Illinois Gov. J.B. Pritzker signed the Predatory Loan Prevention Act into law Tuesday. The law, which immediately took effect, places a 36 percent interest rate cap on all loans below $40,000 extended in the state. It includes guaranteed asset protection products sold on automobile purchases as part of the interest rate calculation.
The Illinois General Assembly passed the actin January as part of a broader initiative by the Legislative Black Caucus to curb racial inequities in the state. The law borrows heavily from the federal Military Lending Act, which contains the same interest rate cap for service members and covered relatives.
Some experts say the Predatory Loan Prevention Act limits credit access for consumers who fail to qualify for lower interest rate terms. Several groups, including the American Financial Services Association and the Illinois Automobile Dealers Association, urged Pritzker to veto it.
David Gemperle, partner at Nisen & Elliott in Chicago, said to avoid running afoul of the law, lenders cannot finance retail installment loans with GAP products if the total interest exceeds 36 percent. The law firm works with auto lenders in the state.
"It's not a situation where everyone is going to have to stop financing GAP for Illinois consumers," he said.