SPRINGFIELD, Mass.–Gov. J.B. Pritzker signed the Illinois Predatory Lending Prevention Act into law, which caps annual interest rates on short-term loans at 36%.
The law is expected to effect most payday loans, auto title loans and other short-term loans in the state that typically charge high rates.
“Anything above 36% is predatory and usury,” said state Sen. Jacqueline Collins, who co-sponsored the measure. “We know that high-cost payday loans and auto loans have stripped communities of billions and billions of dollars, primarily the Black and Brown communities in the state of Illinois.”
But Steve Brubaker, who lobbies state government on behalf of the Illinois Small Loan Association, told WTTW the 36% ceiling rate in the law will effectively put most payday and auto title stores out of business, while cutting off a lifeline for borrowers with poor credit.
No Money for Kids’ Clothes
“We’re closing these stores, we’re firing the people, we’re not providing customers any options, and we’re taking a billion dollars out of the marketplace which was used to fix your car, buy a new refrigerator, spend it on kids clothes for school,” Brubaker told the news outlet.
The average APR for an auto title loan in Illinois is 197%, according to statistics from the Illinois Department of Financial and Professional Regulation. The average payday loan rate is 297%.
‘Misleading’ Numbers
But Brubaker told WTTW the numbers are misleading. When measuring the typical two-week length of the loan, it comes out to about $15 on the hundred.
“When they see that giant number, they misunderstand what the customer has to pay back,” Brubaker said. “The average loan amount for a payday loan in 2019 was $340. And the average fee amount was $52.”
Meanwhile, although Pritzker has signed the legislation, the issue might not end there, according to the news outlet.
Opponents of the payday lending industry say they’re worried about a series of bills circulating in the General Assembly right now. They say those bills would gut some of the protections that are in the new law, WTTW said.
State Sen. Sue Rezin is a sponsor of one such bill in the Senate that she said would protect consumers while still providing them with access to loan options.
Striking a ‘Balance’
“Senate Bill 2306 offers a simple change to the Predatory Loan Prevention Act that would continue to allow mainstream financial institutions to offer convenient, well-regulated auto loans to Illinois consumers through Illinois’ auto dealerships,” Rezin said in a statement emailed to WTTW News.
“Consumer protection for Illinoisans is critical, which is why my bill strikes a balance between protecting Illinois consumers and ensuring safe access to automobile credit. Under this legislation, interest rate caps are still in place to protect consumers from predatory lenders. I look forward to working with all parties to address their specific concerns as we move forward with this legislation.”
State Rep. John Carroll, who sponsored a similar bill in the House of Representatives, declined to be interviewed.
Brubaker says he believes the 36% rate cap will have the unintended consequence of pushing borrowers to even more dangerous and unregulated loan products online.