Downpour of debt may wash away Chicago woman’s home

Her $519 mortgage doubled three months ago. Small, plug-in heaters and a constantly burning oven kept at least the downstairs warm for a few winter nights until the next paycheck. The mortgage on Aurora Thomas' two-story, red brick house on Chicago's South Side is past due, along with several other bills.But household debts are only half of Thomas' financial breakdown. Short-term loans Thomas used to stay warm and in her house add to the turmoil.

"It's just really upsetting to think about. I don't know whether to pack or not; or what to do," Thomas said, "Everything is going wrong. And then you just-it just-gets worse."

Thomas' mortgage was initially with Ameriquest, the lender currently fighting an Illinois class action lawsuit alleging fraud.

"My mortgage has changed hands several times," said the soft-spoken Thomas, "I went into bankruptcy in 2003 to get out of my mortgage with Ameriquest because it was an adjustable rate mortgage. And then my mortgage got transferred so many times, I ended up back with the same company and the same adjustable rate mortgage."

Thomas has owned her home since 1998 and her mortgage has changed hands five times in the past five years. Ameriquest bought Thomas' mortgage on two separate occasions. Poplar Mortgage now owns Thomas' past due loan.

"I called Poplar Mortgage ... to see if I could work out a payment plan, but they didn't want to help." Thomas said, "I asked if I could make a lower payment and they said, 'There's nothing we can do for you. So you can just sell it.'"

Poplar Mortgage did not respond to requests for comment for this article.

Amidst the boxes and bags of clothes and pictures and old blankets in her basement, Thomas waited for the bad news. The first foreclosure notice arrived on Monday. Her hands often pressed against her forehead as she considered her scarifying options.

Thomas earns $18,000 a year between two part-time jobs as a nurse. Chicago's median income is almost $35,000. Rising prices quickly upset the already strained balance of Thomas' household expenses. A jump in the mortgage and heating costs during the coldest winter since 1978 was crushing.

For Thomas, short-term loans weren't debt relief; they were stress relief.

"I knew it probably wasn't the best idea, but what else are you going to do," Thomas said, "You can't just wait to get thrown out of your house. You stop waiting and you do what you can."

By the end of January, Thomas had accumulated four loans totaling $1,500 from storefront loan shops and online lenders. The loans charged $2,326.15 in interest in addition to the actual loan amount.

Despite the 2005 Payday Loan Reform Act, these loans are still legal. The 2005 law only covers loans lasting 120 days or less. Thomas' loan from First Cash Advance has a 126-day repayment schedule.

The longer loans that Thomas took out are called consumer installment loans. Although installment loans are often sold by lenders that offer payday loans, the installment version has fewer restrictions and often higher interest rates.

One loan from First Cash Advance charged Thomas $1,105 in interest on a $425 loan. According to Thomas' payment schedule, nine payments of $68 lead up to one final balloon payment of $493 in June 2008. First Cash Advance's parent company is licensed to provide payday loans as well as consumer installment loans like the one Thomas received.

"There are so many games out here. They tell you how much it costs and you think you can just pay it a little bit at a time," Thomas said, "But you can't. And if you don't pay, they take it out of your check."

First Cash Advance's representative did not respond to requests for comment.

Thomas' loan with First Cash Advance included an agreement to garnish up to 15 percent of her wages if she missed any of her loan payments. A missed payment could take as much as $225 a month directly out of Thomas' paycheck.

"I had four different loans and I had to pay on the bills and I'm still trying to stay in my home. That's the reason I got into [these] loans in the first place," Thomas said, "So when I realized I might get behind on my loans I asked them, can I just pay what I owe and not pay the interest? Some worked with me and some didn't."

Illinois law requires lenders to give struggling borrowers a 56-day interest-free repayment period if they cannot pay their payday loans. But the law doesn't apply to installment loans.

More than 1,300 short-term loan shops dot Illinois' street corners. Citizen Action Illinois and other consumer advocacy groups are trying to get tougher laws passed.

Citizen Action asks people to send in complaints about payday loan companies, but many of the loan agreements make a class action lawsuit unlikely. Thomas' loan included an arbitration agreement barring customers from participating "as a member of claimants in any lawsuit filed against" the loan company.

Consumer rights advocates are pursuing other solutions in the Illinois General Assembly. Senate Bill 1993, passed out of the Financial Institutions Committee on Wednesday, would extend the Payday Loan Reform Act to all loans with interest rates over 36 percent, no matter how long the payment schedule lasts.

"Right now, if the loan lasts more than 120 days it is governed under the Consumer Installment Loan Act and there are no protections," said Linda DeLaforgue of Citizen Action Illinois.

Installment loans have been characterized by Citizen Action Illinois as causing even more damage than payday loans because they stretch out the debt over more payments and charge more interest.

"Often people think they are getting a regular payday loan, but they are not," said DeLaforgue, "People can only have two payday loans at a time, but they can take out more of the installment loans at even higher interest rates at the exact same time."

The State Senate is scheduled to vote on the new Payday Loan Reform Act on Tuesday.

"This is a very important piece of legislation. Most of the loan companies are steering people into these longer loans," said DeLaforgue, "We encourage anyone who has gotten into trouble with a payday loan or a consumer installment loan to contact their senator."

Citizen Action Illinois has been working with State Senators Pamela Althoff (R-Crystal Lake), Kim Lightford (D-Westchester), Jackie Collins and William Delgado (both D-Chicago) who co-sponsored the bill.

The bill also includes a provision to return a portion of the interest to borrowers who pay off their loans before the final due date.

The proposed law would take effect as soon as it is passed, but Aurora Thomas and others who already have loans are locked into their debts. Thomas is working with Chicago's Neighborhood Housing Service to pay off her loans and stay in her home.

"I'm still not sure what will happen. On Friday, I'll have one loan down and three to go." Thomas said, "I've found out a lot of things the hard way since I've owned a home."

Thomas's mortgage is still past due, but Poplar Mortgage had not begun official foreclosure proceedings.