Illinois' Predatory Loan Prevention Act Takes Effect

ABSTRACT: The recently-passed Predatory Loan Prevention Act was signed into effect in Illinois last month, and it caps interest rates for consumer loan transactions at 36 percent. The new law was part of a multifaceted economic equity bill signed into effect last month.

On March 23, 2021, Illinois Governor J.B. Pritzker signed into effect the Predatory Loan Prevention Act (the “PLPA”), which caps interest on consumer loan transactions at a rate of 36 percent. The PLPA essentially expands the interest rate caps set forth in the Military Lending Act, which is a federal law that protects active service members from usurious interest rates, to apply to all consumer loan transactions taking place in Illinois. Illinois is now one of eighteen jurisdictions to implement such a cap.

The PLPA is part of an omnibus economic equity reform bill introduced by the Illinois Legislative Black Caucus. Other aspects of the bill include cannabis and agriculture equity reforms, as well as changes in how criminal convictions may be used in housing and employment decisions.

Prior to passage of the PLPA, the average APR for payday loans in Illinois was 297%, and 179% for car title loans. Illinois residents were estimated to have paid more than $500 million per year in payday and title loan fees, and advocates of the PLPA state that these high-interest loans targeted communities of color, as well as the elderly.

Critics of the PLPA argue that the law will eliminate jobs and make credit less accessible to Illinois citizens. Proponents of the Act counter that increased consumer spending on goods and services will actually grow jobs. The true economic impact of the new law remains to be seen.

Lenders and financial service providers who provide credit in Illinois must take caution under the PLPA. The new law has teeth. Failure to comply with the PLPA carries statutory penalties of up to $10,000, renders the loan null and void, and requires the return of payments made toward the principal, interest, fees, or charges related to the loan. Furthermore, a violation of the PLPA may also give rise to a private right of action under the Illinois Consumer Fraud and Deceptive Business Practices Act, subjecting lenders to liability for actual damages, punitive damages, and attorney’s fees.

In passing the PLPA, Illinois joins seventeen other states and the District in Columbia that have passed similar interest rate caps on consumer transactions.