The payday loan industry in Illinois is getting stricter limits under a new law designed to protect those who use the high-interest loans to make ends meet.
Gov. Rod Blagojevich signed legislation Thursday that caps the amount that can be charged for each loan at $15.50 per $100 — down from as much as $40 or more now. It limits loans to $1,000 or 25 percent of the borrower's monthly salary, whichever is lower.
Consumers also will face a seven-day waiting period, and businesses will have to offer interest-free repayment plans on overdue loans. The new legislation goes into effect in December.
Payday loans let people obtain cash quickly by borrowing small amounts and putting up their next paycheck as security.
Blagojevich said the industry provides a needed service for those living paycheck-to-paycheck, but regulation is needed to keep vulnerable families from being "swamped with an endless cycle of debt."
But Bob Wolfberg, president of the Illinois Small Loan Association, said his members will have to lay off workers.
"It will reduce our gross revenues by 33 percent, forcing most of our companies into losing money," he said.
Tony Colletti, senior vice president of the Community Financial Services Association, which represents more than half of the payday loan outlets nationwide, disagreed, saying the law would curb abusive practices and ensure that customers use the service as intended.
According to the National Consumer Law Center, only seven states besides Illinois — Delaware, Idaho, Indiana, New Mexico, Oregon, South Dakota, Wisconsin — have no specific regulations for the payday loan industry.