SB2069 94TH GENERAL ASSEMBLY

LRB094 10041 MKM 40299 b

94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
SB2069

Introduced 2/25/2005, by Sen. Don Harmon - James A. DeLeo - James F. Clayborne, Jr. - Antonio Munoz - Peter J. Roskam, et al.

SYNOPSIS AS INTRODUCED:

New Act
205 ILCS 670/21	from Ch. 17, par. 5427
720 ILCS 5/17-1a	from Ch. 38, par. 17-1a

Creates the Short-term Loan Act to regulate lenders offering short-term loans (defined as deferred presentment loans and title-secured loans). Requires such a lender to notify the borrower that the borrower is entitled to contact the Division of Financial Institutions of the Department of Financial and Professional Regulation concerning debt management services and improprieties concerning the loan. Sets forth standards and requirements concerning the dispersal of loan proceeds, the written loan agreement, cancellation of future payment obligations, electronic funds transfer, and posting of charges. Prohibits a lender from engaging in other types of business if it does so for the purpose of violating the Act and prohibits the lender from engaging in any unfair or deceptive acts, practices, or advertising. Authorizes the borrower to recover undisclosed or excessive charges. Preempts all administrative rules of the Department of Financial and Professional Regulation concerning short-term loans. Establishes specific standards and requirements for both deferred presentment loans and title-secured loans. Amends the Consumer Installment Loan Act. Provides that the provisions of that Act do not apply to short-term loans. Amends the Criminal Code of 1961. In provisions concerning civil liability for deceptive practices, provides that a lender is not entitled to collect damages of treble on an amount owing from a short-term loan. Effective immediately.

A BILL FOR

AN ACT concerning regulation.

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

ARTICLE 1. GENERAL PROVISIONS

Section 1-1. Short title. This Act may be cited as the Short-term Loan Act.

Section 1-5. Definitions. As used in this Act:

"Check" means a personal check, draft, or other negotiable instrument signed by the borrower and made payable to a lender.

"Deferred presentment loan" means a transaction pursuant to a written agreement between a lender and the borrower whereby the lender:

(1) accepts a check from the borrower;

(2) agrees to hold the check for a period of time prior to negotiation or presentment of the check; and

(3) pays to the borrower the amount of the check, less a finance charge.

"Division" means the Division of Financial Institutions of the Department of Financial and Professional Regulation.

"Lender" means any entity offering short-term loans to Illinois residents.

"Renew" means to refinance a deferred presentment loan in an amount equal to or less than the unpaid principal of a previous deferred presentment loan with payment in full of interest accrued to date plus any other permissible fees at the time of refinancing.

"Short-term loan" means a deferred presentment loan or a title-secured loan.

"Title-secured loan" means a non-purchase money loan with an original term of not more than one month wherein, at consummation, a borrower provides to the lender, as security for the loan, physical possession of the borrower's title to a motor vehicle and a security interest in that motor vehicle.

Section 1-10. Availability of debt management services.

(a) Before entering into a short-term loan agreement, a lender must make available to the borrower a pamphlet created by the Division that describes the availability of debt management services and the borrower's rights and responsibilities in the transaction.

(b) Each short-term loan agreement and refinancing agreement executed by a lender shall include the following statement, initialed by the borrower:

I have received from (name of lender) a toll-free number for the Division of Financial Institutions of the Department of Financial and Professional Regulation that I can call for information regarding debt management services.

(c) Upon conveying any written notice to a borrower indicating the borrower is in arrears or that the borrower is in default with respect to a short-term loan, a lender shall include with the notice a statement indicating a toll free number for the Division that provides the borrower with information from the Division regarding debt management services. The form and method of providing the information shall be determined by the Division by rule.

Section 1-15. Borrower's right to contact Division. The loan agreement of any short-term loan shall prominently disclose the Division's address and telephone number and shall advise the borrower that matters involving improprieties in the making of the loan or in loan collection practices may be referred to the Division.

