High-interest loans have caused big problems for many people in Illinois, especially those with lower incomes. Usury—charging excessive or illegal interest rates on loans—is a serious issue. When lenders charge very high annual percentage rates (APRs), it becomes hard for borrowers to pay back the money. This often traps people in a cycle of debt that feels impossible to escape.
Recognizing this issue, Illinois passed the Predatory Loan Prevention Act, effective March 23, 2021. This law caps consumer loan interest rates at 36% APR, including payday loans, car title loans, and other high-cost consumer loans. By setting this limit, Illinois has provided vital protection to borrowers, ensuring fairer lending practices.
How Does the 36% Interest Cap Work?
The 36% interest cap under the Illinois Predatory Loan Prevention Act is calculated using a method outlined in the Military Lending Act (MLA). This method takes into account not just the interest rate but also additional fees that increase the cost of the loan. These fees include:
- Credit Insurance Premiums: Fees for insurance that covers loan payments if you can’t pay.
- Application Fees: Charges when you apply for the loan.
- Participation Fees: Costs to keep your loan account active.
This method gives a full picture of the loan’s total cost, preventing lenders from hiding excessive fees. By contrast, the Truth in Lending Act (TILA) calculation excludes some fees, making loans appear cheaper than they truly are. With the MLA-style calculation, borrowers have stronger protections against predatory lending.
What Happens If a Lender Breaks the Law?
If a lender violates the Illinois Predatory Loan Prevention Act by charging more than 36% interest, the consequences are severe—and they favor the borrower.
Penalties for the Lender:
- The Loan Is Void: The loan is considered as if it never existed. The lender loses all rights to collect any money, including the original loan amount and any interest.
- You Don’t Owe Anything: You are not required to repay the loan or any interest. This can be a huge relief if you’re struggling with an unfair, high-interest loan.
- Legal Action: The lender’s violation is also considered a breach of the Illinois Consumer Fraud and Deceptive Business Practices Act. You have the right to sue the lender and seek:
- Actual Damages: Compensation for any financial harm caused.
- Punitive Damages: Extra money to punish the lender and deter future violations.
- Attorney Fees: If you win, the lender may have to pay your legal costs.
These penalties are designed to discourage lenders from using unfair practices and empower borrowers to stand up for their rights.
What About Loans Made Before March 23, 2021?
The 36% cap only applies to loans made on or after March 23, 2021. However, older loans may still be actionable under other laws.
- Unlicensed Lenders: If the lender wasn’t licensed in Illinois, the loan might be unenforceable.
- Consumer Protection Violations: Loans issued with deceptive or unfair practices may also violate the Illinois Consumer Fraud and Deceptive Business Practices Act.
Tricks Lenders Use to Evade the Law
While the Illinois Predatory Loan Prevention Act (PLPA) sets a strict 36% annual percentage rate (APR) cap for consumer loans, some lenders attempt to bypass these rules. The Act specifically prohibits lenders from evading its requirements through deceptive tactics or loopholes, as detailed in Section 15-5-15. Here are some common strategies used by lenders to sidestep the law and how the PLPA addresses them:
Claiming Affiliation with Banks or Native American Tribes
Some lenders claim partnerships with banks, credit unions, or Native American tribes to avoid the 36% interest cap. They argue that these institutions are exempt from the PLPA under Section 15-1-15(c), which excludes federally regulated financial entities.
However, Section 15-5-15(b) ensures that entities cannot use this affiliation as a shield if they:
- Hold the predominant economic interest in the loan.
- Market, broker, or facilitate the loan while having the right to purchase it later.
- Use the exempt entity as a front while retaining the actual control over the loan.
Structuring Loans to Appear Compliant
Some lenders disguise the true cost of their loans to appear under the 36% APR cap. For instance, they may:
- Break fees into separate charges, such as participation fees or credit insurance premiums, to make the interest rate seem lower.
