Among the flurry of bills passed in the five-day January lame duck session in Springfield was the Predatory Loan Prevention Act, a measure that would cap interest rates for consumer loans under $40,000—such as payday loans, installment loans, and auto title loans—at 36 percent. These types of loans often trap consumers in cycles of debt, exacerbate bad credit, lead to bankruptcy, and deepen the racial wealth gap. Some 40 percent of borrowers ultimately default on repaying such loans. The new regulation was in a package of bills advanced by the Legislative Black Caucus as part of its “four pillars” of racial justice reforms in economic policy, criminal justice, education, and health care.
In 2019, the Center for Responsible Lending calculated that payday and title lenders drained more than $500 million in fees from Illinoisans every year. Regulation of these financial products in the state is a “hodgepodge,” says Brent Adams, a senior vice president at the Woodstock Institute, which championed the new bill and has been researching the consumer lending sector for years. “There are a handful of products that are codified separately under the law . . . It’s a regulatory mess and it makes it more difficult to enforce, to explain, and correspondingly more difficult to protect consumers.”
“The proposed rate cap would leave Illinois consumers worse off and immediately cut off access to credit for those most in need,” the letter states. “The idea that banks and credit unions can pick up the slack from established licensed non-bank lenders is a pipedream.” Because lending to people with bad credit who need to borrow smaller amounts doesn’t fit into major commercial banks’ business models, the industry argues consumers will be left to turn to back-alley deals with loan sharks. The industry predicts that the new law would shut down some 1,200 of its 1,500 lenders.
If Pritzker doesn’t veto the bill or sign it into law, it’ll automatically become law on April 6. The coalition backing the measure is currently planning a day of action to raise awareness about the benefits of the Predatory Loan Prevention Act. More information can be found on the Woodstock Institute’s website. v