Section 1-20. Dispersal of loan proceeds. A lender may issue the proceeds of a short-term loan in the form of (i) a check drawn on the lender's bank account; (ii) cash; (iii) by money order; (iv) a debit card; or (v) an electronic funds transfer. When the proceeds are issued in the form of a check drawn on the lender's bank account or by money order, the lender may not charge a fee for cashing the check or money order if cashing service is offered at the lender's location. When the proceeds are issued in cash, the lender must provide the borrower with a written verification of the cash transaction and shall maintain a record of the transaction.

Section 1-25. Written agreement. A short-term loan transaction must be documented by a written agreement signed by the borrower. The written agreement must contain the name of the lender, the transaction date, and a statement of the total amount of fees charged, expressed both as a dollar amount and as an annual percentage rate (APR). With respect to a title-secured loan, the agreement must also contain a description of the motor vehicle being used as collateral, including its year, make, model, and vehicle identification number. With respect to a deferred presentment loan, the written agreement must also authorize the lender to defer presentment or negotiation of the check until a specific date, which may not be later than 60 calendar days after the date of the transaction.

Section 1-30. Notice to borrower. A lender providing a short-term loan shall provide the following notice in a prominent place on each short-term loan agreement in at least 10-point type:

(1) A SHORT-TERM LOAN IS NOT INTENDED TO MEET LONG-TERM FINANCIAL NEEDS.

(2) YOU SHOULD USE A SHORT-TERM LOAN ONLY TO MEET SHORT-TERM CASH NEEDS.

(3) YOU WILL BE REQUIRED TO PAY ADDITIONAL INTEREST IF YOU RENEW THE SHORT-TERM LOAN RATHER THAN PAY THE DEBT IN FULL WHEN DUE.

Section 1-35. Right to cancel future payment obligations.

A borrower may cancel future payment obligations under a short-term loan agreement without cost no later than the end of the business day immediately following the day on which the short-term loan was made. To cancel future payment obligations under the short-term loan agreement, the borrower must inform the lender that the borrower wants to cancel the future payment obligations under their short-term loan agreement and must return the uncashed proceeds, check or cash, in an amount equal to the amount financed under the short-term loan agreement.

Section 1-40. Electronic funds transfer. A lender offering short-term loans may offer electronic funds transfer services to borrowers. Loan proceeds may be electronically credited to and loan payments may be electronically debited from the borrower's account. No electronic transfers may occur without the prior written approval of the borrower.

Section 1-45. Posting of charges. A lender offering short-term loans must post at the point-of-sale a notice of the charges imposed for each type of short-term loan transaction offered. For deferred presentment loan transactions, the notice shall disclose the charges imposed by using as an example a $300 loan for a 14-day period. For title-secured loans, the notice shall disclose the charges imposed by using as an example a $500 loan for a 30-day or one month period.

Section 1-50. Other types of businesses. A lender may conduct other types of business at a location where it engages in short-term loan transactions unless the lender carries on that business for the purpose of violating this Act.

Section 1-55. Unfair or deceptive practices. A lender offering short-term loans may not engage in unfair or deceptive acts, practices, or advertising in connection with a short-term loan transaction.

Section 1-60. Undisclosed or excessive charges under short-term loan.

(a) Any interest or fees that are undisclosed or in excess of those allowed by law or a short-term loan agreement may be recovered by the borrower in an action at law or as otherwise agreed in writing between the parties.

(b) Before pursuing an action or proceeding against a lender concerning a short-term loan, the borrower or the borrower's attorney shall provide the lender with a written notice via certified mail that such an action or proceeding is contemplated and shall specifically identify the type and dollar amount of the interest, fees, or charges of the short-term loan that the borrower contends were undisclosed or excessive. If the lender tenders the excessive or undisclosed interest, fees, or charges to the borrower within 30 days of receipt of such notice, the tender of that amount shall be a complete defense to any further proceedings. If the lender fails to tender a response to the borrower along with all interest and fees that the borrower contends were undisclosed or in excess of those permitted and if the borrower later prevails in a trial or proceeding based upon the undisclosed or excessive charges, the lender shall pay the borrower a penalty of twice the charge proven to be undisclosed or excessive.

