'Predatory' Loan Interest Rate Controls

Van Doren discusses the article Credit for Me but Not for Thee: The Effects of the Illinois Rate Cap by J. Brandon Bolen et al. On March 23, 2021, Illinois enacted the Predatory Loan Prevention Act (PLPA). The PLPA sets a 36 percent "all-in APR" (including non-credit charges, making it more restrictive than the Truth in Lending rate) ceiling for loans below $40,000. Banks and credit unions are exempt from the Illinois rate ceiling. The costs of making loans do not vary that much with loan size, so costs are a higher percentage of small loans and thus interest rates on smaller loans must be higher. One estimate in the literature concludes that a 36 percent interest rate cap would preclude loans of less than $2,900 from breaking even. Thus, Illinois' 36 percent all-in APR is likely binding on small-dollar unsecured installment loans from finance companies.