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Illinois Open Records Request Exposes the Truth: The PLPA’s 36% Rate Cap Is Not Working – And the Data Proves It

By April 26, 2022April 26th, 2024No Comments

ARLINGTON, VA (April 25, 2022)—Rate cap proponents have been misleadingly touting Illinois’ 36% rate cap law as a success story, implying that its enactment has resulted in new lenders coming to the state. However, according to data provided by the Illinois Department of Financial and Professional Regulation in response to a state Freedom of Information Act (FOIA) request filed by the Online Lenders Alliance (OLA), there are 45% fewer licenses held by Illinois’ installment lenders in the State after its 36% rate cap bill was signed into law on March 23, 2021. This does not include the more than 350 payday lender licenses that also expired.

This dramatic decline stands in stark contrast to assertions made by groups and activists suggesting that installment lenders were on the rise in Illinois. Specifically, activists have pointed to the licenses approved by the state in the Consumer Installment Loan category as proof of success—even claiming “67 new lenders opened for business after the state’s interest cap went into effect…”

Not only does this assertion ignore the 52% decline in installment lender licenses, but it also misrepresents the licenses held up as proof of success. Data (2) from the state tells a different story.

  • Based on data received on March 15, 2022 in response to OLA’s FOIA request, the state reported 70 new licenses granted since March 1, 2021.
  • Of the 70 licenses, there are only 37 individual license recipients listed and 33 of the entries are duplicates—i.e., the same company is filing multiple times for multiple locations.
  • Of the 37 individual license recipients listed: 24 do not offer small dollar consumer loans to the public; 7 cannot be found or lack information to verify whether they offer small dollar consumer loans; and 6 offer small dollar consumer loans but had licenses prior to the rate cap.

“Touting ‘new’ lenders in Illinois following enactment of the rate cap while failing to acknowledge that 52% of the small dollar lenders departed is egregious,” said Andrew Duke, Executive Director of the Online Lenders Alliance. “To make matters worse, most of these ‘new lenders’ don’t actually make small dollar loans to the broader population of Illinois consumers, and the handful of lenders listed that genuinely make these loans aren’t new at all.  This is deceptive and calls into question the credibility of the people and groups that spread this false narrative.”

“The information from this FOIA request reveals that credit options are declining in Illinois,” Duke continued. “Other recent data shows that Illinois consumers with moderate income and lower credit scores are bearing the brunt of the reduction in credit availability.”

Initial analysis of credit bureau data by academics shows that the number of loans in Illinois to subprime borrowers decreased by 29,000 (or 36%) in the 3 months following the implementation of the rate cap law. Furthermore, the number of loans to deep subprime borrowers declined by 4,700 (or 57%).

The same analysis showed that the average size of loans in Illinois became larger and more expensive to consumers for those who were still able to access credit. Loan size for subprime borrowers increased by 75%(an increase of $700) for deep subprime borrowers. For subprime and no-score borrowers, there was a 30% increase in loan size.

Furthermore, a recent OLA survey of borrowers who had taken out short-term, small-dollar loans prior to the rate cap law found that after Illinois Governor JB Pritzker signed a 36%annual interest rate cap into law last March, their financial situation did not improve as promised, and actually declined in many instances.

Specifically, former borrowers report that the financial products they relied on were no longer available in the marketplace and many have been unable to access credit. As a result, many borrowers have been forced into worse alternatives like late bill payments, skipping urgent appointments or vital expenses, or pawning valuables. In fact, the vast majority of borrowers would like the option to return to their previous lender, demonstrating support for the loan options available prior to the rate cap.

For more information on how consumers were impacted by the 36%rate cap law, click here to see results from an OLA consumer survey.

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