Payday Loans in Illinois: Subprime Report
Illinois is the sixth most populous state in the country, home to Chicago, the third-largest city, and the capital of many industries. But it also has one of the bleakest financial outlooks of any American states. Illinois’ persistent financial problems are compounded by population loss, a weak jobs outlook, and sluggish growth.
How does this dark reality impact Illinoisans and their families?
- Illinois has a poverty rate of 13% and an unemployment rate of 5.9%.
- 7.1% of Illinois households are unbanked.
- 8% of the state population lives in “extreme poverty.”
- 34% of Illinois children live in single parent homes.
- Illinoisans of color are two to three times more likely be impoverished.
Where you find poverty, you will find predatory actors seeking to take advantage of those that are desperate. Who targets on these financially depressed communities? Predatory lenders. Namely, payday and title lenders.
Payday Loans in Illinois
As we’ve explored elsewhere, payday and title lenders are brick-and-mortar, or online, financial service providers who offer a predatory product designed to trap borrowers in cycles of debt that are difficult to break, drain money from local communities, and can even result in the loss of major assets—like borrowers’ cars.
A payday loan is a small dollar (typically less than $1,000) loan for a short term (typically 2 weeks) offered at an extremely high interest rate (400% APR is typical). This toxic combination of high interest rates and short terms means that these loans are extremely difficult to repay, often leading to a cycle of loan renewals (or “rollovers”) that extend the life of the loan at the cost of additional fees and interest.
Approximately 70% of Chicago’s 125 payday lenders are located within a mile of areas where the per capita income is less than the city average of $28,500. And that’s just in the city. Payday lenders in Illinois know where to open shop to better target those who need cash the most. The typical payday loan borrower in Illinois has a monthly income of less than $2,600, which makes paying back the loan even harder.
Number of Payday Lenders: 522
Number of Payday Lenders: 646
The History of Payday Loans in Illinois
The state of Illinois has worked to improve consumer protection against payday loans, but there is still a lot of work to be done. In 2011, the Governor of Illinois wrote the Payday Loan Reform Act into legislation to protect consumers. Under the new law that began on March 21, 2011, Illinois consumers are protected from unlimited roll-overs and payday loans must be based on a borrower’s ability to pay.
The Illinois Department of Financial and Professional Regulations (IDFPR) maintains a database of all payday loans in Illinois. All lenders are required to check the database before a new loan is issued to a consumer. Illinois legislators hope that the database will help to eliminate some of the abusive practices of payday lending.
Additionally, the Consumer Installment Loan Act caps rates for nearly every short-term credit product in Illinois—except for payday loans, which operate under a separate statute. This Act works to break the cycle of debt caused by refinancing payday loans in Illinois. For loans with terms of 6 months or less, the existing rate cap is $15.50 per $100 borrowed. Any borrower choosing a payday loan in Illinois also needs to be out of debt after 180 consecutive days of indebtedness. And, for loans with terms of 6 months or more, the Act caps rates at 99% for loans with a principal of less than $4,000 and at 36% for loans with a principal of more than $4,000.
- Maximum loan amount:$1,000 or 25% of your gross monthly income (whichever amount in less)
- Loan Term:13 to 120 days
- Rollovers Permitted:No rollovers permitted
- Fees and finance charges:$15.50 per $100, plus a $1 verification fee
- Finance charge on a 14-day $100 loan:$15.50
- APR on a 14-day $100 loan:403%
- Maximum Number of Outstanding Loans at a Time:2
- Repayment Plan:After 35 days, if the payday loan is unpaid, the consumer has a right to at least 55 days to repay in installments with no additional costs
- Cooling-off Period:7 days after 45 consecutive loan days
Final Notes on Payday Loans in Illinois
To help consumers stay out of the endless cycle of debt, new laws have been enacted to prevent the extension of payday loans past a reasonable time frame for paying off debt. And, despite new legislation, avoiding payday loans is still recommended—there are better options.
Title Loans in Illinois
Title loans in Illinois are just as bad as payday loans. Illinois is one of only 16 states that allow title loans, and no matter how you slice it, these loans are a horrible option for consumers.
The History of Title Loans in Illinois
In 2009, the Illinois Department of Financial and Professional Regulation (IDFPR) announced new auto title loan regulations to regulate Illinois title lenders. These new regulations were developed to better protect consumers from predatory lenders. Working with the Joint Committee on Administrative Rules (JCAR), consumer groups, and the industry, IDFPR revised rules to strengthen the repayment and lending provisions of title loans in Illinois.
According to the IDFPR, many title lenders in Illinois take advantage of consumers by manipulating payment schedules to trap them in an endless cycle of debt. The goal of these new restrictions is to further protect consumers by requiring lenders to engage in sound business practices—ending balloon payments.
Between 2006 and 2012, the average title loan amount was $785 per consumer, with an average of 5.8 loans per consumer.
Illinois Title Loan Restrictions
In Illinois, interest on title loans can reach up to 300%, with an average of 212%. Almost 100,000 title loans in Illinois in 2011 had interest rates of 300%. Most borrowers will renew their car title loan eight times, while their required payments balloon out of reach.
The revised rules for title loans in 2009 include the following:
- The principal amount of a title loan may be no more than $4,000 and no greater than 50% of the consumer’s gross monthly income.
- No balloon payments are allowed—title loans must be repayable in substantially equal installments.
- Title loans must be approved by a statewide database that went into effective October 1, 2009.
- A title lender in Illinois must not may any loan to a borrower who has had a title loan outstanding within the preceding 15 days.
- Any notice of delinquency or default will be sent or given to the consumer and must contain the IDFPR hotline telephone number.
- Title loans can only be refinanced when the principal has been reduced by at least 20%.
- No title lender may repossess a car and lease it back to the consumer.
