SB1376 96TH GENERAL ASSEMBLY

LRB096 08911 MJR 19047 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
SB1376

Introduced 2/10/2009, by Sen. Linda Holmes

SYNOPSIS AS INTRODUCED:

205 ILCS 670/15	from Ch. 17, par. 5415
815 ILCS 122/2-5
815 ILCS 122/2-41 new
815 ILCS 122/2-42 new

Amends the Consumer Installment Loan Act. Defines the terms "Class A loan", "Class B loan", "Class C loan", and "payday loan". Specifies the charges allowed for interest bearing and precomputed Class A loans and Class B loans. In the provisions concerning Class C loans, sets forth provisions concerning (1) loan amortization, (2) use of consumer reporting services in comportment with the Payday Loan Reform Act, (3) lenders' prohibited acts, (4) protections for members of the military in comportment with the Payday Loan Reform Act, (5) allowable fees in the case of a defaulted loan, (6) disclosure requirements, and (7) controlling terms of the Consumer Installment Loan Act. Amends the Payday Loan Reform Act. Provides that no payday loan may be made to a consumer if the loan would result in the consumer being indebted to one or more payday lenders for a period in excess of 56 consecutive days (now 45 consecutive days). Provides that no lender may charge more than $17 per $100 loaned (now $15.50 per $100 loaned). Provides that lenders may seek and may be awarded court costs, but not attorney's fees, in the event of a customer default on the repayment plan. Provides that lenders may seek and may be awarded court costs and attorney's fees when a customer is in default and refuses to enter into the repayment plan. Effective January 1, 2010.

A BILL FOR

AN ACT concerning financial regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Consumer Installment Loan Act is amended by changing Section 15 as follows:

(205 ILCS 670/15) (from Ch. 17, par. 5415)

Sec. 15. Charges permitted.

(a) Every licensee may lend a principal amount not exceeding $40,000 and may charge, contract for and receive thereon interest at the rate agreed upon by the licensee and the borrower, subject to the provisions of this Act.

(b) For purpose of this Section, the following terms shall have the meanings ascribed herein.

"Applicable interest" for a precomputed loan contract means the amount of interest attributable to each monthly installment period. It is computed as if each installment period were one month and any interest charged for extending the first installment period beyond one month is ignored. The applicable interest for any monthly installment period is that portion of the precomputed interest that bears the same ratio to the total precomputed interest as the balances scheduled to be outstanding during that month bear to the sum of all scheduled monthly outstanding balances in the original contract.

"Class A loan" means a loan secured by an interest in real estate or the title to a motor vehicle.

"Class B loan" means a loan with an original principal amount advanced (including any amounts deducted or retained by lender) of $3,000 or more.

"Class C loan" means a loan with an original principal amount advanced (including any amounts deducted or retained by lender) of less than $3,000.

"Interest-bearing loan" means a loan in which the debt is expressed as a principal amount plus interest charged on actual unpaid principal balances for the time actually outstanding.

"Payday loan" means a loan made pursuant to the Payday Loan Reform Act.

"Precomputed loan" means a loan in which the debt is expressed as the sum of the original principal amount plus interest computed actuarially in advance, assuming all payments will be made when scheduled.

(c) Loans may be interest-bearing or precomputed.

(d) To compute time for either interest-bearing or precomputed loans for the calculation of interest and other purposes, a month shall be a calendar month and a day shall be considered 1/30th of a month when calculation is made for a fraction of a month. A month shall be 1/12th of a year. A calendar month is that period from a given date in one month to the same numbered date in the following month, and if there is no same numbered date, to the last day of the following month. When a period of time includes a month and a fraction of a month, the fraction of the month is considered to follow the whole month. In the alternative, for interest-bearing loans, the licensee may charge interest at the rate of 1/365th of the agreed annual rate for each day actually elapsed.

(e) With respect to interest-bearing Class A loans and Class B loans:

(1) Interest shall be computed on unpaid principal balances outstanding from time to time, for the time outstanding, until fully paid. Each payment shall be applied first to the accumulated interest and the remainder of the payment applied to the unpaid principal balance; provided however, that if the amount of the payment is insufficient to pay the accumulated interest, the unpaid interest continues to accumulate to be paid from the proceeds of subsequent payments and is not added to the principal balance.

