Illinois to cap consumer loan interest rates, lenders face penalties and other relief | Hinshaw & Culbertson – Consumer Hub
On January 13, the last day of the six-day session of the Illinois Legislature, the General Assembly passed the Illinois Predatory Loan Prevention Act (PLPA) as part of SB 1792.
The PLPA caps annual percentage rates for consumer loans at 36% for both open and closed loans. The 36% APR is to be calculated using the military annual percentage rate calculation system under federal law, which is widely considered to be an “all-in” method of calculating rates and charges. The Illinois Department of Financial and Professional Regulation (IDFPR) may issue rules relating to the law.
The General Assembly has 30 days to send the bill to the governor, and the governor has 60 days to sign it. The bill is expected to be largely signed by the governor, making the last possible effective date March 23, 2021. The cap rate will be imposed on all loans made from the effective date.
Loans which contravene the Act are considered null and uncollectible. In addition, the IDFPR can issue a cease and desist letter and a fine of $ 10,000 against lenders who break the law. Violations of the law constitute violations of the Illinois Consumer Fraud and Deceptive Marketing Practices Act, thereby increasing penalties and other remedies.
A lender is broadly defined as any person who is involved in offering, arranging or granting a loan, or who has an interest in a loan. The law expressly covers transactions that are a disguised loan or subterfuge for the purpose of avoiding PLPA. Banks, savings banks, savings and credit associations and credit unions are exempt.
The industries that will be most affected are those that are licensed under the Consumer Installment Loans Act, Payday Loan Reform Act, Sales Finance Agency Act, the Motor Vehicle Installment Sale Law and the Retail Installment Sale Law.
The PLPA was included as part of a larger and comprehensive legislative package presented and championed by the Black Caucus to bring about reforms in these four key areas:
- Education and Workforce Development Omnibus (HB 2170; passed both chambers)
- Criminal justice reform omnibus (HB 3653; adopted by both houses)
- Economic equity (each bill has been passed by both chambers)
- SB 1480 (Employment)
- SB 1608 (Purchases)
- SB 1792 (Studies on disparities; commission on fairness of cannabis; PLPA)
- SB 1980 (Limitation of Use of Criminal History by Public Housing Authorities)
- Health and social care reform (SB 558 and HB 3840; each bill did not get an approval vote before the end of the session).
Lenders and other entities potentially affected by the 36% rate cap should begin implementing compliance and controls immediately.