On January 13, 2021, the Illinois legislature overwhelmingly passed SB 1792 (the “Act”), intended to, among other things, overhaul the state’s consumer finance laws. Described prior to enactment as a bill related to “Energy Storage Systems,” SB 1792 passed, together with other major bills, with remarkably little debate.
The drafters’ inclusion of the “Predatory Loan Prevention Act” in SB 1792 would extend the 36% “all-in” Military Annual Percentage Rate (MAPR) finance charge cap of the federal Military Lending Act (MLA) to “any person or entity that offers or makes a loan to a consumer in Illinois” unless made by a statutorily exempt entity (i.e., a bank, savings bank, savings and loan association, credit union or insurance company). (SB 1792 separately amends the Illinois Consumer Installment Loan Act and the Payday Loan Reform Act to apply this same 36% MAPR cap.) The cap is effective immediately upon the Governor’s signature, which is expected at any time.
Under federal law, the MLA finance charge cap only applies to active-duty servicemembers and their dependents. However, SB 1792 effectively extends this limit to all consumer loans. The MAPR is an “all in” APR, and includes, with limited exceptions: (i) finance charges; (ii) application fees or, for open-end credit, participation fees; (iii) any credit insurance premium or fee, any charge for single premium credit insurance, any fee for a debt cancellation contract, or any fee for a debt suspension agreement; and (iv) any fee for a credit-related ancillary product sold in connection with the credit transaction for closed-end credit or an account of open-end credit.
Under SB 1792, any loan made in excess of a 36% MAPR would be considered null and void, and no entity would have the “right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.” The legislation provides for a fine of up to $10,000 for each violation.
The definition of “loan” under SB 1792 is sweeping 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, any finance charges, interest, or other conditions, including but not limited to closed-end and open-end credit, retail installment sales contracts, and motor vehicle retail installment sales contracts. Commercial loans are excluded, but “commercial loan” is not defined.
SB 1792 also contains a broad definition of the term “lender” and will apply to loans made via a bank partnership model. While SB 1792 does not apply to state or national banks, savings and loan associations, credit unions, or insurance companies, anti-evasion provisions of the Act provide that a purported agent or service provider is a lender if: (a) it holds, acquires, or maintains, directly or indirectly, the predominant economic interest in the loan; (b) it markets, brokers, arranges, or facilitates the loan and holds the right, requirement, or first right of refusal to purchase loans, receivables, or interests in the loans; or (c) the totality of the circumstances indicate that the person or entity is the lender and the transaction is structured to evade the requirements the law. Factors to be considered under this “totality of the circumstances” provision include whether the entity indemnifies, insures, or protects an exempt lender for any costs or risks related to the loan; predominantly designs, controls, or operates 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 Illinois Small Loan Association has already expressed concerns about the ability of lenders to continue to operate in Illinois as a result of the new rate cap. Undoubtedly, SB 1792 will also result in a substantial contraction of available credit for Illinois consumers with marginal credit. Other consequences of the Act remain to be determined.