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Illinois legislators considering short term loan regulations

May 30, 2012 Philip Burgess

A number of consumers turn to short term and car title loans as a means of alternative finance when an unexpected expense arises. Lenders can provide fast cash when the individuals need it most, which can be particularly helpful when the consumer has a short or bad credit history. Some legislators, however, are trying to reign in the practice. Because of ever-increasing overhead and payroll expenses, lenders have to charge interest on loans to remain in business. While many borrowers successfully pay off both the sum and all fees incurred, some lawmakers still want to change the entire industry. Current lending climate in Illinois Many experts believe because of the rising popularity, leaders in Illinois may soon take a hard line on loan regulations. According to the Pantagraph, though the legislative season is coming to a close soon, so rules may not change in the immediate future. However, that is not to say it won't come up for discussion next session. The Pantagraph reported that the current laws allow lenders to charge up to 400 percent in interest in order to cover their own expenses. As such, the cities of Bloomington, Normal and Decatur have formed resolutions to ask the state to impose a 36 percent interest cap. Implications for the future The use of these types of short term lending options, however, are very helpful when emergencies arise and an individual's savings cannot cover it. The Pantagraph noted that in Illinois, short term lenders typically house their storefronts in areas of low income, the class of people that may suffer most due to an unforeseen expense. According to The New York Times' Dealbook, in 2006, Congress passed a bill from Illinois Senator Richard Durbin that capped the interest rate at 36 percent for members of the military and their families, a move that greatly affected the loan industry. The source said in the 2008 - 2009 session, Durbin proposed instilling that regulation on all citizens, which would be devastating to the profits of lenders. "Any federal law that would impose a national 36 percent A.P.R. limit on our services, if enacted, would likely eliminate our ability to continue our current operations," a representative from South Carolina lender Advance America said in a filing for the Securities and Exchange Commission, Dealbook reported.