Do Rate Caps on Payday Loans Work?
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.
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Consumers are urged to report lenders offering loans with interest rates in excess of 36% to the Illinois Attorney General.