SPRINGFIELD, Ill. (IRN) — Illinois’ latest Consumer Lending Trends Report shows that predatory lenders in Illinois attracted a 5% increase in new borrowers in 2019.
Abe Scarr of the consumer watchdog group Illinois PIRG says the layoffs and uncertainty of 2020 are sure to pressure more desperate people to take out high interest loans products this year.
“I would be shocked if we did not see an uptick in some of these loan products this year,” Scarr said.
The products include payday loans and payday installment loans; small consumer loans of up to $4000; and title secured loans where people who own a vehicle outright can hand over the title as collateral for a loan of a few thousand dollars. The interest rates on title secured loans can be as high as 300%. So it could cost a consumer $12,000 to borrow $4000 in an emergency.
Scarr says even if interest rates were capped at 36%, lenders could still make a profit.
The 110 companies in Illinois who offer high interest, short term loan products need government oversight and regulation, Scarr believes.
Congressman Jesus Garcia of Chicago, a Democrat, and Congressman Glenn Grothman, a Wisconsin Republican, have co-sponsored a bill in Congress that would cap interest rates on short term loans at 36%.
Scarr says it is time for the government to step in to clean up the marketplace.
Payday loans started as a product for members of the military. Companies set up shop right outside of military bases in order to attract soldiers who run out of cash before they get their paychecks at the end of the month. The short-term lending option soon spread to non-military borrowers. In the latest report, the Illinois Consumer Lending Report says that the average borrower for a predatory loan in Illinois is a low income worker who makes less than $3000 a month.
Scarr says no amount of public awareness efforts will deter people from taking the high interest loans when they have no other options.
“They are not stupid,” Scarr says. “They go to these companies with their eyes wide open because they are desperate,” he says.
Some of Illinois PIRG’s staunchest allies in the fight against exploitive lending practices are members of the clergy who have seen how families have been hurt by the debt the rack up. When consumers can’t pay back the loan on time, many of them take out a second loan to pay off the first one, creating a vicious cycle.
“Responsible lending helps both parties,” Scarr says. The lender should be able to make a profit and the borrower should be able to bail himself or herself out of an emergency and pay off the loan at a reasonable rate. In the long term, borrowers improve their financial well being. In a predatory loan, only one party is benefiting. There should be no room in our society for that.”
By KEVIN BESSLER for the Illinois Radio Network
