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Survey Shows the Cost of Illinois’ Predatory Loan APR Cap

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In March 2021, Illinois Gov. J.B. Pritzker signed the Predatory Loan Prevention Act, capping APRs at 36%. The goal was to help address economic equity and protect consumers from predatory loans. Typical payday loans, for example, can have APRs of nearly 400% and require repayment in just two weeks.

But almost a year after being signed into law, has the state made progress on this goal?

A new survey from the Online Lenders Alliance, a financial technology trade association, looks at the impact of Illinois’ new rate cap on those who borrowed short-term, small-dollar loans before the act was signed. And the data indicates that the new policy resulted in fewer borrowing options — particularly among those who tend to need these loans the most.

Fewer borrowing options after APR cap

Before the new legislation, a payday loan in Illinois had an average APR of 297%. In theory, that means payday loan borrowers would see an average APR decrease of 261 percentage points — at a minimum. But following the rate cap, more than half (56%) of respondents who used short-term, small-dollar loans say they weren’t able to borrow money when they needed it. And this was true for more than 70% of respondents earning less than $50,000.

For context, 32 states and the District of Columbia impose APRs caps of 36% or less. So while this move isn’t new in the broader context, it’s also not universal. Unsurprisingly, predatory lenders seemed to have opted out of the state rather than conforming to the new rate requirements. That could leave residents with even fewer favorable options, like falling behind on payments.

Financial woes for certain Illinois residents

A large portion of respondents (45%) say their financial well-being declined after losing access to these types of short-term and small-dollar loans. In fact, almost half of respondents say they paid bills late and generated late fees because they were unable to access credit after the APR cap. Depending on the legislation, that could negatively impact their credit score, making it even harder to access credit.

Other common consequences include having to skip or cut back on everyday expenses (almost 35%) and having to borrow money from family or friends (just over 30%), And, notably, more than a quarter of respondents indicate a debt collector contacted them as a result.

Because of the fallout, it’s not surprising that 79% of borrowers say they want the option to go back to their previous lender. And more than 90% of those earning less than $50,000 a year and Hispanic consumers cite this.

While it’s clear that high-rate loans are dangerous — putting people in situations where they may be unable to pay back what they owe — it’s also clear that borrowers who take out these loans need more assistance than an APR cap.

Methodology: The Online Lenders Alliance surveyed 699 Illinois residents, fielded Dec. 14-31, 2021. Respondents took out short-term, small-dollar loans from January 2019 through March 2021 — before Illinois instituted the APR cap.