The Illinois Department of Financial and Professional Regulation (IDFPR) has adopted a series of regulations in accordance with the Illinois Predatory Lending Prevention Act (PLPA). The new regulations will require certain Illinois licensees (Consumer Installment, Sales Finance – including Retail Installments and Motor Vehicle Retail Installments – and Payday Reform) to obtain a separate, signed disclosure to the consumer stating that the APR cannot exceed 36% under their consumer loan agreements. The new regulations come into force on August 1, 2022.
As we pointed out previouslythe PLPA, which went into effect in March 2021, imposes a 36% APR limit on loans to Illinois residents and uses the Military Loans Act’s expanded definition of APR to include various fees and charges that might otherwise be excluded from the AVR.
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 without limitation, finance charges, interest, or other terms. The PLPA further expressly includes within the definition of a “loan” open-ended and open-ended credit, retail sales contracts installment loans and retail motor vehicle installment contracts, but “commercial loans” are excluded. in line with a recent trendthe Act purports to apply beyond mere “lenders” to include anyone who:
- “holds, acquires or retains, directly or indirectly, the predominant economic interest in the loan; »
- “markets, negotiates, arranges or facilitates the loan and has the right, demand or first right of refusal…; ” or
- any entity, if the “totality of the circumstances” would otherwise indicate that the entity is the lender, as evidenced by a multi-factor test examining whether the entity indemnifies the exempt entity making the loan for any loss; 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 broad definition of a loan, the IDFPR has published a Press release stating its belief that the PLPA applies to products that are not always considered “credit”, such as pawnbroking, access to earned wages, and revenue sharing agreements.
Under the regulations, loans subject to the PLPA will have to include in the consumer contract a separate statement, which must be signed by the consumer, stating that:
A lender shall not incur or receive fees in excess of an annual percentage rate of 36% on the outstanding balance of the funded amount for a loan, as calculated under the Illinois Predatory Lending Prevention Act (PLPA APR). Any loan with a PLPA APR greater than 36% is null and void, so no person or entity has the right to collect, attempt to collect, receive or retain principal, fees, interest or charges. related to the loan. The APR disclosed in any loan agreement may be less 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 these new regulations could have a significant impact on lenders’ operations.
The new disclosure requirement appears to be intended to curb lending by exempt state banks with some involvement of Illinois licensees under a partnership banking model. Additionally, by mandating disclosure of the 36% cap for all loans, the IDFPR is likely trying to publicize the 36% cap as a way to steer consumers away from exempt financial institutions that offer higher-rate products. raised.