Section 1-65. Preemption of administrative rules.

Administrative rules of the Department of Financial and Professional Regulation related to short-term loans promulgated before the effective date of the this Act are preempted by this Act, including, but not limited to the following: 38 Ill. Adm. Code 110.300, 110.310, 110.320, 110.330, 110.340, 110.350, 110.360, 110.370, 110.380, 110.390, 110.400, and 110.410.

ARTICLE 2. DEFERRED PRESENTMENT LOANS

Section 2-5. No criminal culpability. A borrower who enters into a deferred presentment loan agreement is not subject to any criminal penalty for entering into that agreement and is not subject to any criminal penalty in the event the borrower's check is dishonored, unless the account on which the check was written was closed on the date of the transaction or before the agreed upon negotiation date.

Section 2-10. Authorized fee for dishonored check. If a check written in connection with a deferred presentment loan is returned from a payor financial institution due to insufficient funds, a closed account, or a stop payment order, the lender has the right to exercise all civil means available and allowable by law to collect the face value of the check. Additionally, the lender may contract for and collect a returned check charge not to exceed $25, plus any court costs, including reasonable attorney's fees, incurred as a result of the returned check. No more than one returned check charge may be assessed in connection with any one deferred presentment loan. No other fees may be collected as a result of a returned check or the default by the maker under a deferred presentment loan agreement.

Section 2-15. Redemption of check. A borrower has the right to redeem a check issued in connection with a deferred presentment loan transaction from the lender holding the check at any time before the negotiation or presentment of the check by paying the full amount of the check, less the unearned portion of the finance charge, calculated under the simple interest method, in the form of cash or its equivalent.

Section 2-20. Post maturity interest. A lender shall not charge, nor attempt to receive through any other means, post-maturity interest on a deferred presentment transaction.

Section 2-25. Loan terms.

(a) A deferred presentment loan may not exceed $2,000 in principal amount. No check held by a lender in connection with a deferred presentment loan may exceed the sum of $2,000, plus a finance charge.

(b) A deferred presentment loan may be renewed no more than 3 consecutive times after which either (i) the borrower must pay off the deferred presentment loan in cash or its equivalent or (ii) the lender may deposit the borrower's check. Once the borrower has completed a deferred presentment loan with a lender, the borrower may enter into a new agreement for a deferred presentment loan with that lender. A transaction is completed when (i) a check is presented for payment, deposited, or redeemed by the borrower by paying the full amount of the check to the lender holding the check, less the unearned portion of the finance charge calculated pursuant to the simple interest method or (ii) a debit is made from the borrower's account through an electronic funds transfer.

(c) Notwithstanding subsection (b), a borrower may renew a deferred presentment loan more than 3 times if he is provided the opportunity from convert the term of the loan to the Freedom from Debt Plan, as provided in subsection (d).

(d) A lender must provide the borrower written notice of the borrower's right to request the Freedom from Debt Plan under the conditions established in this subsection. The form of the written notice shall be specified by the Division by rule.

If a borrower renews a deferred presentment loan a fourth time, that fourth renewed loan and each renewed loan thereafter is subject to the opportunity of the borrower to enroll in the Freedom from Debt Plan under the following terms:

(1) The borrower must request the Freedom from Debt Plan, in writing, no later than 24 hours before the due date of the deferred presentment loan.

(2) The borrower shall be allowed to repay the deferred presentment loan in at least 4 equal installments with at least 13 days between installments.

(3) The borrower shall pay a fee not to exceed $15 for electing the Freedom from Debt Plan.

(4) The borrower shall agree not to enter into any additional deferred presentment loan agreements with any lender during the Freedom from Debt Plan term.

(e) The post-dated check used as security for a deferred presentment loan must name the lender as payee.

(f) The loan agreement for a deferred presentment loan must include a separate statement signed by the borrower attesting that the borrower is not barred from obtaining a deferred presentment loan under this Act.

