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Lawmakers look at plan to fill payday loan loophole

SPRINGFIELD -- State lawmakers are looking to tighten restrictions on payday loans after complaints that short-term lenders gouge customers with sky-high interest rates and fees.

But some lenders say the solution may open up other loopholes.

Lawmakers plan legislation removing a time limit on fees and interest rates for payday lenders, who advance small amounts of cash to people who put up their next paycheck as security.

The current law limits fees and interest rates on loans and how much customers can borrow, but that only applies to loans lasting 120 days. Consumer advocates claim the payday lending industry skirts the restrictions by directing customers to loans lasting 121 days and longer to charge up to 700 percent in annual interest rates.

In 2005 Illinois cracked down on payday lenders, an industry Gov. Rod Blagojevich called a "legal form of loansharking."

Fees were capped at $15.50 for every $100 loaned, down from as much as $40 or more. Borrowers were also allowed only two payday loans at a time, with no more than $1,000 per loan.

Steve Brubaker of the Illinois Small Loan Association said borrowers won't necessarily benefit from a lower interest rate. Customers most at risk are ones that can't repay the debt and face staggering attorney and court costs, he said.

Brubaker favors a plan payday lenders discussed with the Senate that allows them to charge up to a 400 percent annual interest rate but restricts them from collecting attorney, court and triple damage costs.

Under the House plan the borrower pays a lower interest rate -- 70 percent annually -- but isn't protected from court costs, Brubaker said.

"We haven't really solved anything," Brubaker said. "The process that we started with has been thrown out with the trash and now we have the same problem because we have consumers that have too much debt piled on top of them and lenders can still take them to court."

Brubaker said the bill also requires lenders with both a payday loan license and a consumer loan license to check a database to make sure borrowers don't have another payday loan. It is unfair that auto title lenders and other lenders without both licenses won't have to follow the same guidelines, he said.

"Both of those issues are left out of this bill and that's our gripe," Brubaker said.

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