Illinois Governor Pat Quinn signed a bill into law Monday putting a cap on the often high interest rates charged on short-term consumer loans. The law regulates the so-called “payday loan” business, which usually requires its loans to be paid back within two weeks, and which have historically charged consumers higher interest rates. The loans are often the only option available to some borrowers who need money in a hurry, and their interest rates can keep borrowers in a cycle of debt.

Bill HB 537 also places restrictions on “consumer installment loans,” which the law defines as lasting longer than six months. The Chicago Tribune explains some of the new regulations:

Under the new rules, interest rates would be capped at 99 percent for consumer installment loans of $4,000 and less and at 36 percent for loans that are $4,000 or more. Previously, there were no limits on how much loan companies could charge in interest, and some borrowers were smacked with rates as high as 700 to 1,000 percent, according to Quinn’s office. … Interest rates on payday loans also would be limited, with rates being capped at $15.50 for every $100 borrowed over a two-week period. Additionally, loan firms would have to verify that a borrower has the ability to repay a loan and would not be allowed to issue pay day loans if monthly payments would exceed 25 percent of a person’s gross monthly income. That limit drops to 22.5 percent for those taking out longer consumer installment loans.

Attorney General Lisa Madigan, who was among the leaders in advancing the legislation, praised its passage Monday. But she continued to warn consumers that payday loans still have much steeper interest rates than those offered by banks and even credit cards. The loans “will still be costly, and should only be used in emergencies and in the last resort,” Madigan said.

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Filed under: Illinois Payday Loans

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