SPRINGFIELD, Ill. (NEXSTAR) — Lawmakers celebrated the one-year anniversary of the passage of the Prevention of Predatory Lending Act (PLPA) on Wednesday.
The PLPA establishes a legal maximum interest rate for consumer loans at 36%. The bill, which was part of the Legislative Black Caucus’s Economic Equity agenda, passed both chambers in January 2021. Governor Pritzker signed the law into law on March 23, 2021.
Before the law went into effect, the average interest rate for payday loans was 297% in Illinois on an annual basis. For example, a person applying for a $500 loan with an APR of 297% would have to pay a total of $1,485 over 12 months, or $623.75 if she pays 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 and title loan fees per year, the fourth highest in the nation.
Rep. Sonya Harper (D-Chicago) knows firsthand how difficult it is to get out of debt after a payday loan. As a single mother paying for child care, she went to a payday loan place at a mall when the bills piled up. Harper says she had to go a month without income just to catch up.
“If I didn’t do that, right then and there, my bill would get bigger and bigger.” Harper said.
She is glad that other families have better options to alleviate financial crises.
“No other family should be able to take on this type of debt that they can’t get out of and that robs them of the wages they go 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 get 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 Senator Jacqueline Collins (D-Chicago). “With PLPA, we can stop sinking and invest more in our families and communities.”
Another group often targeted by payday loans is veterans. While the Federal Military Loan Act protects active duty members from loans over 36% interest, it does nothing for Reserve members, veterans, or Gold Star families.
“Now, all the protections that we wanted for the entire body of those who serve our nation and who deserve our protection, are there.” said Col. Paul Kentwell, executive director of the Rule of Law Institute. “This is a fabulous achievement.”
The Woodstock Institute, a nonprofit consumer finance advocacy group, lobbied for the bill and celebrated its anniversary.
“Affordable lenders are expanding and more families are addressing their financial needs without taking on more debt.” Brent Adams, senior vice president of the Woodstock Institute.
For Illinoisans in financial crisis, the Woodstock Institute created WeProsperILa website with guides on how to pay bills and avoid high-interest loans.