing but controversial business of payday lending have proven ?virtually irrelevant? as the lenders find ways to skirt the rules, a draft study by state financial regulators says.
The preliminary report by the Illinois Department of Financial Institutions (DFI) shows that the state?s more than 800 licensed payday-loan locations are avoiding state-imposed limits on how much they can loan to an individual and how many times they can refinance a loan.
The rules apply to loans with terms of 30 days or less; lenders are dodging the restrictions by writing loans of 31 days, the report says. Before the rules were instituted, the standard payday loan?designed to tide over strapped borrowers until their next paycheck?came due in 14 days.The regulations, issued in 2001 by the DFI over industry objections, were hailed at the time as the first substantial oversight of Illinois? payday lenders. They barred lenders from ?rolling over,? or refinancing, a loan more than twice and required that at least 20% of the outstanding principal balance be repaid when a loan is refinanced.
But today, the industry operates nearly as freely in Illinois as it did before the rules, the DFI report indicates.
?They were dead on arrival once they were promulgated because of what the industry did in reaction,? says Alan Alop, deputy director at the Legal Assistance Foundation of Metropolitan Chicago, which gives free legal advice to indigent Cook County residents. ?I?ve never seen a payday loan since those rules were issued that fell within the purview of the rules.?