- A title lender may not take a security interest in any property other than the consumer’s vehicle.
Final Notes on Title Loans in Illinois
The Illinois House Committee’s vote to improve protection by capping interest is merely a stumbling block for legislation. Advocates continue to work on regulating car title loans in Illinois. By pushing for a 36% annual rate on title loans, advocates hope to further protect consumers from the predatory ways of title lenders in Illinois. To date, 31 states have outlawed title loans altogether, but not Illinois.
Regulating Payday and Title Loans in Illinois
Payday and title loans are a blight on Illinois. They attack the financially vulnerable and rob local economies of capital—particularly communities of color.
How to Report a Lender in Illinois
If you are thinking about taking out a payday or title loan in Illinois, think again. And, if you’ve already taken out a payday loan or title loan, there are options for help. By familiarizing yourself with the rules and regulations of payday and title loans in Illinois, you can further protect yourself from predatory lenders.
Harassment and a lack of truthful information can be misleading and is against Illinois Law. If you need to file a complaint against a payday or title lender in Illinois, visit the Illinois Division of Financial Institution and Professional Regulation website’s complaint form. Once you fill out the form, submit it online or print and send it to IDFPR.
The Illinois Division of Financial Institutions
- Address: 320 West Washington, 3rd Floor, Springfield, IL 62786
- Phone: (888) 473-4858
- Website: https://www.idfpr.com/
Outside Help for Payday and Title Loans in Illinois
If you are struggling with financial issues, or a serious financial setback, reach out to the Department of Financial & Professional Regulation Division of Financial Institutions: Consumer Credit Section. By reaching out, you can find ways to improve your finances and take strides in getting out of debt. You can contact the Department of Financial & Professional Regulation Division of Financial Institutions at:
The Illinois Department of Financial & Professional Regulation Division of Financial Institutions
- Address: 100 W. Randolph, Suite 9-100 Chicago, IL 60601
- Phone Number: (888) 298-8089
- Website: https://www.idfpr.com/
Illinois People’s Action (IPA) is also working to provide further outreach against the predatory ways of payday and title loans in Illinois. IPA provides helpful documents to guide you through payday loans, title loans, and alternative options. The IPA is organizing to protect consumers from predatory car title lending and payday lending in Illinois.
Progress of Consumer Protection in Illinois
Illinois Advocates continue to fight payday and title lenders, but they won’t go down without a fight. In 2011, payday lenders fought back against Illinois law to protect consumers, but lost the initial bid. The Illinois Payday Loan Reform took hold in 2011 as well as the Consumer Installment Loan Act.
While these rules and regulations help in protecting consumers, the battle is far from over. Each year, Illinois Advocates fight to bring more restrictions to these predatory lenders, while hoping to make payday loans and title loans illegal in Illinois.
Guides to Payday and Title Lending in Illinois Cities
You know payday and title loans in Illinois are a problem. But what about at the city level?
Check out these payday and title loan guides for the following cities in Illinois…
- “Chicago area’s poverty rate declined in 2015 as incomes rose” Chicago Tribune. Accessed March 6, 2017. http://www.chicagotribune.com/business/ct-illinois-chicago-census-0915-biz-20160914-story.html
- “Illinois State Information” Payday Loan Consumer Information. Accessed March 6, 2017. http://www.paydayloaninfo.org/state-information/21
- “Payday Lenders are Preying on Illinoisans” Illinois People’s Action. Accessed March 6, 2017. http://www.illinoispeoplesaction.org/uploads/1/2/6/2/12620849/illinois_payday_”fact_sheet_final__1___2_.pdf
- “State Debt” Ballotpedia. Accessed February 13, 2017. https://ballotpedia.org/State_debt
- “The Truth About Payday Loans” Illinois Attorney General. Accessed March 7, 2017. http://www.ag.state.il.us/consumers/paydayloans.html
- “Consumer Advocates Say Payday Lending Worsens Debt, Call for Federal Ban” Progress Illinois. Accessed March 7, 2017. http://progressillinois.com/quick-hits/content/2013/06/06/consumer-advocates-say-payday-lending-worsens-debt-call-federal-ban
- “Illinois Trends Report All Consumer Loan Products Through September 2012” Department of Financial and Professional Regulation. Accessed February 13, 2017. https://www.idfpr.com/News/DFI/IL_Trends_Report%20since%20Inception%20through%209-30-12%20final.pdf
- “Payday Lending” Citizen Action Illinois. Accessed March 7, 2017. http://www.citizenaction-il.org/financial-reform
- “Payday and Car Title Lenders Drain $8 Billion in Fees Every Year” Center for Responsible Lending. Accessed February 15, 2017. http://responsiblelending.org/sites/default/files/nodes/files/research-publication/crl_statebystate_fee_drain_may2016_0.pdf
- “IDFPR Announces New Auto Title Loan Regulations” Illinois Department of Financial and Professional Regulation. Accessed March 7, 2017. http://www.idfpr.com/news/newsrls/03242009NewAutoTitleLoanRegPressRelease.asp
- “Driven to Disaster: Car-Title Lending and Its Impact on Consumers” CFA. Accessed February 15, 2017. http://www.responsiblelending.org/other-consumer-loans/car-title-loans/research-analysis/CRL-Car-Title-Report-FINAL.pdf
- “Car Title Loan Abuses to Continue in Illinois” Illinois Asset Building Group. Accessed March 7, 2017. http://illinoisassetbuilding.org/car-title-loan-abuses-continue-illinois/
- “State of Credit: 2017” Experian. Accessed July 4, 2018. https://www.experian.com/blogs/ask-experian/state-of-credit/
- “2012-2016 American Community Survey 5-Year Estimates, Income” U.S. Census Bureau. Accessed July 4, 2018. https://factfinder.census.gov