The Illinois Department of Financial and Professional Regulation (IDFPR) has adopted a series of regulations pursuant to the Illinois Predatory Loan Prevention Act (PLPA). The new regulations will require certain Illinois licensees (Consumer Installment, Sales Finance — including Retail Installment and Motor Vehicle Retail Installment — and Payday Reform) to obtain a separate, signed, consumer disclosure that the APR may not exceed 36% as part of their consumer loan agreements. The new regulations go into effect on August 1, 2022.
As we previously reportedthe PLPA, which went into effect in March of 2021, imposes a 36% APR limit on loans to residents of Illinois and uses the expansive definition of APR of the Military Lending Act to include various fees and charges that might otherwise be excludable from the APR.
Notably, the definition of a “loan” under the PLPA is extremely broad, encompassing money or credit provided to a consumer in exchange for the consumer’s agreement to a certain set of terms, including, but not limited to, any finance charges, interest , or other conditions. ” The PLPA further expressly includes in the definition of a “loan” closed-end and open-end credit, retail installment sales contracts, and motor vehicle retail installment sales contracts, but “commercial loans” are excluded. Likewise, and in line with a recent trendthe Act purports to apply beyond just “lenders” to extend to anyone who:
- “Holds, acquires, or maintains, directly or indirectly, the predominant economic interest in the loan;”
- “Markets, brokers, arrangements or facilitates the loan and holds the right, requirement, or first right of refusal…;” or
- any entity, if “the totality of the circumstances” otherwise indicates that the entity is the lender as evidenced by a multifactor test considering whether the entity indemnifies the exempt entity making the loan for any losses; designs, controls or operates the loan program; or acts as an agent for an exempt entity (such as a state bank).
In light of this expansive definition of a loan, the IDFPR issued a press release stating its belief that the PLPA applies to products that are not always considered to be “credit,” such as pawn transactions, earned wage access and income share agreements.
Under the regulations, loans subject to the PLPA will be required to include in the consumer contract a separate disclosure, which must be signed by the consumer, stating that:
A lender shall not contract for or receive charges exceeding a 36% annual percentage rate on the unpaid balance of the amount financed for a loan, as calculated under the Illinois Predatory Loan Prevention Act (PLPA APR). Any loan with a PLPA APR over 36% is null and void, such that no person or entity shall have any right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan. The annual percentage rate disclosed in any loan contract may be lower than the PLPA APR.
Given the extremely broad applicability of these requirements and the requirement to provide a separate disclosure, signed by the consumer, we expect that these new regulations may have a significant impact on lenders’ operations.
The new disclosure requirement appears to be intended to chill loans made by exempt state banks with some involvement of Illinois licensees under a bank partnership model. Further, by mandating disclosure of the 36% cap in all loans, IDFPR is likely trying to publicize the 36% cap as a means of steering consumers away from exempt financial institutions that offer higher-rate products.