- Present loans as personal property transactions or cash rebates for fake installment sales.
The PLPA explicitly bans these tactics under Section 15-5-15(a), which prohibits any “device, subterfuge, or pretense” designed to evade the law. Loans structured this way are considered violations, regardless of how they are labeled.
“Rent-a-Bank” or “Rent-a-Tribe” Schemes
These schemes involve lenders using exempt entities as nominal loan issuers while actually controlling the loans themselves. The PLPA targets these setups under Section 15-5-15(b)(3), stating that the totality of the circumstances will determine who the real lender is. Key indicators include:
- The lender indemnifies the exempt entity against risks.
- The lender designs, controls, or operates the loan program.
- The lender acts directly as a lender in other states.
Expansive Anti-Evasion Provisions
The PLPA was designed with strong anti-evasion measures to ensure its effectiveness. Under Section 15-1-5, the law is to be “liberally construed to effectuate its purpose,” meaning courts can broadly interpret it to close any potential loopholes. Additionally, any loan made in violation of the Act is considered null and void under Section 15-5-10, preventing lenders from profiting from illegal practices.
How to Tell If Your Loan Is Illegal
If you’re unsure whether your loan violates Illinois law, ask yourself these questions:
- Is the APR Above 36%?
Loans exceeding this cap are illegal under Illinois law. - Are There Hidden Fees?
Charges like credit insurance premiums or participation fees must be included in the APR. - Was the Lender Licensed in Illinois?
Unlicensed lenders often issue loans that violate state regulations.
Tribal Lenders and Illinois Law
Tribal lenders, often operating from Native American reservations in states like Montana or California, issue high-interest installment loans that exceed Illinois’ 36% APR cap. These Indian lenders claim immunity from state laws under tribal sovereignty, a status recognized by federal law through the U.S. Constitution. This sovereignty allows federally recognized tribes to govern their own lending practices without adhering to state regulations. Tribes are presumptively immune from state law, and they cannot be sued unless they explicitly consent or waive their immunity. However, tribal lenders generally lack the required licensing to operate in Illinois, rendering their loans void under state law. These lenders rarely file lawsuits, as they cannot secure judgments or garnish wages in Illinois courts.
If you have a loan from a tribal lender, verify its legality and understand that you are not obligated to repay terms that violate Illinois law. Some of the lenders I have encountered making illegal loans to Illinois residents include Uprova Credit, Clean Air Lending, Bright Lending, Ascend Loans, and Rapid Arrow Loans. Be aware that the actual lender listed on your loan documents may differ from the website you visited, so it is crucial to review your loan agreement carefully. You can typically identify an illegal loan by the disclosed APR, which is often well above the legal 36% limit.
How We Can Help You
We have extensive experience fighting predatory lenders and protecting borrowers’ rights. We’ve successfully helped clients trapped in illegal, high-interest loans, freeing them from financial burdens caused by unfair practices.
What We Offer:
- Loan Evaluation: We’ll examine your loan agreement to see if it violates Illinois law.
- Legal Action: If your loan is illegal, we’ll take swift action to protect your rights and hold the lender accountable.
Benefits of Legal Action:
- Recovery of Attorney Fees: You may recover legal costs, so you can get professional help without worrying about expenses.
- Relief from Paying Illegal Loans: If your loan violates the law, it may be declared void. You won’t have to repay the loan or any interest.
- Compensation for Damages: You can sue for financial losses or stress caused by the loan. Courts may also award punitive damages to punish the lender.
Don’t Wait—Take Action Now
Predatory lenders count on borrowers feeling trapped or unsure of their rights. But you don’t have to face this alone. Understanding your rights under the Illinois Predatory Loan Prevention Act is the first step toward relief.
If you live in Illinois and have a loan with more than 36% interest, contact us today. You may be entitled to relief under the law, and we can help you fight back against illegal lending practices. Let us work with you to bring justice and financial peace.
