Are Illinois Payday Loans Still Dangerous in 2019?
Inside Subprime: April 30, 2019
By Lindsay Frankel
22.3 percent of Illinois residents lack a bank account or rely on alternative financial services to meet their needs, according to the Federal Deposit Insurance Corporation. Because payday loans don’t require a credit check, they are often appealing to people who lack access to traditional forms of credit. And there are plenty of payday lenders in Illinois that issue high-interest loans to residents. You’ll find even more payday loan storefronts in Illinois than McDonald’s restaurants.
Illinois consumers took out more than 200,000 payday loans in 2017, and most of those borrowers were low-income residents who were especially vulnerable to becoming trapped in debt from this expensive form of borrowing. 61 percent of borrowers earned less than $30,000 annually, according to records from the Illinois Department of Finance and Professional Regulations.
An Obama-era federal rule would have protected borrowers from taking out loans they couldn’t afford by requiring lenders to verify a borrower’s ability to repay. But in February, the Consumer Financial Protection Bureau announced that it would rescind these requirements of the rule. While the bureau contends that the decision would give consumers more options when accessing credit, the lack of a robust federal law leaves Americans vulnerable to predatory lending, especially in states that do little to limit interest rates.
While the Payday Loan Reform Act protects borrowers in Illinois from unlimited rollovers and taking out loans that exceed 25% of their gross monthly income, interest rates on payday loans are still as high as 400 percent in the state, according to the Illinois Attorney General’s office. Data from Pew Charitable Trusts reveals that it would cost a borrower an average of $465 to borrow $300 for five months in Illinois.
Payday loan businesses engage in such disreputable practices that the Better Business Bureau will not accredit any of them. Steve Bernas with Chicago’s BBB said that some companies will even change their names and continue to do business after receiving a poor rating. The BBB also receives complaints about payday loan scams in which the lender asks for an advance fee and never issues the loan.
But Bernas said even legal payday loan operations are taking advantage of consumers. “I’ve seen so many sad stories and it’s usually people who are short-term they just need a quick fix to get over a hump, get to payday. Again, this is not going to get you to payday. This is going to put you in the poor house,” Bernas said.
Illinois residents in need of quick cash should consider all other alternatives before seeking out a payday loan. If borrowing from family or friends isn’t an option, and you’ve been denied a traditional loan from a bank or credit union, try researching local nonprofit organizations and state programs that can help.