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Illinois caps consumer loans at 36% APR

April 2, 2021
Illinois Gov. J.B. Pritzker signed a bill into law on March 23 that caps interest rates at 36% on consumer loans, including payday advances and car loans. The Illinois General Assembly passed the legislation, the Predatory Loan Prevention Act, in January and the measure took effect upon Pritzker’s signature.
Introduced by the Illinois Legislative Black Caucus, the newly signed Public Act 101-0658 is modeled on the Military Lending Act, a federal law that protects service members and their dependents through a range of safeguards, including capping interest rates on most consumer loans at 36%. The MLA finance charge cap applies only to active-duty service members and their dependents, but the legislation effectively extends the limit to all consumer loans.
Prior to the legislation, the average annual percentage rate for a payday loan in Illinois was 297%, while auto title loans averaged APRs of about 179%, according to the Woodstock Institute, an organization that was part of a coalition formed in support of the legislation. 
Under the definition of Military APR, also known as "All-In APR," certain fees, such as extended service contracts, GAP insurance and other add-ons are reclassified as part of the finance charge. Even at new-car dealerships, the cumulative APR can approach 36%. New legislation is being considered to amend the PLPA, to make it consistent with federal law and the federal Truth-in-Lending Act (rather than the Military Lending Act).
But under the law Pritzker signed, any loan made in excess of a 36% APR would be considered null and void, and no entity has the "right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan." Each violation provides for a fine of up to $10,000.
With its passage, Illinois joins 17 other states and Washington, D.C., in imposing a 36% rate cap on payday loan interest rates and fees, according to the Center for Responsible Lending.
But some organizations, including the Illinois Small Loan Association, have already expressed concern with the broad nature of the bill and its potential to completely eliminate access to small consumer loans within the state.
Steve Brubaker, who lobbies for the loan association, said high APRs can be misleading since the average fee (including interest) for a typical two-week payday loan comes out to about $15 for each $100 borrowed.
The Online Lenders Alliance said upon Pritzker’s action that it was disappointed the governor had signed the legislation, saying it was a "bad bill" for Illinois residents.
"Now is not the time to reduce credit access. Consumers in Illinois are struggling, and elected officials should be working to ensure that all consumers have options to deal with unforeseen or irregular expenses," said Mary Jackson, the alliance’s chief executive. "Sadly, this bill eliminates many of those options for those who need them most."
Still, advocates of the bill say it can help limit predatory lending. More than 200 million Americans live in states that allow payday lending without heavy restrictions, according to the CRL. And the loans are easy to obtain. Typically, consumers simply need to visit a lender with a valid ID, proof of income and a bank account to get a payday loan. The balance of the loans usually is due two weeks later.
Yet the high interest rates and short turnaround can make the loans expensive and difficult to pay off. Research conducted by the Consumer Financial Protection Bureau found that nearly one in four payday loans is refinanced nine times or more. Plus, The Pew Charitable Trusts reports it takes borrowers roughly five months to pay off the loans, with finance charges that average $520. That’s on top of the amount of the original loan.
 
 

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