Notice: We are still operating during the COVID-19 crisis. However, we are not allowing visitors to our office and most of our staff is operating remotely. Our attorneys and staff are still available to help you by phone and email. If you get our voice mail, please leave a message and it will be returned promptly. There may be delays with mail due to the crisis, so please try to send documents by email after submitting a contact form here or fax to 312-419-0379, if possible.

Illinois reduces interest rates on consumer debts

llinois Governor J.B. Pritzker on Tuesday, March 23, 2021, signed into law the Illinois Predatory Loan Prevention Act (SB 1792) that caps rates at 36% on consumer loans and retail installment contracts, including payday and car title loans. Unfortunately, it is only prospective in effect; higher rate loans that already exist are not affected. Prior to the legislation, the average annual percentage rate (APR) 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.

“The Predatory Loan Prevention Act will substantially restrict any entity from making usurious loans to consumers in Illinois,” Pritzker said Tuesday. “This reform offers substantial protections to the low-income communities so often targeted by these predatory exchanges.”

The statute applies to all loans made under the Consumer Installment Loan Act, all retail installment contracts made pursuant to the Motor Vehicle Retail Installment Sales Act and Retail Installment Sales Act, the making and purchase of loans and contracts by licensees under the Sales Finance Agency Act (the statute that regulates entities that purchase retail installment contracts), and the making of loans under the Payday Loan Reform Act. The previously permitted $25 document preparation fee for consumer installment loans is abolished. All loans made under the Consumer Installment Loan Act, the Payday Loan Reform Act, and the Sales Finance Agency Act must be reported to the "Veritech" loan database operated by the Illinois Department of Financial and Professional Regulation.

Loans made by banks and credit unions are exempt from the statute. However, the statute provides a very expansive evasion standard that (1) prohibits the use of any device, subterfuge, or pretense to evade the requirements of the statute and (2) eliminates any exemption from the statute for an entity that has a loan in excess of the interest rate limitations and that (a) directly or indirectly holds the predominant economic interest in the loan; (b) markets, brokers, arranges, or facilitates the loan and holds the right, requirement, or first right of refusal to purchase loans, receivables, or interests in the loans; or where (c) the totality of the circumstances indicate that the person or entity is the real lender and the transaction is structured to evade the requirements of this Act. This allows the statute to reach instances where a bank or credit union is the nominal lender but the loan is promptly transferred to a non-exempt entity pursuant to an arrangement with the bank or credit union. 

The 36% is calculated in a more inclusive manner than under Truth in Lending.  For purposes of the Predatory Loan Prevention Act, the APR must be calculated pursuant to the rules for the Military Lending Act Annual Percentage Rate in 32 C.F.R. 232.4. This means that certain fees must be included in the finance charge which are not included in the finance charge under Truth in Lending and other laws which incorporate the Truth in Lending APR. Common examples of fees that must be included in the finance charge under the Predatory Loan Prevention Act are credit insurance premiums, participation fees, and application fees.

Penalties for violating the statute are substantial. The transaction is void and all principal and interest are forfeited. In addition, a violation of the law constitutes a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, which would allow a borrower to recover actual damages, punitive damages and reasonable attorney fees.

Categories: