Metropolitan Family Services celebrates the passage of the Predatory Loan Prevention Act

Metropolitan Family Services celebrates the passage of the Predatory Loan Prevention Act, SB1792, during the Illinois General Assembly’s recent Lame Duck Session. We call on Governor Pritzker to sign the legislation and prohibit lenders from charging more than 36% APR–extending the same protection in federal law for active-duty military to all Illinois families.

We congratulate Representative Sonya Harper and the Illinois Legislative Black Caucus on their work to pass the Predatory Loan Prevention Act, part of their Economic, Equity and Opportunity pillar.

For close to 20 years Metropolitan Family Services has worked in coalition to end the predatory lending practices of payday lenders and other small consumer lenders. Through our Economic Stability services including financial education, job training and employment support, Metropolitan “Mpowers” individuals to thrive financially.

“It’s very expensive to be poor,” shares Kevin Arndt, a Financial Coach at Metropolitan’s Financial Opportunity Center, referring to the cycle of debt many individuals in our communities experiencing poverty face. This cycle often begins with predatory lending; insurmountable interest rates are a huge impediment to financial stability.

“[This legislation] will help in alleviating the debt burden,” Kevin shares. “If there’s a cap on loans there’s a cap on clients’ money going out. You’re already in a position where you’re vulnerable, and any extra dollar you have needs to be going into building wealth and paying off debt.”

The Predatory Loan Prevention Act is a step toward that.

“This legislation ends the wealth stripping that comes from this type of lending. Many of our communities have historically been excluded from investment opportunities resulting from red-lining and other discriminating banking practices fueled by racism. Payday loans, car title loans and other small consumer loans are a newer iteration of these practices” says Anne VanderWeele, Government Affairs Associate at Metropolitan Family Services.

“There are more payday lenders than McDonalds in the U.S.[1] However, most of us can find a McDonald’s without having to travel too far out of our way. The same can’t be said of payday lenders. They are concentrated in communities that have been shut out of mainstream avenues for wealth generation exacerbating the racial wealth gap.”

Predatory lending is a racial justice issue. In Chicago, zip codes in communities of color represent 47% of the City’s population but have 72% of the City’s payday loans. Instead of empowering these families, predatory lenders rob them with interest rates averaging 297% for a payday loan and 179% for a car title loan.

Payday lenders target people who need money, providing cash AND long term consequences for the borrower. These consequences immediately and typically last for months, if not years. Payday lenders make loans to customers without determining their ability to repay the loan in full. Instead, the lender siphons loan payments out of the borrower’s bank account on their payday. This forces borrowers to skimp on other necessities like health care and prescription drugs. The lender then capitalizes on this predicament by rolling over, refinancing, or extending the loan. This puts borrowers in a burdensome cycle of debt.

Nationally, research by the Consumer Financial Protection Bureau shows that the majority of payday loans are borrowed by consumers who take out at least 10 loans in a row.[2] In Illinois, the average APR on a payday loan is 297%.[3] This is not “access to credit;” this is predatory lending.

Auto title lenders are another culprit, digging everyday people in already dire financial circumstances even deeper into debt. In Illinois, these loans come with interest rates as high as 360%, costing families thousands of dollars. On top of high interest rates, when a borrower can’t afford to repay these costly loans, they lose their car – a lifeline that allows people to work, take their children to school, and meet many other daily needs.

There are many alternatives to these harmful, wealth-stripping loans. Predatory lenders argue that their products are the only option for subprime borrowers. This is false. Affordable loan products do exist, ones that can help folks recover from hard times and land on their feet instead of on their backs. Community Development Financial Institutions (CDFIs) like Capital Good Fund and Self-Help Credit Union already make loans at rates below 36%, right here in Illinois. The average credit score of a Capital Good Fund customer is 580.[4]

We urge Governor Pritzker to sign the Predatory Loan Prevention Act into law. Our families want fair lending practices and investment opportunities that empower them to save their hard earned paychecks and help their communities thrive. The time is now for Illinois to join the other 17 states and District of Columbia with interest rate caps of 36% or lower. The time is now to end predatory lending in Illinois.

“This one piece of legislation helps in that broader journey to financial solvency for those in our communities,” Kevin says. “It provides a little hope.”

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[1] https://www.ngpf.org/blog/question-of-the-day/qod-which-business-has-the-most-physical-locations-in-the-us-mcdonalds-payday-lenders-or-starbucks/

[2] U.S. Consumer Financial Protection Bureau, “Payday, Vehicle Title, and Certain High-Cost Installment Loans,” Docket No. CFPB-2016-0025, at 829 (Oct. 2017) (citing CFPB Report on Supplemental Findings, at Chapter 1).

[3] IL Dept. of Fin. & Professional Regulation, Illinois Trends Report: Select Consumer Loan Products through December 2019 (9/28/20).

[4] Posner, Andy. Capital Good Fund testimony to the Illinois General Assembly. https://drive.google.com/file/d/1yGPGWX3P_Wtt33Y1nfE9B3_7pAtnRgXx/view?ts=6000dfda