by: Danny Connolly
Posted: Mar 23, 2022 / 08:02 PM EDT
Updated: Mar 24, 2022 / 09:30 AM EDT
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 legal maximum interest rate for consumer loans at 36%. The bill, which was part of the Legislative Black Caucus’ Economic Equity agenda, passed both chambers in January 2021. Governor Pritzker signed the Act into law on March 23, 2021.
Before the law went into effect, the average interest rate for payday loans was 297% in Illinois over an annual basis. For example, a person taking out a $500 loan with 297% annual percentage rate would have to pay a total of $1,485 over 12 months, or $623.75 if they paid it all back 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 over $500 million in payday and title loans fees per year, the fourth highest in the nation.
Representative Sonya Harper (D-Chicago) knows first-hand how hard it is to escape debt after lending with a payday loan. As a single mother paying for childcare, she went to a payday loan location at a mall as bills piled up. Harper says she had to forgo a month without income just to catch up.
“If I didn’t do that, right there, my bill would grow even more and even further.” Harper said.
She’s glad other families have better choices to alleviate financial crises.
“No other families should be able to get into this type of debt that they can’t get out of that robs them of the very salary they go to work for,“ Harper said.
Predatory loans have disproportionately affected Black and Brown neighborhoods in Chicago.
State senator 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 in the predominantly black neighborhood Austin are 13 times more likely to have a payday loan than residents in predominantly white Lincoln Park.
“Because of predatory lending, economic development in our communities has been like trying to sail with a hole in the boat,” Sen. Jacqueline Collins (D-Chicago) said. “With the PLPA, we can stop sinking, and invest more in our families and communities.”
Another group often targeted by payday lending is veterans. While the federal Military Lending 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 that we wanted for the entire suite of those who serve our nation and who deserve our protections, are there.” Col. Paul Kentwell, the executive director of Rule of Law Institute, said. “This is a fabulous accomplishment.”
The Woodstock Institute, a non-profit group that advocates for consumer finances, 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 at the Woodstock Institute, said.
For Illinois residents in a financial crisis, the Woodstock Institute created WeProsperIL, a website with guides on how to pay off bills while avoiding high-interest loans.