Illinois Regulator Releases Predatory Loan Prevention Act Regulatory Proposals; lawsuits filed to block the implementation of the database reporting requirement of the law and for the declaration The law does not apply to pawn shops | Ballard Spahr srl



In March 2021, Illinois Governor Pritzker signed in law SB 1792, which contains the Predatory Lending Prevention Act (the “Act”). The new law came into effect upon signing, notwithstanding the authority it confers on the Illinois Department of Financial and Professional Regulation (“IDFPR”) to adopt rules “in accordance with the regulations. [the] Act.”

The law extends the Federal Military Loans Act (MLA) 36% annual military percentage rate (MAPR) funding fee cap to “any person or entity that offers or grants a loan to a consumer in Illinois ”unless done by an entity exempted by law. The Law provides that any loan granted above a MAPR of 36% is considered null and void and that no entity has the “right to recover, attempt to recover, receive or retain capital. , fees, interest or charges related to the loan. “Each violation of the Act is punishable by a fine of up to $ 10,000.

Proposed regulations. IDFPR proposed regulations to implement the Act. In addition to the section containing definitions (section 215.10), the proposal contains a section on loan conditions (section 215.20). The loan conditions referred to in article 215.20 include:

  • Calculation of the APR for the purposes of the Act (i.e. what charges must be included in the APR)
  • Good faith fees charged to credit card accounts that may be excluded from the APR, including standards for assessing whether good faith fees are reasonable, a reasonable safe harbor for good faith fees, and indicia of character reasonable participation fee
  • The effect of finance charges on bona fide charges

In addition to these proposed regulations implementing the law, the IDFPR simultaneously proposed changes to the regulations for the application of the Illinois Consumer Installment Loans Act and the Loan Reform Act. salary. These changes propose to extend the substantive and disclosure limitations that previously applied to high APR payday loan and auto title programs to loans with an MAPR of 36% or less without modification. For example, a prime loan guaranteed by a consumer vehicle with a MAPR of 1% would be subject, among other things, to a capital limit of $ 4,000, refinancing limitations, limitations on “repayment capacity. In the form of a gross monthly income check and various flyers and disclosure requirements that make little sense in the context of a loan with an MAPR of 36% or less.

Lawsuit to block the law’s database reporting requirement. Prior to the enactment of the law, only lenders providing certain higher cost loans with annualized rates above 36% were required to report loan information to a state database administered by Veritec. The law amended the Illinois Consumer Installment Loans Act (“CILA”) to require all approved lenders, regardless of the rate applied, to pay Veritec fees for each loan and report loan information to the database. Because the law went into effect immediately and the integration of Veritec typically takes several months, lenders in Illinois were initially faced with the trap of violating the amended law or terminating all claims. loan operations. To resolve this dilemma, the IDFPR issued a notice in April 2021 stating that it “did not intend to take adverse monitoring or enforcement action for breach of reporting requirements” under Illinois applicable law until further notice.

The American Financial Services Association and the Illinois Financial Services Association have filed a complaint against the IDFPR Seeking to prohibit the implementation of the Act’s declaration requirement retroactive to March 23, 2021 and asking for a declaration that the requirement is unconstitutionally vague and unenforceable. In its complaint, the IFSA alleges that despite the inability to comply, approved lenders may be subject to civil lawsuits under the CILA, and that the implementation of the law will expose consumer lenders to a substantial risk of loss.

The lawsuit to declare that the law does not cover pawn shops. Two trade associations and two companies engaged in the pawn industry have filed a complaint against the IDFPR request a declaration that the law cannot apply to pawn shops unless and until the IDFPR amends or rescinds its regulations implementing the Illinois Pawnbrokers Regulation Act (“PRA”) which are inconsistent with the law. The PRA requires pawn shops to be licensed by the IDFPR to operate legally in Illinois and outlines the terms and allowable finance charges for pawn shops.

In April 2021, the IDFPR published a series of FAQs on the Law which listed “pawnbrokers” as an example of loans covered by the Act. In their complaint, the plaintiffs allege that the Act does not amend the PRA and makes no reference to pawn shops. They also allege that the legislative history of the Act indicates that the Act was never intended to affect the pawn business. According to the complainants, the IDFPR has not given any guidance to the pledge industry on key issues such as how the Act and the PRA interact and what, if anything, is expected to change from a security perspective. compliance in terms of how pledge transactions are carried out.

Complainants claim that as a result of its FAQ, “the IDFPR not only created a myriad of questions about how the pawn shop industry in Illinois is supposed to operate, but it did so while placing a target on the back of the industry and opening it to litigation with consumers. The plaintiffs also claim that if the law’s 36% APR cap applied to pawn shops, “it would have a devastating effect on the industry and would likely lead to the shutdown of most, if not all of the lenders in the industry. pawn shops in Illinois because the pawn shops segment is the main source of revenue for the business.



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