-Most Short-Term, Small-Dollar Loan Users Report They Have Struggled to Pay Bills or Access Credit Since Rate Cap Took Effect-
ARLINGTON, Va. (February 23, 2022)—A recent survey of borrowers who took out short-term, small-dollar loans found that after Illinois Governor JB Pritzker signed a 36 percent 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 with the financial products they relied on no longer available in the marketplace, they have struggled to pay their bills, been unable to access credit, or 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.
“This survey of actual borrowers shows what we have known all along: arbitrarily capping annual interest rates on short-term, small-dollar loans leaves consumers with fewer credit choices which leaves too many consumers worse off,” said Andrew Duke, Executive Director of the Online Lenders Alliance. “Far too often, those pushing these destructive policies either fail or willfully choose not to ask borrowers who actually use these lending products how it will impact them. The feedback from Illinois borrowers is clear: short-term, small-dollar loans help these consumers manage their financial situations and eliminating them from the marketplace does far more harm than good.”
The Online Lenders Alliance surveyed Illinois residents who took out short-term, small-dollar loans between January 2019 and March 2021. The survey included 699 responses and was conducted from December 14-31, 2021. Among the survey’s key findings:
• Those making less than $50,000 per year are more likely than other groups to say that that short-term, small-dollar loans helped them manage their financial situations.
• The 36 percent APR cap that Illinois implemented has failed to improve the financial well-being of Illinois residents, specifically those who relied on short-term, small-dollar loans.
• Most former short-term, small-dollar loan users struggled with paying their bills since the APR cap took effect in March 2021. At the same time, a majority of borrowers indicated they were unable to access credit at some point following the rate cap.
• When unable to obtain credit, consumers said they were left with poor alternatives, including late bill payments, skipping urgent appointments or vital expenses, or pawning valuables.
• The vast majority of borrowers want the option to return to their previous lender, demonstrating support for the loan options available before the rate cap.
The full consumer survey report is available here.