CHICAGO - Despite some new legislation, Mark Mahoney and others seeking payday loan reform in Illinois aren't declaring victory yet. Mahoney, treasurer/CEO of Chicago Patrolmen's Federal Credit Union, has been among those backing stiffer regulation of payday lenders. Yes, he says, Gov. George Ryan signed a law-S.B. 355, the "Consumer Finance" bill-into law May 6 allowing Illinois regulators to create rules to protect consumers seeking payday loans. But that law simply permits the Illinois Department of Financial Institutions to draft such regulations. It doesn't actually require anything, Mahoney points out. "What state representatives concerned about this issue are telling me is this is a classic hand-off in an election year. If you try to make it an issue with a politician, he'll say, `I turned it over to the DFI to go ahead and make the rules,'" Mahoney says. "What's important as you read that bill is there is no timetable. It doesn't say anything has to be done. It doesn't say how far any rules should go. If you question the DFI on this, they can say, `We're working on it.'" Mahoney got involved more than a year ago when he saw payday loans impacting his own members. "One of our members, a Chicago police officer, came to me almost in tears," Mahoney recalls. "He had taken out a payday loan, couldn't pay it back, then took out another payday loan-not to pay off the first loan but to pay the interest. By the time he came to me he had almost $1,700 in payday loans with four different companies. He needed about $200 from every paycheck just to cover the interest. With all his other commitments, such as a mortgage and car payment, that $200 was almost all he had left from his check." The police officer was hardly the down-on-his-luck, minimum-wage earner people expect to see scurrying into a payday lending shop. He had been on the job 20 or 25 years, had grown children, and earned at least $60,000 a year. His wife also worked. Most people assume it would be hard to intimidate a Chicago police officer who sees the gritty side of life every day. In this case, the officer was "terrified," Mahoney says. "They had started to call him at work. They called his district. It was unbelievable to see him as frightened as he was. So we worked out a program, loaned him money, and I actually went with him to pay off some of these places. "I was astounded he had gotten himself in debt like that, and that there would be an industry that would allow him to get that much in debt. He had four or five different loans. What really set me off was at two places, before we walked out the door, they asked if he would like another loan," Mahoney remarked. Mahoney says the experience really opened his eyes to what was going on. He started to see more of this happening to CPFCU members. Collectors were coming into the credit union every payday carrying checks that had been dishonored and asking CPFCU to verify funds and honor the checks.. They asked to establish a collection item on the account so when money was in the account funds would be forwarded to the payday lender. As his awareness grew, Mahoney found he couldn't go 24 hours without passing a payday loan storefront or spotting a newspaper ad for payday loans. That isn't surprising, judging by figures published in the Chicago Tribune. According to a Tribune article, there are now between 8,000 and 10,000 payday lenders nationwide. By 2002 the industry is expected to issue $45 billion in loans. Illinois alone has about 800 payday loan stores. Nineteen states ban payday loans. Illinois is one of eight states that not only allows such loans, but puts no limits on interest rates. Illinois does prohibit payday lenders from renewing a loan more than three times. But critics say many payday loan shops skirt the rule by having the borrower sign for a new loan, in effect simply refinancing the original loan. "The payday lending industry has grown so fast and is so organized I'm realistic enough to believe even if you put forth rules, they probably will find ways to get around them," Mahoney says. "An ideal would be if you could somehow adjust the amount of loan rollover. Right now it's unlimited rollover. You borrow $100, you pay your $20 service charge, and in two weeks when you can't cover that $100 you pay another $20." What about putting a lid on interest rates? "As much as I'd like to tackle this problem, I also run a credit union," Mahoney says. "I would not feel real comfortable with the government putting caps on rates. It's easy to say 500% is outrageous - and it is. But where do you draw the line? Is 36% not outrageous? I think something in the 30% range is reasonable for this type of risk. "But for a politician, setting a specific cap is close to political suicide. You're not going to get any support from the banking industry, you're not going to get any support from the credit union industry." Consumer and budgeting education is part of the answer, Mahoney says. It's not an overnight solution, but it can make inroads. Why is the payday loan industry growing so large? The need has always been there, Mahoney answers. There are always people who are short of money before they get their paycheck. Previously people in that position went to the loan shark and took their chances with him. Today there is what Mahoney dubs a "so-called legitimate" highly-profitable industry set up to meet the need. That industry is reaching beyond the loan shark's traditional clientele into mainstream, middle-class America. "I began to do what I could within our credit union to work with individuals I was aware were involved with these places," Mahoney says. Then he expanded his efforts. Mahoney is a close friend of Illinois State Rep. Tom Dart from Chicago. Dart was alerted to the problem when one of his constituents approached him with a horror story. Dart started working on legislation to reign in some payday lending practices. "He started to put together a bill last year and again this year," Mahoney says. "Last year he was given the authority to hold statewide hearings. That's when I began to work with him. A very diverse group of people here in Chicago got together as an ad hoc committee to help. It's led by Monsignor John Egan. "Tom did a fantastic job on the hearings. He had people come out from Americash and Check'nGo and he really grilled them. The only problem was he didn't have any subpoena power. They could give him the `I don't know' answer many times-which they did." On a national level, Mahoney is a member of a CUNA subcommittee exploring alternatives to payday lending. That committee held its first conference call meeting in early May. "By the time I got off the phone I was so energized by what some of the credit unions are doing," he says. "Orange County Teachers Credit Union in California has a People Helping People loan program. They will loan up to $500 at 0% interest. When someone comes in to apply for a loan and the loan officer realizes they have poor credit and aren't going to get the loan, and it's for a specific emergency, they can refer them to People helping People. They've been doing it since 1999 and I think they've only had a single digit default rate. "Carolina Trust Credit Union offers payday loans at a very reasonable rate. It truly is a payday loan. If you need $300 before payday, all they will do is contact your employer, make certain you're still working, then go ahead and write the loan. They have counseling with that and someone to work with you to make sure you're not becoming overextended and getting on a debt treadmill." Mahoney has some advice for credit unions concerned about the payday loan issue: take a look and see whether the industry has gotten in your community and is affecting your members; be very creative in trying to find solutions. Talk to other credit unions, talk to the league, see what other people are doing. Decide if you can adapt any of the programs already being done. -
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