This letter to the editor encouarges the Illinois towns of Normal and Bloomington to impose 36% rate caps.   However, cities have NO authority to impose rate caps.   Consumer lending is regulated at the state level.  Interstate banking is regulated at the federal level.   Cities cannot regulate interest rates, period.

That’s the theme of this well-written and balanced story in the Courier News:

Well, if you’re in the neighborhood of McLean Boulevard and Big Timber Road, you’re in luck. Right at the corner is a gigantic PLS payday loan store that will lend you a few hundred bucks pretty easily — if you don’t mind an interest rate that Illinois Attorney General Lisa Madigan’s office describes as “legalized loan sharking.”If PLS rejects you, a block down the street along McLean you’ll find a smaller payday loan store called Fast Cash In A Flash. Right next door to that you can trade your wedding ring for cash at Marelli’s Gold Exchange. And right across the street from those two is Elgin’s first and only pawn shop, Windy City Jewelry & Loan, where you can borrow anywhere from $50 to $63,000 by leaving that wedding ring, or maybe your high school clarinet, as collateral.

A local lender sues the state over the new law.  From the story:

A pawn shop gets approval to compete with payday and title lenders.  The way it should be.  From the story: 

With a buffet of payday loan stores, auto title loan locations and “cash for gold” joints dotting Elgin, does the city really need a pawnshop?

The Elgin City Council answered that question Wednesday night with a yes, saying pawnshops have tougher regulations, charge lower interest rates than loan stores and could provide people strapped for cash with a viable and safe alternative.

Just popped up: 

“Many consumers who take out short-term loans are doing so as a last resort to pay their bills and provide for their families. It is all too easy for lenders to take advantage of them by raising interest rates and setting very short repayment periods,” said Governor Quinn. “It is important that we do everything we can to protect these consumers who are already hurting, by helping to make these loans more affordable.”

Governor signed Illinois payday lending bill this afternoon.  From the story:

Payday loan companies will face limits on how much interest they can charge under legislation Gov. Pat Quinn signed into law this afternoon.

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Interest rates on payday loans also would be limited, with rates being capped at $15.50 for every $100 borrowed over a two-week period. Additionally, loan firms would have to verify that a borrower has the ability to repay a loan and would not be allowed to issue pay day loans if monthly payments would exceed 25 percent of a person’s gross monthly income. That limit drops to 22.5 percent for those taking out longer consumer installment loans.

Reform bill heads to Governor.  From the story: 

In action Wednesday, the Illinois House signed off on changes aimed at closing loopholes in the state’s lending laws that have allowed some companies to charge rates as high as 700 percent.

 The measure is a compromise between consumer groups and lenders and would impose a cap of 99 percent on loans under $4,000 and 36 percent for those above that level.

 Other changes include allow lenders to increase the term of loans from four to six months. 

Sorry, I’ve been so wrapped up in federal issues, I haven’t been watching this:

The Illinois General Assembly is on the cusp of capping for the first time the interest rates that consumer finance companies can charge borrowers.

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The Payday Loan Reform Act, meanwhile, would be amended to increase the allowed terms of the loans to six months from four. Remaining the same is the limit of charging no more than $15.50 per $100 loaned out every two weeks.

At the same time, payday lenders won’t be allowed to offer their loans under the Consumer Loan Installment Act, a law that is meant to apply to loans secured by car titles and signed-check loans made by credit-card companies and other consumer finance firms.

“The agreement is historic in Illinois,” says Lynda DeLaforgue, co-director of Citizen Action Illinois. “We will for the first time have set rates on these unsecured loans made to the most vulnerable borrowers.”

A representative of the association representing many of the state’s largest payday lenders called the deal fair, but said it would result in fewer lenders.

Discussed over at PDLindustrynews.com

Rep. Melissa Bean (D-IL) says this about the CFPA in a suburban Chicago newspaper:

Most of the bills were inspired by last year’s economic collapse and credit crisis, which prompted a huge government banking bailout. “It was costly to taxpayers, and it was a dangerous precedent that implied government intervention when companies fail,” Bean said at a news conference at the Metcalf Federal Building in Chicago. “This kind of precedent we have to undo, and it’s the kind of mistake we can’t repeat.”

The cornerstone is the Financial Stability Improvement Act, which Bean said would avert government bailouts through accountability by creating a Systemic Dissolution Authority, which would be charged with overseeing the demise of failing firms previously deemed “too big to fail.”

“This is the anti-bailout. This means when a company fails, heads are going to roll. There will be consequences,” Bean said. “Essentially, if your company fails, you’re fired.”

No argument there.   But why then throw in all the consumer lending services that are currently regulated by the states?