On March 23, Illinois Governor Pritzker signed into law SB 1792, which contains the Predatory Loan Prevention Act (the “Act”). The new law became effective immediately upon signing notwithstanding the authority it gives the Illinois Secretary of Financial and Professional Regulation to adopt rules “consistent with [the] Act.”
The Act extends 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 (SB 1792 separately amends the Illinois Consumer Installment Loan Act and the Payday Loan Reform Act to apply this same 36% MAPR cap.)
Under federal law, the MLA finance charge cap only applies to active-duty servicemembers and their dependents. However, the Act 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.
The Act provides that any loan made in excess of a 36% MAPR is considered null and void, and no entity has the “right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.” Each violation of the Act is subject to a fine of up to $10,000.
The Act’s definition of “loan” 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. The Act excludes “commercial loans” from its coverage but does not define the term “commercial loan.”
The Act also contains a broad definition of the term “lender” and applies to loans made using a bank partnership model. While the Act exempts state- and federally-chartered banks, savings banks, savings and loan associations, and credit unions from its coverage, the Act contains an anti-evasion provision under which a purported agent or service provider is deemed a “lender” subject to the Act 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 Act’s requirements. Factors to be considered under this “totality of the circumstances” analysis 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 Act 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 of Illinois to a consumer who enters into the loan agreement while the consumer is located in Illinois (e.g. in an online transaction). However, the Act would not apply to a cross-border “loan” made to an Illinois resident who travels to a bordering state that allows lending at a higher rate than is permitted by the Act and who enters into a loan agreement in that state.