She lived in her car but feared the lender of the title would take her.
Billie Aschmeller needed a winter coat for her pregnant daughter and a cradle and car seat for her granddaughter. Promised quick money, Billie took out a $ 1,000 loan and pledged her car title as collateral. For the following year, the Illinois People’s Action leader made monthly payments of $ 150 while on fixed income. She still owed $ 800 when her car broke down. This time, she took out a loan of $ 596 with an annual percentage rate (APR) of 304.17%. In total, Billie and her family would pay over $ 5,000 to pay off the debt.
Billie’s case is, tragically, common. Illinois is known as the Wild West for payday loans. Loans with APRs above 1000% were not unheard of in 2004. Against this background, I drafted the Payday Loan Reform Act (PLRA) of 2005. The PLRA has dealt with some of the worst abuses by enforcing a limit of 45 days of debt and a capped 400% APR rate – certainly nothing to brag about. It was a compromise that recognized the considerable power of industry in the Illinois General Assembly, power that continues to this day.
Today, non-bank lenders offer a menu of different loan products. Advocates, like the Woodstock Institute, have fought for more protections, but Illinois families – mostly low-income, like Billie’s – spend hundreds of millions of dollars each year on troubleshooting and relief costs. title loan.
Exercising regulatory force to fix a problem only pushed the problem elsewhere. When the law was drafted in 2005 to apply to payday loans of 120 days or less, the industry created a new loan product with a term of 121 days. For more than a decade, we have been playing the regulatory mole.
A loan cycle is the beating heart of the payday business model. More than four in five payday loans are re-borrowed within a month and most borrowers take out at least 10 loans in a row, according to the Consumer Financial Protection Bureau.
Sixteen states and Washington, DC, have hit the mole for good by setting a flat cap of 36% APR or less on consumer loans. This method works. Just ask our friends in dark red South Dakota who in 2016 approved a 36% APR cap of 76%.
The South Dakota example shows us that protecting families from the payday debt trap is not a partisan issue. Strong majorities of Independents, Democrats and Republicans support increased protection for payday loans.
With that in mind, a bipartisan pair in Congress, Congressman from Illinois Chuy Garcia, a Democrat from Chicago, and Republican Congressman from Wisconsin Glenn Grothman from Wisconsin recently introduced the Veterans Loans Act and to consumers. The bill would cap consumer loans nationwide at 36% APR. Military members on active duty are already entitled to this protection under the Military Loans Act 2006. It is time that our veterans – and all American families – received the same protections.
The industry says a 36% rate cap will push them into bankruptcy, leading to less access to credit. This argument is smoke and mirrors. The bill would not restrict access to safe and affordable credit. This would protect families from predatory loans and debt traps – a bad form of credit. Storefronts, non-bank lenders, and community development finance institutions can already provide loans at or below 36% APR.
It’s time to end triple-digit APRs once and for all. We tried other things: limits on rollovers, limits on debt days, limits on the number of loans and more. Arguably, the Illinois, like Billie and her family, aren’t in a better place today than they were in the Old West. A national cap is the best fit for Illinois – and for the country as a whole.
The Illinois Congressional delegation, especially other members of the House Financial Services Committee, Congressmen Sean Casten and Bill Foster, should join their colleague, Congressman Garcia, in capping lending consumption at 36% APR.
Brent Adams is the senior vice president of policy and communications at the Woodstock Institute, a nonprofit research and policy organization that advocates for a fairer financial system. Previously, he championed payday loan reform at Citizen Action / Illinois and as secretary of the Illinois Department of Financial and Professional Regulation during the Quinn administration.