Payday Loans
Many consumers who need cash quickly turn to payday loans—short-term, high interest loans that are generally due on the consumer’s next payday after the loan is taken out. The annual percentage rate of these loans is usually very high—sometimes 390% or more. In recent years, the availability of payday loans via the internet has increased significantly. Unfortunately, some payday lending operations have employed deception and other illegal conduct to take advantage of financially distressed consumers seeking these loans.
The Federal Trade Commission (FTC) enforces a variety of laws to protect consumers in this area. The agency has filed many law enforcement actions against payday lenders for, among other things, engaging in deceptive or unfair advertising and billing practices in violation of Section 5 of the FTC Act; failing to comply with the disclosure requirements of the Truth In Lending Act; violating the Credit Practices Rule’s prohibition against wage assignment clauses in contracts; conditioning credit on the preauthorization of electronic fund transfers in violation of the Electronic Fund Transfer Act; and employing unfair, deceptive, and abusive debt collection practices.
The FTC has also filed recent actions against scammers that contact consumers in an attempt to collect fake or phantom payday loan debts that consumers do not owe. Further, the FTC has filed actions against companies that locate themselves on Native American reservations in an attempt to evade state and federal consumer protection laws.
Car Title Loans
A car title loan is also a loan made for a short period of time—often for only 30 days. To get a car title loan, you must give the lender the title to your vehicle. The lender gives you cash and keeps the title to your vehicle. When it is time to repay the loan, you must pay the lender the amount you borrowed, plus a substantial fee—25% of the amount you borrowed, for example.
If you borrow $1,000 for 30 days, and the lender’s fee is 25%, you must repay the lender $1,250 30 days later. And if you are not able to repay the money when it is due, the lender may take or seize your car and sell it to satisfy the loan. This can be devastating for someone who relies on their car to get to work or to the grocery store.
In Illinois, payday loans are regulated by the Illinois Payday Loan Reform Act (PLRA) which imposes restrictions on payday lenders and the terms of payday loans. Lenders must be licensed by the state, and they are required to adhere to maximum loan amounts, terms, and finance charges. For example, payday loan amounts cannot exceed the lesser of $1,000 or 25% of the borrower's gross monthly income. Payday loans must be repaid within 13 to 45 days, and finance charges are capped at $15.50 per $100 borrowed for a 14-day period, which equates to an annual percentage rate (APR) of 403%. Additionally, borrowers are given at least 55 days to repay the loan in installments with no additional charges if they are in a payday loan debt cycle for 35 or more consecutive days. Car title loans are also regulated in Illinois, with similar requirements for licensing and conduct by lenders. The Illinois Consumer Installment Loan Act governs title loans, which cannot exceed $4,000, must be fully amortizing, and have terms not less than 112 days and not more than 180 days. The monthly payment cannot exceed 22.5% of the borrower's gross monthly income. If a borrower defaults on a title loan, the lender may repossess and sell the vehicle to recover the debt, but must return any surplus to the borrower. At the federal level, the FTC enforces laws against deceptive and unfair practices by both payday and title lenders, ensuring disclosures are made according to the Truth In Lending Act, and protecting consumers from illegal debt collection practices.
