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EYE ON ILLINOIS: Pritzker facing calls to cancel lawmakers’ cap on interest rates

Northwest Herald

Wednesday, January 27, 2021  |  Commentary  |  By Scott T. Holland

Financial Institutions (7) , Governor (44)

The pushback continues.

Tuesday’s column examined State Board of Education members objecting to portions of House Bill 2170, Amendment 3, part of an omnibus education bill passed in the lame duck session.

Today’s looks at resistance to parts of Senate Bill 1792, the Predatory Loan Prevention Act. On Friday, leaders of several organizations sent letters to Gov. JB Pritzker expressing concerns and requesting he veto the measure, which would outlaw loans with interest rates larger than 36%.

Mary Jackson, president of the Online Lenders Association, said lawmakers’ passage “in expedited fashion” afforded “insufficient opportunity to explore the bill’s potentially unintended negative consequences, such as reducing access to credit during a pandemic, especially for the State’s most vulnerable residents.”

Jackson invoked the Department of Homeland Security, which declared regulated lenders an essential service during the ongoing pandemic, and noted Pritzker did the same in an executive order. She also cited the Consumer Financial Protection Bureau — proposed by current U.S. Sen. Elizabeth Warren when she was a Harvard Law professor and established during President Barack Obama’s first term — and noted its consumer financial law task force recommended states consider the unintended consequences of limiting consumer access to credit and “preferably, interest rate caps should be eliminated entirely.”

Another letter, for leaders of the American Financial Services Association, Independent Finance Association of Illinois, Illinois Financial Services Association and Illinois Automobile Dealers Association, said “SB 1792 contains many admirable provisions aimed at creating a more equitable Illinois,” but took issue with the state taking guidance from the federal Military Lending Act.

“Certain types of insurance and protection products are already available to members of the military as a benefit of their service,” that letter stated, making the military annual percentage rate rubric inappropriate for wider use. ”Additionally, because MAPR is federally applicable only to certain small loans, it is not clear how the rate would even be calculated for other loan products, like a vehicle loan, as SB 1792 would require.”

Ultimately, the letter points to the conclusion all rate cap objectors reach: traditional lenders can’t or won’t work with nonprime borrowers, but no one can turn a profit with small-scale loans limited to 36%. If Pritzker signs the bill, the industry projects a third of Illinois’ adults will be unable to secure “safe and affordable installment credit.”

These statements clearly represent industry interests, but as with other lame duck legislation the concerns about unintended consequences deserve attention. Some of the higher education changes have delayed implementation, as do criminal justice reforms like the qualified immunity overhaul and cash bail elimination.

Dramatically changing market conditions for lower earners amidst a pandemic is potentially catastrophic. Worthwhile reforms must be undertaken correctly, even if that nullifies expedience.