A poster about payday lending is seen in this illustration photo. (CNS photo/Suzanne Plunkett, Reuters)
In Illinois, the average annual percentage rate on a payday loan is 297%, and the average annual percentage rate on a car title loan is 179%. Half of the people who apply for payday loans make less than $30,000 and end up paying thousands of dollars in fees for loans of around $500 to $1,000, according to advocates for lending reform. The Catholic Conference of Illinois and a coalition of over 100 social service organizations are trying to combat such lending practices by urging Gov. J.B. Pritzker to sign into law the Predatory Loan Prevention Act to cap the interest for payday and car title loans at 36%. They are called payday loans because the payment is usually due on or around payday, and they are based on what the borrower can demonstrate they take home in pay. “When one person lends money to another there has to be reasonable expectation that they are able to pay that money back,” said Robert Gilligan, executive director of the Catholic Conference of Illinois, the lobbying arm of the Illinois bishops. “What we’ve seen is it’s an inequitable power relationship between lenders with large sources of money, lending money to individuals who many times have spotty financial records.” Illinois families pay over $500 million per year in payday and title loan fees, the fourth highest total in the nation. The loans are also heavily marketed to people who live in low-income communities. In Chicago, ZIP codes in communities of color represent 47% of the city’s population but have 72% of the city’s payday loans. A person is 13 times more likely to have a payday loan if they live in the Austin neighborhood than if they live in Lincoln Park, according to data from the Woodstock Institute, a nonprofit research and policy organization that works in the areas of fair lending, wealth creation and financial system reform. “These interest rates are excessive,” Gilligan said. “There’s just a clear pattern of these entities, these large entities taking advantage of people who either don’t know or can’t know exactly the relationship that they are entering into.” The state has a just role in setting the terms of these loans so borrowers know upfront what they are getting into and so there is a reasonable expectation that they will be able to pay back their loans, Gilligan said. “I think most people that will read this Chicago Catholic story are probably paying under 4% for their mortgage loans now. Keep that in mind if you’re thinking what would it be like if you were paying nine times that,” Gilligan said. Car title loans are also an issue. People pledge their cars as collateral on a payday loan and if they can’t pay it back, they can lose their car. In the city of Chicago, where there is a large mass transit system, many people can still make it to their jobs or the grocery store. That’s not the case in rural areas, where having a car is vital, Gilligan said. “The other thing we underscore is that these are people who are oftentimes in desperate situations,” Gilligan said. “What happens when you’re in a desperate situation? You’re not always thinking clearly. You will look for anything to make it to the next day.” Efforts to protect people from predatory payday lenders have a history in the Archdiocese of Chicago. In 1999, social justice advocate Msgr. John “Jack” Egan heard the confession of a woman beholden to two payday lenders. She worked two jobs, but couldn’t get ahead of the interest rate and fees. Egan scraped together the money to pay off her debt, interest and fees. Then he convened a group of religious leaders, consumer advocates, public interest organizations and social service groups to form the Campaign for Payday Loan Reform, with the intent to craft legislation reining in the predatory practices of payday lenders. Shortly after his death in 2001, the group was renamed the Monsignor John Egan Campaign for Payday Loan Reform. But until now, no legislation existed to cap the loan rates, which is why the coalition is urging people to contact Gov. Pritzker and ask him to sign the bill. “The disparities on this issue between Black, brown and white communities is really stark,” said Brent Adams, senior vice president of policy and communication at the Woodstock Institute. People with less money are shouldering more debt, which makes it even harder for them to get ahead financially, he said, noting that it has an impact on the wider community, too. “Five hundred million dollars a year is extracted from communities throughout Illinois to pay for these loans, that’s just in the fees themselves,” Adams said. “That doesn’t include any penalties. That’s money that could otherwise be spent in the community, building the local economy, creating jobs.” While 36% is still high, it’s a rate cap adopted by 17 states and the District of Columbia. “This is not some brand-new experiment. We know from other states that consumers do better when these rate caps exist,” Adams said. For more information, visit ilcatholic.org or woodstockinst.org.
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