(2) Interest shall not be payable in advance or compounded. However, if part or all of the consideration for a new loan contract is the unpaid principal balance of a prior loan, then the principal amount payable under the new loan contract may include any unpaid interest which has accrued. The unpaid principal balance of a precomputed loan is the balance due after refund or credit of unearned interest as provided in paragraph (f), clause (3). The resulting loan contract shall be deemed a new and separate loan transaction for all purposes.

(3) Loans may be payable as agreed between the parties, including payment at irregular times or in unequal amounts and rates that may vary with an index that is independently verifiable and beyond the control of the licensee.

(4) The lender or creditor may, if the contract provides, collect a delinquency or collection charge on each installment in default for a period of not less than 10 days in an amount not exceeding 5% of the installment on installments in excess of $200, or $10 on installments of $200 or less, but only one delinquency and collection charge may be collected on any installment regardless of the period during which it remains in default.

(f) With respect to precomputed Class A loans and Class B loans:

(1) Loans shall be repayable in substantially equal and consecutive monthly installments of principal and interest combined, except that the first installment period may be longer than one month by not more than 15 days, and the first installment payment amount may be larger than the remaining payments by the amount of interest charged for the extra days; and provided further that monthly installment payment dates may be omitted to accommodate borrowers with seasonal income.

(2) Payments may be applied to the combined total of principal and precomputed interest until the loan is fully paid. Payments shall be applied in the order in which they become due, except that any insurance proceeds received as a result of any claim made on any insurance, unless sufficient to prepay the contract in full, may be applied to the unpaid installments of the total of payments in inverse order.

(3) When any loan contract is paid in full by cash, renewal or refinancing, or a new loan, one month or more before the final installment due date, a licensee shall refund or credit the obligor with the total of the applicable interest for all fully unexpired installment periods, as originally scheduled or as deferred, which follow the day of prepayment; provided, if the prepayment occurs prior to the first installment due date, the licensee may retain 1/30 of the applicable interest for a first installment period of one month for each day from the date of the loan to the date of prepayment, and shall refund or credit the obligor with the balance of the total interest contracted for. If the maturity of the loan is accelerated for any reason and judgment is entered, the licensee shall credit the borrower with the same refund as if prepayment in full had been made on the date the judgement is entered.

(4) The lender or creditor may, if the contract provides, collect a delinquency or collection charge on each installment in default for a period of not less than 10 days in an amount not exceeding 5% of the installment on installments in excess of $200, or $10 on installments of $200 or less, but only one delinquency or collection charge may be collected on any installment regardless of the period during which it remains in default.

(5) If the parties agree in writing, either in the loan contract or in a subsequent agreement, to a deferment of wholly unpaid installments, a licensee may grant a deferment and may collect a deferment charge as provided in this Section. A deferment postpones the scheduled due date of the earliest unpaid installment and all subsequent installments as originally scheduled, or as previously deferred, for a period equal to the deferment period. The deferment period is that period during which no installment is scheduled to be paid by reason of the deferment. The deferment charge for a one month period may not exceed the applicable interest for the installment period immediately following the due date of the last undeferred payment. A proportionate charge may be made for deferment for periods of more or less than one month. A deferment charge is earned pro rata during the deferment period and is fully earned on the last day of the deferment period. Should a loan be prepaid in full during a deferment period, the licensee shall credit to the obligor a refund of the unearned deferment charge in addition to any other refund or credit made for prepayment of the loan in full.

(6) If two or more installments are delinquent one full month or more on any due date, and if the contract so provides, the licensee may reduce the unpaid balance by the refund credit which would be required for prepayment in full on the due date of the most recent maturing installment in default. Thereafter, and in lieu of any other default or deferment charges, the agreed rate of interest may be charged on the unpaid balance until fully paid.

(7) Fifteen days after the final installment as originally scheduled or deferred, the licensee, for any loan contract which has not previously been converted to interest-bearing under paragraph (f), clause (6), may compute and charge interest on any balance remaining unpaid, including unpaid default or deferment charges, at the agreed rate of interest until fully paid. At the time of payment of said final installment, the licensee shall give notice to the obligor stating any amounts unpaid.

(g) With respect to Class C loans:

(1) The loan document shall provide for a repayment schedule that fully amortizes the loan in substantially equal periodic payments of principal and interest regardless of the length of the loan. Loans requiring a balloon payment of the loan principal at maturity are prohibited by this Act.

(2) The loan document shall not require a penalty or premium for prepayment of the balance of the indebtedness.

