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SPRINGFIELD, Ill. (NEXSTAR) – Lawmakers celebrated the one-year anniversary of the passage of the Predatory Loan Prevention Act (PLPA) on Wednesday.
The PLPA sets a maximum legal interest rate for consumer loans at 36%. The bill, which was part of the Legislative Black Caucus’ economic equity agenda, passed both houses in January 2021. Governor Pritzker signed the law into law on March 23, 2021.
Before the law took effect, the average payday loan interest rate was 297% in Illinois on an annual basis. For example, someone who takes out a $500 loan with an annual percentage rate of 297% would pay a total of $1,485 over 12 months, or $623.75 if they paid it all off after just one month.
According to the Center for Responsible Lending, several border states have higher average APR rates: Missouri’s 527% APR and Wisconsin’s 516% APR are among the highest in the nation. Still, Illinois residents paid more than $500 million in payday loan and title fees a year, the fourth highest in the nation.
Rep. Sonya Harper (D-Chicago) knows firsthand how hard it is to escape debt after lending with a payday loan. As a single mother paying for childcare, she walked to a payday loan outlet in a mall as the bills piled up. Harper says she had to give up a month without income just to catch up.
“If I didn’t do that, my bill would go up even more and even more.” said Harper.
She is happy that other families have better choices to ease financial crises.
“No other family should be able to take on this kind of debt that they can’t get out of and that robs them of the very pay they’re going to work for,” Harper said.
Predatory lending has disproportionately affected black and brown neighborhoods in Chicago.
State Sen. Cristina Castro (D-Elgin) said residents of Latino neighborhoods are twice as likely to get payday loans as residents of white neighborhoods. Rep. Harper says residents of Austin’s predominantly black neighborhood are 13 times more likely to have a payday loan than residents of predominantly white Lincoln Park.
“Because of predatory lending, economic development in our communities has been like trying to navigate a hole in the boat,” said Sen. Jacqueline Collins (D-Chicago). “With the PLPA, we can stop sinking and invest more in our families and our communities.”
Another group often targeted by payday loans are veterans. While the Federal Military Loans Act protects active duty members from loans with more than 36% interest, it does nothing for Reserve members, veterans, or Gold Star families.
“Now all the protections we wanted for all of those who serve our nation and deserve our protections are there.” Colonel Paul Kentwell, executive director of the Rule of Law Institute, said. “It’s a fabulous achievement.”
The Woodstock Institute, a nonprofit group that advocates for consumer finance, lobbied for the bill and celebrated its anniversary.
“Affordable lenders are growing, and more families are meeting their financial needs without taking on more debt.” Brent Adams, senior vice president of the Woodstock Institute, said.
For Illinois residents in financial crisis, the Woodstock Institute has created WeProsperILa website with guides on how to pay the bills while avoiding high interest loans.