Illinois Predatory Loan Prevention Act Comes into Force | Ballard Spahr LLP

March 23, Illinois Governor Pritzker signed a law SB 1792, which contains the Preventing Abusive Lending Act (the “Act”). The new law came into effect upon signing, notwithstanding the power it gives to the Illinois Secretary of Financial and Professional Regulation to pass rules “consistent with the law. [the] Act.”

The law extends the financing fee cap of 36% of the annual military percentage rate (MAPR) of the Federal Military Loans Act (MLA) to “any person or entity that offers or makes a loan to a consumer in the Illinois ”unless by a legally exempt entity (SB 1792 separately amends the Illinois Consumer Installment Loans Act and the Payday Loan Reform Act to enforce that same 36% MAPR limit.)

Under federal law, the financial expense limit for Members of Parliament only applies to active duty military personnel and their dependents. However, the law does extend this limit to all consumer loans. The MAPR is an “all-inclusive” APR and includes, with a few exceptions: (i) finance charges; (ii) application fees or, for open credits, participation fees; (iii) any premium or charge for credit insurance, any charge for single premium credit insurance, any charge for a debt cancellation contract or any charge for a debt suspension agreement; and (iv) any commission for a credit related ancillary product sold as part of the credit transaction for a closed credit or open credit account.

The law provides that any loan granted above a MAPR of 36% is considered null and void, and no entity has the right to collect, attempt to collect, receive or retain any principal, costs. , interest or loan charges. ”Each violation of the law is punishable by a fine of up to $ 10,000.

The definition of the term “loan” in the Act is general and includes 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 , finance charges, interest or other conditions, including, but not limited to, closed and open credits, retail installment contracts and retail installment contracts of motor vehicles. The law excludes “commercial loans” from its scope, but does not define the term “commercial loan”.

The Law also contains a broad definition of the term “lender” and applies to loans granted under a banking partnership model. While the Act exempts state and federal chartered banks, thrift banks, savings and loan associations, and credit unions from its coverage, the Act contains an anti-avoidance provision under which a purported agent or service provider is considered a “lender”. to the Law if: (a) it holds, acquires or maintains, directly or indirectly, the predominant economic interest in the loan; (b) it markets, negotiates, arranges or facilitates the loan and has the right, requirement or first right of refusal to purchase loans, receivables or interest in loans; or (c) all of the circumstances indicate that the person or entity is the lender and that the transaction is structured to avoid the requirements of the Act. Factors to be considered in this “totality of the circumstances” analysis include whether the entity indemnifies, insures or protects an exempt lender for any cost or risk associated with the loan; primarily designs, controls or manages the loan program; or purports to act as an agent or service provider for an exempt entity while acting directly as a lender in other states.

The law applies to “any person or entity that offers or makes a loan to a consumer in Illinois.” Accordingly, it would apply to a “loan” made by a lender located outside Illinois to a consumer who enters into the loan agreement while the consumer is located in Illinois (for example under an online transaction). However, the law would not apply to a cross-border “loan” made to a resident of Illinois who travels to a border state that allows the loan at a rate higher than that permitted by law and enters into an agreement. loan in this state.

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