Section 2-30. Security interest; wage assignment. With respect to a deferred presentment loan, a lender may not take a security interest in any of the borrower's personal property other than the borrower's check. A lender may accept a written revocable wage assignment in conjunction with a deferred presentment loan provided it complies with the Illinois Wage Assignments Act.

Section 2-35. Multiple outstanding transactions. A borrower may not have more than 2 deferred presentment loans outstanding at the same time whether with a single lender or a combination of lenders. Prior to making a deferred presentment loan, a lender shall inquire of the borrower whether the borrower has any outstanding deferred presentment loans. The lender shall not make a deferred presentment loan to a borrower if the borrower already has 2 outstanding deferred presentment loans. A lender providing a deferred presentment loan can rely on the representation of the borrower if the lender provides the following notice in a prominent place on each loan agreement in at least 10-point type:

STATE LAW PROHIBITS YOU FROM HAVING OUTSTANDING, AT ANY ONE TIME, MORE THAN 2 DEFERRED PRESENTMENT LOANS WITH ANY LENDER OR LENDERS. BY SIGNING THIS AGREEMENT YOU CERTIFY THAT YOU WILL NOT, AFTER TAKING OUT THIS LOAN, HAVE MORE THAN 2 OUTSTANDING DEFERRED PRESENTMENT LOANS.

ARTICLE 3. TITLE-SECURED LOANS

Section 3-5. Limited recourse on title-secured loans.

(a) Except as otherwise provided in subsection (b), if a borrower defaults in the repayment of a title-secured loan, the lender's sole remedy is to seek possession and sale of the motor vehicle securing the loan and the lender may not file or maintain any civil action against the borrower personally for repayment of the loan or for any deficiency after sale. Notwithstanding any provision of this Section to the contrary, the lender must return to the borrower any amount obtained after sale of the motor vehicle securing the loan that is in excess of the amount owed on the loan minus any reasonable expenses of repossession and sale.

(b) A lender may file and maintain a civil action against a borrower personally for the amount owed under a title-secured loan and exercise all other remedies allowed by law if the borrower:

(1) conceals the existence of another lien or interest in the motor vehicle pledged as collateral at the time the loan is made or encumbers or sells the motor vehicle thereafter and deprives the lender of a first priority interest in the collateral; or

(2) intentionally damages or conceals the motor vehicle pledged as collateral.

Section 3-10. Post-repossession interest. A lender shall not charge interest on a title-secured loan after the lender has obtained possession of a motor vehicle based upon the borrower's default.

Section 3-15. Restriction on vehicle dealers. A lender shall not offer or make title-secured loans if the lender is either a motor vehicle dealer or otherwise offers to sell motor vehicles at wholesale or retail. Nothing in this Section prohibits a lender from selling motor vehicles obtained upon default, provided that those vehicles are sold at third-party public or private auctions.

Section 3-20. Release of lien.

(a) A lender that makes title-secured loans must immediately take into possession evidence of the borrower's ownership in the motor vehicle being used as collateral, including evidence that the vehicle has been registered with the Illinois Secretary of State or the appropriate state agency of any other state, and shall note on the face of the loan agreement the vehicle's make, model, year of manufacture, and vehicle identification number.

(b) Within 24 hours after payment in full of the amount due under a title-secured loan, unless the borrower indicates otherwise in writing, the lender must release any liens recorded on the face of the certificate of title and return the title to the borrower or cause the title to be returned to the borrower. If payment has been made by a personal or business check, the lender may delay the release of lien or return of title by 5 business days for the purpose of confirming availability of funds. If the borrower repays the loan before the lender receives the certificate of title back from the governmental agency responsible for recording the lender's lien, the lender shall mail the certificate of title to the borrower within 24 hours of receipt.

Section 3-25. Possession of vehicle.

(a) A lender may not take possession of a vehicle under a title-secured loan transaction without first giving written notice to the borrower at least 5 days prior to repossession. The notice shall inform the borrower:

(1) That the borrower is in default and that, as a result of the default, the borrower's vehicle is subject to repossession at any time after 5 days from the date of the notice.

