New ‘predatory’ Illinois law caps payday lenders


When Cobi was 23, he had a steady job, but it didn’t pay him enough to save money and move from his mother’s house to Chicago’s West Side.

He planned to supplement his income with additional work. To do this, he needed to buy a laptop and a camera, but he didn’t have the money for these purchases.

When money was tight at home, her mother would get money from payday loan stores.

“She didn’t do them frequently, but I remember several times where she did,” Cobi said. “So you know I said, ‘OK… if she did… why not? “

We only use Cobi’s first name because he doesn’t want his current employer to know about his financial history.

Looking back, he said it wasn’t difficult for him to find a payday lender because there were so many in his neighborhood. And it was a quick process: the worker who helped him didn’t ask him a lot of questions.

Cobi went to ask for $ 200 and he was offered $ 450. He took it knowing he would have to pay it back on his next paycheck.

But then her mother got sick and was in the hospital.

When payday arrived, he was surprised at the $ 600 charge on his bank account. He didn’t have the money and his bank account went negative. His bank then charged him an overdraft fee.

He did not know what to do.

Cobi must have wondered, “Am I taking care of my family or paying the bank back?” “

Cobi said he didn’t have the money. The bank ended up closing its account for lack of payment.

Payday loans are meant to be small, short term loans. They are available for people who need quick cash and don’t have access to another option, such as a traditional bank or a credit union. But these loans are also known to carry high interest rates, up to 400% in some cases.

“I think the process went a little too fast to the point where I can’t remember their focus on the interest and how bad it was going to be,” Cobi said.

Stories like Cobi’s prompted Illinois lawmakers to respond. The state is now one of 18 countries to cap interest rates and fees on payday loans after the Illinois Predatory Loan Prevention Act was enacted by Governor JB Pritzker last month.

Illinois State Senator Jacqueline Collins represents parts of the South Side of Chicago and the Southern Suburbs. She co-sponsored the measure and called these types of high interest loans “predatory”.

“The legislation will cap payday loans at 36%, installment payday loans at 36% and auto title loans at 36%,” Collins said. “Even that, I think it’s a predator, but it’s the best we can do at this point.”

Collins says it’s no accident that these types of businesses are moving to communities of color.

“It’s really the result of redlining and segregation, because what happened is that segregation really created opportunities for economic exploitation,” Collins said. “We know these communities of color were targeted because they did not have access to a traditional bank loan.

Not everyone agrees that capping lenders is the right decision.

Rickie Keys of Renewal Financial lobbied against the measure. He agreed that payday loans are predatory, but said fallout from the new law could unintentionally harm communities of color because there is nothing to replace them.

“The banks are not going to intervene to offer these services. Credit unions will not step in to provide these services. I think the installment lenders will try to get out of this, but I think they will eventually go away, ”Keys said. “The only options that will be available to consumers… will be bad options.”

Keys is concerned that demand for these types of loans will continue, but supply will dry up on the south and west side of the city.

Andy Posner, founder and CEO of nonprofit lender Capital Good Fund, believes lenders like his and other community lenders want to provide services, but they haven’t been able to compete.

“All of these branches and things are in their community, they get flyers and advertisements,” Posner said. “So if you see the worst players coming out of space, it’s a lot easier for the good players to acquire customers profitably.”

Posner said the new law leveled the playing field and provided people with alternatives.

“It’s going to be really good, especially in the midst of the pandemic, for families to be able to access credit without getting into a cycle of debt,” Posner said. “So now people are going to look for alternatives, so it will be easier for us to find them because it won’t be just us who are looking for the customer. “

Cobi would have liked to have known other options, as taking out this loan affected every aspect of his life.

He is still rebuilding his finances five years later.

“I had to find an owner who was taking the money. I couldn’t live where I wanted to live. It seemed very small at the time, but it set off a chain reaction. I’m fine now, but it just took me awhile to recover.

Araceli Gómez-Aldana is a host and journalist at WBEZ. Am here @ Araceli1010.


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