SPRINGFIELD — New state rules aimed at cracking down on payday lenders go into effect today.
The regulations, approved by the General Assembly this spring, seek to limit the cost of payday loans and impose waiting periods so people aren't juggling payments on multiple loans at the same time.
"I think the new rules are wonderful," said Chris Daugherty, a consumer credit counselor in central Illinois. "We have certainly seen the negative effects of these loans on our citizens for a while."
The law is the result of a six-year effort by lawmakers and community groups who have been arguing that payday lenders exploit poor people by offering loans with excessive interest charges and penalties.
A trade group representing the lenders earlier said its members will comply with the new rules. But, it also warned the law will hurt consumers because it could dry up competition.
"While the governor and the legislature may have thought they were doing the right thing for consumers, they have in fact made it more difficult for consumers to meet their short-term financial needs," said Bob Wolfberg, who heads the Illinois Small Loan Association.
The industry has mushroomed, growing by 23 percent in Illinois last year, according to the Illinois Department of Financial and Professional Regulation, which tracks the lenders.
Currently, there are 955 short-term lenders in Illinois. Last year, those companies issued more than 1.4 million loans worth an average of $380 each, state officials said.
Under most scenarios, customers provide a postdated check to a lender. The lender waits to cash the check until that date, when the person has received a paycheck.
Under the new rules, the cost of a payday loan will be capped at $15.50 for every $100 borrowed — down from a fee of $40 or more in the past. Customers face a seven-day waiting period between taking out loans.
In addition, customers would not be allowed to borrow more than 25 percent of their monthly income or $1,000, whichever is less. The law also prevents borrowers from having more than two payday loans at a time.
In her role overseeing Central Illinois Debt Management and Credit Education Inc., Daugherty said she has counseled people who had as many as seven payday loans at once.
Officials estimate they will spend an extra $281,000 to enforce the tougher rules. But, they also say the law will create revenue of more than $475,000 in licensing fees, fines and penalties.
In a statement, Attorney General Lisa Madigan said the timing of the new law is important.
"During the holidays, many consumers turn to payday loans to help make it through. This new law includes strict enforcement of short-term lending products to help ensure that payday loans are truly short term loans and don't catch people in a vicious cycle of debt," she said.