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Our Why
We are an association focused on:
- Advocates of the 36% APR cap
- Members who seek to underwrite small dollar loans
- Establishing small fees associated with these loans to ensure stability of the lenders
- Blocking illegal lenders from preying on Illinois consumers
- Continuing the advancement of fair lending in Illinois [PLPA]
- Stopping unlicensed lenders from advertising predatory products & selling leads to tribal and illegal lenders
Our Story
Our germination was sparked by a rate cap imposed by the Illinois Predatory Loan Prevention Act (PLPA) nearly two years after becoming law. In 2021, the PLPA became effective, imposing a 36% “all-in” annual interest rate cap on consumer loans made or offered by any person or entity, excluding banks and credit unions, to a consumer in Illinois.
A recent study by J. Brandon Bolen, Mississippi College, Gregory Elliehausen, Board of Governors, Federal Reserve System, and Thomas W. Miller Jr., Mississippi State University examined the effects of this rate cap. The study found that the 36% cap significantly decreased the availability of small-dollar credit in Illinois and worsened the self-reported financial well-being of many consumers.
A recent study by J. Brandon Bolen, Mississippi College, Gregory Elliehausen, Board of Governors, Federal Reserve System, and Thomas W. Miller Jr., Mississippi State University examined the effects of this rate cap. The study found that the 36% cap significantly decreased the availability of small-dollar credit in Illinois and worsened the self-reported financial well-being of many consumers.
Other key findings from the study include:
Lenders
All lender types (including those exempt lenders under the PLPA) originated significantly fewer unsecured installment loans to subprime borrowers in the six months after imposition of the rate cap than in the six months prior to the rate cap’s imposition. The rate cap decreased the volume of loans in Illinois by 8% relative to the number of loans in the six months before the rate cap’s imposition.
Loans
The average loan size (in dollars) increased across all borrower risk categories after the imposition of the rate cap. This finding is consistent with the notion that a larger loan size is needed to make “small loans” profitable at the 36% annual interest rate cap.
Access
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In the six months following imposition of the rate cap, the number of loans to prime borrowers increased by 20%, while average loan size increased by 7%, indicating borrowers with better credit histories experienced less of a reduction in access to credit than borrowers with poor credit histories.
39% of survey respondents reported that their financial well-being had declined since their previous lender stopped offering loans in Illinois.
79% of survey respondents said that they
wanted the option to return to their previous
lender if they had a funding need.
Nearly 60% of survey respondents reported
that they had been unable to borrow
necessary funds since March 2021.
Further Results of the 36% Rate Cap
A Lending Exodus
Immediately following the Act, most lenders decided to exit Illinois. The fallout? A noticeable void in lending options precisely when consumers faced pressing financial demands and unforeseen expenses.
A Tough Terrain for Remaining Lenders
For the few lenders who chose to stay, they’re now navigating escalating costs against little to no profitability. The ripple effect? More stringent lending criteria and fewer lenders willing to write
small-dollar loans.
The Overdraft Lifeline
With the scarcity of small-dollar loans, consumers now find themselves turning to bank overdrafts. It’s not an ideal solution, but for many, it’s the only available one.
The Overdraft Price Tag
Overdrafts, as a borrowing alternative, come with a significant cost. Major banks typically levy fees that regularly surpass $30 per occurrence with a variety of additional charges including a base charge for overdraft protection itself, as well as, extended overdraft protection fees. The details below illustrate Overdraft/NSF cost
for 6 major banks.
Why Banks Are Not An Appropriate Solution
Banks are not suitable alternatives due to inaccessibility and high overdraft fees.
- Loans are inaccessible to subprime borrowers (credit score under 620)
- Average overdraft fee is $35
- Majority of overdraft fees are incurred on transactions of $24 or Less
In lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000% APR.*
Resulting Problems From Rate Cap:
1. Consumers lost access to legal small dollar loans
Reason: The implementation of additional underwriting, as a measure to offset the risk of lending at 36% APR, raises costs significantly, undermining the profitability and financial viability of providing small loans at this rate.
2. Former lenders and lead providers are selling leads to tribal and other unregulated lenders.
Result: Sales of these leads to tribal and illegal lenders is creating the opportunity for these exploiters to advertise predatory products to unwitting consumers.
Responsible Lending Illinois’s goals include:
1. Stopping unlicensed lenders from offering predatory products in Illinois:
- Preventing the selling of consumer loan inquiries to both tribal and illegal lenders
- Stopping lenders whose typical annual percentage rates are in excess of 700 percent from preying on Illinois consumers
2. Allowing an administration fee for licensed lenders in Illinois
3. Permitting an additional Federal Lending Rate
(currently 5.5%)** on top of the existing 36 percent rate cap
Solutions
Join Us Today!
Help stand up for the Stability of the Small Loan Lenders in Illinois
Your support is needed to educate policymakers, as well as others, on initiatives that will increase access to opportunity and close the racial wealth gap in Illinois. Sign up to receive news and opportunities to take action in support of important policies or proposals.
Suggested Donation: $500.00
Sign up to be an Advocate for change today
You could be called upon to contact an elected official via phone, email, or social media; submit a comment letter; or other form of communication. This network is not the same as our general mailing list. We contact advocates only on an as-needed basis and only when your action could directly impact the outcome in a positive way.
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Upon submission you will be contacted regarding remittance of your Donation within 48 hours.
Join Our Supporters:
AmeriCash Loans
SAIL Loans
GoCredit.loans
GoCredit.me
CFSC
Community Financial Service Centers
CreditBox.com
In The News
Dustin MauldinSAIL Loans managing partner and Responsible Lending Illinois board member
Notable Insights
For more information click links below:
Urban Institute Research Report: How Do State-Level Policies on Alternative Financial Service Loan APRs Shape Consumer Credit Health?
Ballard Spahr, LLC - Consumer Finance Monitor GAO report on household access to banking services finds limited availability of small-dollar loans from banks and credit unions.
Payments Intelligence - New Reality Check: Paycheck-to-Paycheck Report, September 2023
Abstract: Economic theory predicts that a binding interest-rate cap decreases credit availability for high-risk borrowers. Presented by J. Brandon Bolen, Mississippi College / Gregory Elliehausen, Board of Governors, Federal Reserve System / Thomas W. Miller, Jr., Mississippi State University (downloadable PDF)
CFPB Report Findings – American Banker • Article by Kate Berry • December 19, 2023 •
Use of NSF Services for Credit. (downloadable PDF)
Rate Cap Anyalsis: Chicago City Wire reports – Carrie Sheffield | Wikimedia Commons/Patrick Ryan – Feb. 16, 2024
Important Must Reads
