Lenders criticize bill that puts an interest cap on smaller loans
(The Center Square) – An Illinois bill that would put an interest cap on loans under $40,000 is under fire.
The Predatory Loan Prevention Act would cap interest rates at 36%, the same cap that applies for loans to members of the military. The bill was passed with little debate in January during the Illinois General Assembly’s lame duck session.
Under the bill, any loan made in excess of a 36% APR would be considered null and void, and no entity would have the right to collect, receive or retain any principal, fee, interest or charges related to the loan.
Steve Brubaker, principal officer with the Illinois Small Loan Association, which represents companies that offer short-term, small-dollar loans, says the legislation was rushed through.
“The sponsors were not interested in negotiating, and we just got ran over, and that is not how the process is supposed to work,” Brubaker said.
Brubaker estimates if the bill is signed by the governor and becomes law, up to 1,200 of the 1,578 licensed lenders in Illinois will be forced to close. He said the closing of the businesses could lead to as many as 5,000 jobs being lost.
Brubaker adds that the loans they make help communities after people use them to pay for emergency expenses such as home repairs.
Brent Adams, senior vice president with the Woodstock Institute, a group that advocates for lending policies and fair housing, argues the opposite.
“The average APR, or annual percentage rate on a payday loan in Illinois is 297%,” Adams said. “That is a predatory interest rate and strips hundreds of millions of dollars from communities in Illinois ever year.”
A coalition of labor, faith and civil rights organizations, along with the offices of the Illinois Treasurer and Secretary of State, also support the legislation.
The American Financial Services Association, the Independent Finance Association of Illinois, and the Illinois Automobile Dealers Association have sent a letter to Gov. J.B. Pritzker stating their “grave concerns” about the measure and asked for a veto.
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