CHICAGO (STNG) -- Gov. Blagojevich on Wednesday instructed the Department of Financial and Professional Regulation to file new rules to reduce the risks for people who borrow against the value of their car or truck.
Title loans are short-term loans with interest rates that often exceed 300 percent per year and can, if unpaid, allow the lender to repossess the vehicle.
Title loans are typically structured so they must be repaid or renewed to prevent repossession of the vehicle. Even larger loans that include installment payment schedules often come with unaffordable balloon payments, according to a release Wednesday from the governor's office.
For example, a $3,000 loan that requires the borrower to pay $400 monthly for seven months might then require a $3,000 balloon payment in the eighth month. In many of these loans, consumers cannot repay the balloon amount, resulting in repossession or another title loan.
Under the rules filed Wednesday, a title loan would be defined as any loan with an interest rate of more than 36 percent per year secured by the title to a vehicle owned by the borrower. The rules, according to the governor's office, are designed to rein in the escalating cost of a title loan by restricting the amount of money that can be lent, limiting the number of times a loan can be refinanced and establishing critical consumer protections for borrowers.
The rule also requires the lender to make sure the borrower has not had a title or other short-term loan in at least 15 days. Finally, the lender must give the borrower the toll free number for IDFPR for assistance with any problems.
In 2001, Gov. George Ryan filed a similar rule but included a provision that defined title loans as being for 60 days or less, according to the release. At that time the average length of title loans was 30-60 days.
But the payday loan industry changed the terms of its loans to avoid consumer protections encompassed in the Payday Loan Reform Act by extending the length of the loan to 61 days or longer, the governor's office said. Additionally, industry representatives sued the state to overturn the rule, arguing it was an unconstitutional encroachment by the governor on the powers of the legislature. In 2004, the Illinois Supreme Court affirmed a lower court’s ruling which upheld the rule.
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