On January 13, 2021, the Illinois General Assembly passed the Predatory Loan Prevention Act, which imposes an “all-in” APR cap of 36% on all consumer loans, including closed and open installment loans, payday loans and retail installment loans for motor vehicles, except those made by financial institutions. The bill awaits the governor’s signature, which is expected at any time. Once signed, the price cap will take effect at once on any consumer credit granted or renewed from that date.
So lenders operating in Illinois with an overall APR above 36%, as currently allowed, should start preparing now to avoid serious repercussions for breaking the law. Failure to comply with this obligation will render the loan null and void and, furthermore, prohibit the lender from collecting or holding (and requiring repayment) of the principal, interest, fees or charges associated with the loan. Additionally, a violation of the law constitutes a violation of the Illinois Consumer Fraud and Deceptive Marketing Practices Act, which would allow a borrower to recover actual damages, punitive damages, and damages. reasonable legal fees. Other penalties of up to $ 10,000 per violation may also be imposed by the secretary of the Department of Financial and Professional Regulation.
It is important to note that the APR is an “all-in” APR, which means that all charges associated with the credit transaction must be included in the calculation, including charges for ancillary products. By law, the APR must be calculated in accordance with the calculation of the military APR (MAPR) contained in the regulations implementing the Military Loans Act, 32 CFR § 232.4. Under it, a lender must include the following in calculating the APR: (i) finance charges; (ii) administration fees or, for open-ended loans, participation fees; (iii) any premium or charge for credit insurance, any charge for single premium credit insurance, any charge for a debt cancellation contract or any charge for a debt suspension agreement; (iv) any charge for a credit ancillary product sold as part of the credit transaction for a closed credit or open credit account.
Lenders should work quickly to deal with this change. First and foremost, a lender must assess whether they can maintain their business operations in Illinois with the change. Assuming business continuity within the state, we recommend that you prepare your systems to deploy these changes as soon as possible. Importantly, given that the law comes into force upon signature of the governor, as the systems are not ready to make loans in accordance with the law, serious consideration should be given to stopping all origination, refinancing and renewal until the systems and staff are ready.
In addition, lenders who make loans currently above the 36% rate cap who do not lend to members of the military in order to avoid the 36% “all-in” rate cap under the United Nations Law. military loans might consider expanding their borrower base to include the Illinois state military. Note, however, that other provisions of the Military Loans Act will still apply and document and system changes may be required.
Lenders should stay tuned for further developments, which we will provide as they become available. This may include the promulgation of implementing regulations, which the Secretary has the power to issue.