Payday loan law loophole swallows borrowers whole -- -- chicagotribune.com

Payday loan law loophole swallows borrowers whole -- -- chicagotribune.com By Stephen Franklin | Tribune reporter | 12:46 AM CDT, May 12, 2008

He emptied his family's insurance policies and retirement savings, borrowed from family and friends, and went short of food.

Why? To keep up with $2,000 in loans he had taken out without realizing that the 701 percent annual interest rate meant he would have to repay $5,848 in 4 1/2 months.
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The 2005 law capped rates on one type of loan: short-term "payday" loans taken out for up to 120 days are limited to 403 percent annual interest. The law also imposed protections aimed at keeping borrowers from falling into debt traps, such as limiting the number of loans to two and allowing borrowers to work out a repayment plan.

Soon after the law took effect, however, many lenders began directing borrowers to loans of 121 days or longer that did not include such safeguards, consumer advocates say. State officials acknowledge they have received complaints from consumers who claim they were shifted to the costlier loans.
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Money to politicians
A February report from the Illinois Campaign for Political Reform indicated that the industry gave $1.8 million to incumbents and candidates for statewide and legislative offices since 2001, and top industry donors have given $862,600 since 2005.

Three of 4 sitting state senators have reported contributions since 2005 and 4 of 5 sitting state House members reported contributions, according to the reform organization's report. ...