Illinois has become the latest state to pass a law capping interest on payday loans.
Beginning in March, 2011, loans with terms of six months or less may not be priced at rates of greater than $15.50 per $100 borrowed every two weeks. The new law also requires that a payday loan borrower must be completely out of payday loan debt after 180 days paying off the loan and prohibits balloon payments.
Lenders would also have to limit loan repayments to no more than 25% of a borrowers gross monthly income and the new law forbids adding post-default interest, fees for court costs and attorney's fees to the costs of a payday loan.
"Capping rates for short-term loans was our number one priority," said Tom Feltner, Woodstock Institute vice president, a supporter of the law. "These reforms succeed in doing this and will ensure that borrowers are not stuck in long-term, 700% APR loans."
The measure passed by wide margins in the Illinois legislature and had the support of a coalition of consumer, community and labor groups, including the North Side Community Federal Credit Union in Chicago.