From its 8:30 a.m. opening to its 5:30 p.m. closing one day last week, people steadily trooped into the modest offices here of the Sun Loan Co.
They were young and old. They were both employed and out of work. They were white collar and blue collar. But what bound them all together was the bad credit that had shepherded them into this financial emergency room, one of several lending operations within steps of each other.
Some people didn't know how much interest they would be paying on their loans, although it was written on their contracts. It didn't matter to them. They were hungry for cash, even at rates as high as 150 percent.
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In the last days of its recent session the Illinois legislature wrangled with a drive to cap the interest rates on the loans that these people pay along with some broad new lending rules.
The effort failed, however, amid intense politicking by businesses and consumer groups, but also between the various lenders themselves who are competing in the growing market for providing money to financially troubled borrowers.
The bottom-line question for consumer advocates was how much interest borrowers can shoulder without falling victim to endless debt. But it became a turf battle for lenders over who has the legitimate stake in serving these borrowers.
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Initially the drive to cap interest rates began in the state Senate with an effort to fill a loophole left by the 2005 payday loan reform act. Payday loans get their name from their short time frame and aren't technically tied to paychecks.
The law had laid down rules and a 400 percent annual interest cap on payday loans good for 120 days. But payday loan firms soon began lending money over periods of 121 days or longer, and called them installment loans.
That was to the companies' advantage since there is no limit on installment loans' interest rates in Illinois, and the state's regulation of these loans, as Hamos points out, is minimal.
Illinois is the only state with a cap on interest rates for payday loans but none on installment loans.
When the bill reached the House the battle broadened.
Payday loan companies, some of which charge up to 1,000 percent annual interest on long-term loans, balked at lowering their rates without any financial incentives.
"We are willing to give up a lot but we would like a counteroffer from the other side," said Steve Brubaker, a lobbyist for many of the state's payday loan firms.
And the companies that offer short-term installment loans, their annual interest rates ranging from 36 to 150 percent, balked at being lumped together under the same law with payday loan companies. One of those companies is Sun Loan, which charges 50 percent to 150 percent in Illinois.
They explained that they are long-term businesses, not new arrivals like some of the payday loan firms, and that they perform credit checks and try to work out payment plans based on clients' budgets—steps not taken, they said, by payday loan companies. Consumer advocates question, however, whether all installment loan firms carry out detailed credit checks.
"All too often the people who take out a payday loan don't pay it back on maturity and they get caught up in a cycle of debt," said Andrew Morrison, an executive vice president of -based Sun Loan Co., which has 250 stores nationwide, including 26 in Illinois.
Morrison also complained about payday loan companies that have "morphed" into installment lenders. "They ruined the viability of an act that was perfectly OK before."
As the bill was under consideration in the House, small loan firms were especially worried by talk of setting the annual interest rate caps as low as 36 percent, said Kevin McFadden, a lobbyist for the Illinois Financial Services Association, which represents most of the installment loan firms in the state.
Source : business.timesonline.co.uk/
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