Payday Loan Reforms: New Illinois Laws Encourage Fair Deals
Payday loans are short term loans – with terms ending in less than 120 days - that offer consumers quick cash to pay off bills. Companies that make payday loans usually target people who are already in very difficult financial situations. Senior citizens and others with limited income, such as pensions or social security, and are overwhelmed with debt are particularly vulnerable to the unfair loan terms of payday loans. In fact, the average monthly income of payday borrowers in Illinois is nearly $31,000 per year. Moreover, only 4% of people who take out payday loans earn more than $70,000 per year.
In the past, payday loans often had interest rates averaging over 300 percent and lenders continuously renewed the loans at the end of term. This practice put many people who were already struggling to pay their bills even further into debt.
Our Illinois Governor recently signed legislation that seeks to curb predatory lending practices in Illinois. Now consumers can rely on the new laws to protect them from the payday loan trap. The following are some of the highlights of the Payday Loan Reform Act:
- Illinois law prohibits loan companies from renewing or rolling over your loan when it becomes due—loan companies may create a new loan but only if you will not be in debt for more than an additional 45 days
- The payday loan amount may not be higher than $1,0000 or 25% of your gross monthly income, whichever is less
- Interest rates on payday loans are capped at 99% for loans under $4,000 and 36% for loans greater than $4,000
- Other than interest, a payday loan company may not charge you fees for the loan except for the bad check fee of $25
- You can cancel a payday loan by paying off the amount in full within two days of making the loan
- Your monthly payments cannot exceed 22.5% of your gross monthly income
- You have six months instead of four months to pay back the loan
- Lenders may not require post-dated checks as a method of repayment of the loan
Lenders make it easy to take out payday loans. However, you should carefully consider the possibility that you may be getting into a loan trap before you sign an agreement and if you have already signed and need help eliminating payday loans in Illinois, consult with a qualified bankruptcy attorney.
Despite the new legislation, we recommend avoiding payday loans and instead consider other options for getting out of debt. Master your financial destiny by consulting DebtStoppers, Bankruptcy Law Firm for further details and a free consultation.