Illinois payday lender sues, calling reforms unconstitutional

A law stamped “Unconstitutional” in large letters.

Illinois Lending Corp. says the installment loans provisions of the Illinois Payday Loan Reform Act are unconstitutional. (Photo Credit: CC BY-ND/Jamison Faught /Muskogee Politico)

Beginning March 21, Illinois consumers may not have the option to choose installment loans for their emergency short term credit needs. At least one payday lender in the state is not taking what it calls unconstitutional changes lying down, reports Crain’s Chicago Business. Illinois Lending Corp., which operates six Chicago-area payday loans outlets, has filed suit in Cook County Circuit Court, claiming that its business will be irreparably harmed if the slightly longer-termed installment loans are not allowed.

Prohibition of installment loans

Unlike payday loans, installment loans have a slightly longer term, offering consumers repayment flexibility at an additional fee. This applies at the customer’s discretion, should the standard two-week payday loan term be insufficient. According to Illinois Lending Corp., prohibiting installment loans violates the company’s constitutional rights to due process and equal protection.

As it stands, two of the more problematic parts of the new Illinois Payday Loan Reform Act for lending corporations like Illinois Lending Corp. are:

  • Borrowers cannot have installment loans for more than 45 days
  • A new 56-day repayment period at no additional charge for borrowers who have trouble repaying

While payday lenders are not looking to exploit borrowers who are having difficulty repaying, giving them a 56-day installment loan with no finance charge attached is untenable, says Illinois Lending Corp. The company’s 2010 business records show that it made more than 7,000 installment loans and about 700 payday loans last year.

Eliminating consumer choice

Illinois Lending Corp. is asking the court to block the provision within the Illinois Payday Loan Reform Act that would bar payday lenders and their affiliates from offering installment loans.

“There is no evidence that consumers have been injured where both (installment and payday) loan products are offered in the same place of business,” the lawsuit states.

Consumer advocates want to maintain fragile compromise

Lynda Delaforgue, co-director of Chicago-based consumer advocacy group Citizen Action/Illinois, believes that if the court grants an injunction against any portion of the Illinois Payday Loan Reform Act, the other compromises struck between the short term credit industry and the state will be torn down.

“There’s the potential for consumers to be bounced back and forth between the (consumer installment and payday) products,” Delaforgue told Crain’s.

However, by uniting the products by offering both under the same roof, payday lenders say they’re offering consumers both convenience and choice. The Illinois Payday Loan Reform Act arguably threatens consumers on both grounds. Consumers who have difficulty obtaining emergency short term credit elsewhere depend upon payday loans and installment loans, according to numerous studies.


Crain’s Chicago Business
Debt Consolidation Care Forum
Illinois Payday Loan Reform Act

Restricting credit hurts consumers and payday lenders

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