Illinois Governor Signs Law Capping Consumer Loan Rates at 36%


Illinois Governor JB Pritzker on Tuesday signed a bill that will cap rates at 36% on consumer loans, including payday loans and car titles.

The Illinois General Assembly passed the law, the Predatory Loan Prevention Act, in January, but the bill was waiting for the governor’s signature to make it law.

Introduced by the Illinois Legislative Black Caucus, the new legislation signed is modeled on the Military Lending Act, a federal law that protects serving military personnel and their dependents through a series of guarantees, including capping interest rates on most consumer loans at 36%.

“The Predatory Loan Prevention Act will significantly prevent any entity from granting usurious loans to Illinois consumers,” Pritzker said on Tuesday. “This reform offers substantial protections to low-income communities so often targeted by these predatory exchanges.”

With its passage, Illinois is now one of 18 states, along with Washington DC, that impose a 36% cap on interest rates and fees on payday loans, according to the Center for Responsible Lending.

Before the legislation, the average annual rate (APR) for a payday loan in Illinois was 297%, while auto title loans averaged an APR of around 179%, according to the Woodstock Institute, an organization which was part of a coalition formed in support of the legislation. Illinois residents pay $ 500 million a year in payday and securities lending fees, the fourth highest rate in the United States, the Woodstock Institute has calculated.

“Hundreds of community groups, civil rights organizations, religious leaders and others have joined the Legislative Black Caucus to push for historic reform,” Lisa Stifler, director of the Legislative Assembly, said Tuesday. state policy at CRL. “As the bill becomes law, Illinois joins the strong trend across the country of exceeding rate limits to stop predatory lending.”

But some organizations, including the Illinois Small Loan Association, have already expressed concern about the general nature of the bill and its potential to completely eliminate access to small consumer loans within the state.

Steve Brubaker, who lobbies for the organization, told a local Chicago news station that high APRs can be misleading because the average fees (including interest) for a typical two-week payday loan are about $ 15 for every $ 100 borrowed.

The Online Lenders Alliance said Tuesday it was disappointed Gov. Pritzker signed the law, saying it was a “bad bill” for residents of the state of Illinois.

“Now is not the time to reduce access to credit. Illinois consumers are struggling, and elected officials should strive to ensure all consumers have options for dealing with unforeseen or irregular expenses. Unfortunately, this bill eliminates many of those options for those who need them most, ”Alliance CEO Mary Jackson said Tuesday.

Still, supporters of the bill say it can help limit predatory lending. More than 200 million Americans still live in states that allow payday loans without heavy restrictions, according to CRL. And these loans are easy to obtain. Typically, consumers simply need to enter a lender with valid ID, proof of income, and a bank account to get a payday loan. The balance on these types of loans is usually due two weeks later.

Yet high interest rates and short lead times can make these loans expensive and difficult to repay. Research by the Consumer Financial Protection Bureau has found that almost one in four payday loans are re-borrowed nine or more times. Additionally, borrowers take about five months to repay loans and cost them an average of $ 520 in finance charges, reports The Pew Charitable Trusts. This is in addition to the original loan amount.

Communities of color, in particular, are targeted by these types of high-cost loans, CRL reports. “As Covid continues to ravage these communities, ending predatory debt traps is critical,” Stifler said. “We must also pass federal reforms, to protect these state ceilings and extend the protections across the country.”

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