(3) Lenders shall use a consumer reporting service established by the Division of Financial Institutions of the Department of Financial and Professional Regulation to verify that the Class C loan would not conflict with the Payday Loan Reform Act. A Class C loan may not be issued if the borrower currently has a payday loan or if they are in any cooling-off period or repayment plan of a payday loan.

(4) Lenders are prohibited from doing any of the following:

(A) Threatening to use or using the criminal process of this State or any other state to collect on a loan made pursuant to this Act.

(B) Including any of the following provisions in a loan document:

(i) a confession of judgment clause;

(ii) a waiver of the right to a jury trial, if applicable, in any action brought by or against a borrower, unless the waiver is included in an arbitration clause that is allowable under the Payday Loan Reform Act;

(iii) a mandatory arbitration clause that is oppressive, unfair, unconscionable, or substantially in derogation of the rights of the borrower; or

(iv) a provision in which the borrower agrees not to assert any claim or defense arising out of the contract.

(C) Taking any interest in real estate in connection with a loan agreement.

(5) Lenders must comply with all protections given to members of the military by the Payday Loan Reform Act.

(6) In the case of a default of a Class C loan, no additional fees or interest charges of any kind may be charged to the borrower except for actual court costs that have been awarded to the lender by a court judgment and a one-time fee not to exceed $25 if a borrower's check or an electronic debit is returned unpaid by the borrower's financial institution. No attorney's fees or treble damage awards may be charged or awarded.

(7) The lender must provide the borrower with disclosures approved by the Director and substantially similar to those found in subsections (a) and (b) of Section 2-20 of the Payday Loan Reform Act.

(8) The lender must make available financial literacy education materials approved by the Director.

(9) In the case of a conflict between the terms of this subsection (g) and the terms of subsections (a) through (f) of this Section, the terms of this subsection (g) shall control.

(Source: P.A. 93-264, eff. 1-1-04.)

Section 10. The Payday Loan Reform Act is amended by changing Section 2-5 and by adding Sections 2-41 and 2-42 as follows:

(815 ILCS 122/2-5)

Sec. 2-5. Loan terms.

(a) Without affecting the right of a consumer to prepay at any time without cost or penalty, no payday loan may have a minimum term of less than 13 days.

(b) No payday loan may be made to a consumer if the loan would result in the consumer being indebted to one or more payday lenders for a period in excess of 56 45 consecutive days. Except as provided under Section 2-40, if a consumer has or has had loans outstanding for a period in excess of 56 45 consecutive days, no payday lender may offer or make a loan to the consumer for at least 7 calendar days after the date on which the outstanding balance of all payday loans made during the 56 45 consecutive day period is paid in full. For purposes of this subsection, the term "consecutive days" means a series of continuous calendar days in which the consumer has an outstanding balance on one or more payday loans; however, if a payday loan is made to a consumer within 6 days or less after the outstanding balance of all loans is paid in full, those days are counted as "consecutive days" for purposes of this subsection.

(c) No lender may make a payday loan to a consumer if the total principal amount of the loan, when combined with the principal amount of all of the consumer's other outstanding payday loans, exceeds $1,000 or 25% of the consumer's gross monthly income, whichever is less.

(d) No payday loan may be made to a consumer who has an outstanding balance on 2 payday loans.

(e) No lender may charge more than $17 $15.50 per $100 loaned on any payday loan over the term of the loan. Except as provided in Section 2-25, this charge is considered fully earned as of the date on which the loan is made.

(f) A lender may not take or attempt to take an interest in any of the consumer's personal property to secure a payday loan.

(g) A consumer has the right to redeem a check or any other item described in the definition of payday loan under Section 1-10 issued in connection with a payday loan from the lender holding the check or other item at any time before the payday loan becomes payable by paying the full amount of the check or other item.

(Source: P.A. 94-13, eff. 12-6-05.)

(815 ILCS 122/2-41 new)

Sec. 2-41. Repayment plan default. Notwithstanding any other provision of this Act to the contrary, lenders may seek and may be awarded court costs, but not attorney's fees, in the event of a customer default on the repayment plan as described in Section 2-40 of this Act.

(815 ILCS 122/2-42 new)

Sec. 2-42. Refusal to enter into repayment plan after default. Notwithstanding any other provision of this Act to the contrary, lenders may seek and may be awarded court costs and attorney's fees when a customer is in default and refuses to enter into the repayment plan as described in Section 2-40 of this Act.

Section 99. Effective date. This Act takes effect January 1, 2010.