(2) That the borrower has the right to make the vehicle available to the lender before the expiration of the 5-day period at a place, date, and time reasonably convenient to the lender and borrower.

(3) That the borrower should remove any personal belongings from the vehicle and, if personal belongings are taken during repossession, the borrower can reclaim them without charge or additional cost.

(b) Neither a lender nor any repossession company used by the lender shall charge a borrower any amount or cost to reclaim any of the borrower's personal belongings taken during repossession.

(c) A lender may not dispose of a vehicle repossessed under a title-secured loan transaction without complying with Article 9, Part 6 of the Uniform Commercial Code.

(d) A lender may not lease a vehicle back to the borrower after the lender has taken possession of a motor vehicle because of a loan default under a title-secured loan transaction.

Section 3-30. Maximum loan amount. No lender offering a title-secured loan may allow a borrower to become indebted to the lender in an amount greater than the fair market retail value of the motor vehicle pledged as collateral, as determined by common industry appraisal guides.

Section 3-35. Security interest. With respect to a title-secured loan, a lender may not take a security interest in any of the borrower's personal property other than the motor vehicle that is securing the loan.

Section 3-40. Multiple outstanding transactions. A borrower may not use the same motor vehicle to secure more than one title-secured loan at the same time. Prior to making a title-secured loan, a lender shall require the borrower to provide a certificate of title free of any other liens or proof that any liens noted on the certificate of title have been released.

ARTICLE 90. AMENDATORY PROVISIONS

Section 90-5. The Consumer Installment Loan Act is amended by changing Section 21 as follows:

(205 ILCS 670/21) (from Ch. 17, par. 5427)

Sec. 21. Application of act. This Act does not apply to any person, partnership, association, limited liability company, or corporation doing business under and as permitted by any law of this State or of the United States relating to banks, savings and loan associations, savings banks, credit unions, or licensees under the Residential Mortgage License Act for residential mortgage loans made pursuant to that Act. This Act does not apply to business loans. This Act does not apply to any short-term loan, as defined under Section 1-5 of the Short-term Loan Act.

(Source: P.A. 90-437, eff. 1-1-98.)

Section 90-10. The Criminal Code of 1961 is amended by changing Section 17-1a as follows:

(720 ILCS 5/17-1a) (from Ch. 38, par. 17-1a)

Sec. 17-1a. Civil Liability for Deceptive Practices. A person who issues a check or order to a payee in violation of Section 17-1(B) (d) and who fails to pay the amount of the check or order to the payee within 30 days following either delivery and acceptance by the addressee of a written demand by both certified mail and by first class mail to the person's last know address; or attempted delivery of a written demand sent by both certified mail and by first class mail to the person's last known address and the demand by certified mail is returned to the sender with a notation that delivery was refused or unclaimed, shall be liable to the payee or a person subrogated to the rights of the payee for, in addition to the amount owing upon such check or order, damages of treble the amount so owing, but in no case less than $100 nor more than $1,500, plus attorney fees and court costs, provided that a lender shall not be entitled to collect damages of treble on an amount owing from a short-term loan, as defined in Section 1-5 of the Short-term Loan Act.

A cause of action under this Section may be brought in small claims court or in any other appropriate court. As part of the written demand required by this Section, the plaintiff shall provide written notice to the defendant of the fact that prior to the hearing of any action under this Section, the defendant may tender to the plaintiff and the plaintiff shall accept as satisfaction of the claim, an amount of money equal to the sum of the amount of the check and the incurred court costs, and service and attorney fees.

(Source: P.A. 89-378, eff. 8-18-95; 90-227, eff. 1-1-98; 90-721, eff. 1-1-99.)

ARTICLE 95. MISCELLANEOUS PROVISIONS

Section 997. Severability. The provisions of this Act are severable under Section 1.31 of the Statute on Statutes.

Section 999. Effective date. This Act takes effect upon becoming law.