Illinois is now better off without payday lenders

One year after a law was passed to cap interest rates, low-income people have access to better, lower-cost borrowing products.

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A loan store in the Ashburn neighborhood on Chicago’s South Side. An analysis of 2019 borrower data found an abundance of high-interest loans in majority Black neighborhoods. Industry groups say they lend money to people who don’t qualify for traditional bank loans.

A loan store in the Ashburn neighborhood on Chicago’s South Side. An analysis of 2019 borrower data found an abundance of high-interest loans in majority Black neighborhoods.

Pat Nabong/Sun-Times

One year ago, Illinois’s Predatory Loan Prevention Act took effect, creating a cap of 36% interest on consumer loans. I was one of the legislators who fought hard to help pass this rate cap. Payday lenders were charging upwards of 300% interest. Low-income people who needed cash to cover an emergency often felt they had no other choice. It was a business model that thrived on desperation and profiteered on need.

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But as we debated this idea, its opponents — the predatory loan industry — said the rate cap would cut people off from needed credit. They claimed that payday lenders would have to close their doors if they couldn’t charge these rates, and poor people would have nowhere to go for quick access to cash.

So as we approached the law’s first birthday, I got to wondering: what actually happened? Did the sky really fall? I decided to look at the numbers.

Turns out, nearly all payday lenders and title lenders did leave the state after the PLPA passed. I guess their business model just can’t work if they don’t get to charge outrageous interest rates.

But that didn’t mean low-income people lost access to credit. In fact, it meant they got access to better, lower-cost borrowing products.

Since the law’s passage, the Illinois Department of Financial and Professional Regulation has issued licenses to 46 companies to make installment loans at rates below 36%. Some of these lenders have interest rates of as low as 6% to 8%, depending on a borrower’s credit.

Capital Good Fund, a national organization that provides equitable loans to low-income families, reports that in the days after the PLPA’s passage, they saw a nearly 70% increase in applications from and new loans made to Illinois clients. 

“As predatory lenders close their doors,” Capital Good Fund CEO Andy Posner said, “families will look to other options.”

Indeed, that’s just what happened in Illinois. The PLPA created a void when predatory lenders left. And that void has been filled by better lenders who can comply with the law, still make a profit, and serve low-income people more fairly.

As a result, Illinois consumers have saved hundreds of millions of dollars of fees and interest in the law’s first year.

It’s expensive to be poor in America. But one year ago, we made it a little less expensive here in Illinois. And we’ll keep fighting in Springfield to help people get back on their feet without being taken advantage of.

Will Guzzardi, state representative, 39th District

Increasing the power of working people

WTTW’s recent notice to striking workers that their employer-sponsored health insurance will be discontinued as of April 1 adds one more proof, on top of the many that have accumulated during the pandemic, of the need for a single-payer national health insurance program for the United States.

WTTW is using this bullying union-busting tactic in its attempt to further widen the divide between working people and wealthy donors and executives. Single-payer national health insurance, while not sufficient to end union-busting or to close that gap, would increase the power of working people, decrease inequality and greatly improve the lives of all of us.

Anne Scheetz, MD, Logan Square

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