Do Rate Caps on Payday Loans Work?

Consumer Group Releases Data Showing Savings to Consumers

Andy Spears

--

Photo by Shane on Unsplash

Is it possible to offer credit-challenged consumers access to short-term credit without excessive interest rates? An Illinois consumer group says data from its state shows the answer is YES.

The Woodstock Institute — based in Chicago — released data indicating that since Illinois passed the Predatory Loan Prevention Act (PLPA) that caps interest rates on short-term loans at 36%, consumers in the state have saved $200 million.

A recent blog post by Woodstock notes:

Comparing a 5-month period in 2019, before the PLPA passed to the same period in 2021 — including months after the PLPA passed — Illinois consumers saved over $200 million in fees for high-cost loans.

Additionally, Woodstock says lenders offering affordable loans are moving in to fill the void:

While payday and title lenders have, for the most part, left the state, IDFPR has granted at least 67 new licenses to installment lenders since 2/15/21. This means that affordable lenders are filling the void left by the departure of the predatory lenders.

The group issued a warning to borrowers seeking short-term loans online:

As in other states with rate caps, rogue online lenders charging astronomical rates are trying to take advantage of the exit of payday and title lenders.

Consumers are urged to report lenders offering loans with interest rates in excess of 36% to the Illinois Attorney General.

--

--

Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .