Illinois Regulators Publish Proposed Rules of the Prevention of Loaned Loans Lawsuits to Suspend Implementation of the Law’s Database Reporting and Declaration Law Does Not Apply to Pawn Shops Ballard Spahr LLP


In March 2021, Illinois became Governor Pritzker signed in law SB 1792, which contains the Predatory Loan Prevention Act (the “Act”). The new law went into effect immediately upon signature, regardless of the power it gives the Illinois Department of Financial and Professional Regulation (“IDFPR”) to make rules “in accordance with” [the] Plot.”

The law extends the 36% “all-in” funding limit of the Military Annual Percentage Rate (MAPR) under the Military Annual Percentage Rate (MAPR) to “any person or entity that offers or gives a loan to a consumer in Illinois” unless this is done by a legally exempt body. The law provides that any loan that exceeds a MAPR of 36% will be considered null and void and no company has any right to any principal, fee, interest or charge related to the. to collect, try to collect, obtain, or withhold loans. “Any violation of the law will result in a fine of up to $ 10,000.

Proposed regulations. The IDFPR has proposed regulations implement the law. In addition to a section with definitions (section 215.10), the proposal contains a section on loan terms (section 215.20). The credit terms discussed in Section 215.20 include:

  • Calculation of the APR for purposes of the law (i.e. which fees must be included in the APR)
  • Bona fide fees charged on credit card accounts that may be excluded from APR, including standards for assessing whether a bona fide fee is appropriate, an adequate safe haven for the bona fide fee, and references the appropriateness of the entry fees
  • The Impact of Funding Fees on Bona Fide Fees

In addition to these proposed law enforcement ordinances, the IDFPR has simultaneously proposed changes to the Illinois Consumer Installment Loans Act and the Payday Loan Reform Act. These changes propose that the material and disclosure restrictions previously targeted on payday and high APR auto title loan programs be extended without change to loans with MAPRs of 36% or less. For example, a premium credit secured by a consumer vehicle with a MAPR of 1% would be subject to a $ 4,000 capital limit, refinancing restrictions, and gross monthly income limits, such as check and various leaflets and disclosure requirements that come with a loan make little sense with a MAPR of 36% or less.

Lawsuit to block the database reporting requirement of the law. Before the law went into effect, only lenders granting certain higher-priced loans at an annual interest rate of over 36% were required to report credit information to a government database maintained by Veritec. The law changed the Illinois Consumer Installment Loan Act (“CILA”) to require all licensed lenders, regardless of the interest rate charged, to pay Veritec fees on each loan and to report information about the loan to the database. With the law going into effect immediately and Veritec’s onboarding typically taking several months, Illinois lenders were initially faced with the challenge of either breaking the amended law or stopping all lending operations. To address this dilemma, the IDFPR issued a notice in April 2021 stating that it does not intend to take any adverse regulatory or enforcement action for reporting violations “until further notice” under applicable Illinois law.

The American Financial Services Association and the Illinois Financial Services Association filed a lawsuit against the IDFPR to order the implementation of the reporting obligation of the law retrospectively to March 23, 2021 and to demand the determination that the obligation is unconstitutional and not to be complied with. In its complaint, IFSA alleges that despite the impossibility of complying with civil law procedures, licensed lenders may be subject to CILA and that implementation of the law exposes consumer finance lenders to significant risk of loss.

The action to explain the law does not extend to pawn shops. Two trading groups and two companies from the lien filed a lawsuit against the IDFPR Request a statement that the law cannot apply to pawns unless the IDFPR changes or removes its provisions implementing the Illinois Pawnbroker Regulation Act (“PRA”) that are inconsistent with the law. The PRA requires pawnbrokers to be approved by the IDFPR to lawfully operate in Illinois, and sets the permitted terms and funding fees for pawn shops.

In April 2021, the IDFPR issued a series of FAQs on the law who listed “pawn loans” as an example of covered loans. In their complaint, plaintiffs allege that the law does not change the PRA or contain any reference to pawn shops. They also claim that the law’s legislative history suggests that the law was never intended to affect the pawnbroker industry. According to plaintiffs, the IDFPR has not provided the pawnbroking industry with guidance on key issues such as how the law and the PRA interact and what, if any, should be changed from a compliance perspective regarding the conduct of pawn shops.

Plaintiffs allege that, as a result of their FAQs, “Not only has the IDFPR raised a myriad of questions about how the pawnbroking industry in Illinois works, but it has done so while setting a goal on the back of the industry and “opening up to consumer-facing litigation.” Plaintiffs also claim that if the 36% APR cap were to apply to pawn shops, “it would have a devastating effect on the industry and likely to close most, if not so, of most of all pawn shops in Illinois because that’s what the pawnshop segment is ”. Main source of income for the company. “


Leave A Reply