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 awaiting the governor’s signature to make it law.
Introduced by the Illinois Legislative Black Caucus, the newly signed legislation is modeled after the Military Loans Act, a federal law that protects serving military personnel and their dependents with a range 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 that was part of a coalition formed in support of the legislation. Illinois residents pay $ 500 million per year in payday and securities lending costs, the fourth highest rate in the United States, calculated the Woodstock Institute.
“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 Legislature, said Tuesday. state policy at CRL. “As the bill becomes law, Illinois joins the strong trend across the country to pass rate caps to stop predatory lending.”
But some organizations, including the Illinois Small Loans Association, have previously expressed concern over 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 organization, told a local Chicago news station that high APRs can be misleading, as the average fee (including interest) for a typical two-week payday loan is around $ 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, ”said Mary Jackson, CEO of the alliance, on 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. The research carried out by the The Consumer Financial Protection Bureau found that nearly one in four payday loans are borrowed nine or more times. In addition, borrowers take about five months to repay loans and cost them an average of $ 520 in finance charges, Pew Charitable Trusts reports. 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 also need to enact federal reforms, to protect those state ceilings and extend protections across the country.”
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