“Bank On” Program Brings Alternatives to Illinois Payday Loans
By Grace Austin
Illinois’s governor has signed legislation into law that’s designed to bring better options than payday loans to consumers in the state by leading them to traditional financial institutions.
The new law, called “Bank On Illinois,” allows the state comptroller’s office to work with banks, credit unions and other financial institutions to offer low-interest loans for those with low credit scores, bank accounts with no- or low-maintenance fees and minimum deposits, and limited to no overdraft fees.
Banks and credit unions will now list what low-cost methods are available to consumers to open an account. It will be available through the Bank on Illinois program.
“We’ll set up a window on our website where people can enter their address and we’ll say here’s the nearest bank to you with an appropriate account that will work for you,” State Comptroller Susana Mendoza said.
The bill passed both parts of the legislature with unanimous support and was signed by Gov. JB Pritzker in August 2019.
The law doesn’t actually require banking institutions to do anything, but as one article said, “it can’t hurt.”
There’s an estimated one-fifth of the state that isn’t served by traditional financial institutions, according to FDIC data from 2015, and instead use products like payday loans and title loans that have exorbitantly high fees and interest rates. A press release said that consumers will pay $40,000 in fees over their lives on average, according to Brookings Data, and that both rural and urban individuals in the state are unbanked and underbanked, with numbers hovering around a third of the population in some counties.
“Many of us take for granted being able to cash a check at our bank, open a savings account to plan for our family’s future or secure a loan at a reasonable interest rate” said Mendoza. “But thousands of Illinoisans don’t have these options, and they pay for it in inordinate fees and sky-high interest rates. Bank on Illinois will help them break that cycle.”
Mendoza will now be able to certify and publicly post information about the products and banks that fall under the law’s criteria. She won’t be able to develop any new programs, though. Mendoza will work with an advisory commission to figure out those financial institutions that meet the criteria.
“We are going to be taking this, not just via a website portal, but actually directly into communities that we believe and we know to be under-served when it comes to their banking products, but we will also be collaborating directly with other community partners in getting the word out,” said Mendoza.
And despite some mixed reaction, the Community Bankers Association of Illinois praised the program.
“It is important to integrate these consumers into the mainstream financial world as an alternative to predatory actors like payday lenders and title loans who charge as much as 500% interest for basic financial services.”