On January 13, 2021, the Illinois legislature overwhelmingly passed SB 1792 (the “Act”), intended, among other things, to revise state consumer credit laws. Described before enactment as a bill relating to “Energy storage systemsSB 1792 passed, along with other major bills, with remarkably little debate.
The inclusion by the editors of “Predatory Loan Prevention Act“In SB 1792 would extend the financial burden cap of the 36%” all-inclusive “military annual percentage rate (MAPR) of the Federal Military Loans Act (MLA) to” any person or entity that offers or grants a loan to a consumer in Illinois ”unless performed by an entity exempted by law (i.e., bank, savings bank, savings and loan association, credit union or insurance company). (SB 1792 separately amends the Illinois Consumer Installment Loans Act and the Payday Loan Reform Act to apply this same MAPR cap of 36%.) The cap takes effect upon the governor’s signature. , which is expected at all times.
Under federal law, the MLA financial expense limit applies only to active-duty military personnel and their dependents. However, SB 1792 effectively extends this limit to all consumer loans. The MAPR is an “all-inclusive” APR and includes, with a few exceptions: (i) financial charges; (ii) administration fees or, for open-ended loans, participation fees; (iii) any credit insurance premium or charges, any single premium credit insurance charge, any charge for a debt cancellation contract or any charge for a debt suspension agreement; and (iv) any charges for a credit related ancillary product sold as part of the credit transaction for a closed credit or open credit account.
Under SB 1792, any loan made above a 36% MAPR would be considered null and void, and no entity would have the “right to collect, attempt to collect, receive or retain a principal, fees, interest or charges related to the loan. The legislation provides for a fine of up to $ 10,000 for each offense.
The definition of “loan” under SB 1792 is broad 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 limit, finance charges, interest or other terms, including, but not limited to closed and open credits, retail installment contracts and retail motor vehicle installment 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 through a banking partnership model. Although SB 1792 does not apply to state or national banks, savings and loan associations, credit unions, or insurance companies, the anti-avoidance provisions of the law provide that a alleged agent or service provider is a lender if: (a) it holds, acquires or retains, directly or indirectly, the predominant economic interest in the loan; (b) it markets, negotiates, arranges or facilitates the loan and has the right, demand or first right of refusal to purchase loans, receivables or interest on loans; or (c) all of the circumstances indicate that the person or entity is the lender and that the transaction is structured so as to avoid legal requirements. Factors to be considered under this “all of the circumstances” provision include whether the entity indemnifies, insures or protects an exempt lender for all costs or risks associated with the loan; designs, controls or primarily 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 previously expressed concerns about the ability of lenders to continue to operate in Illinois due to the new rate cap. Without a doubt, SB 1792 will also cause a substantial contraction in the credit available to Illinois consumers with marginal credit. The other consequences of the law remain to be determined.
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