Illinois Regulatory Authority Issues Proposed Predatory Loan Prevention Act Provisions; Lawsuits filed to obstruct the compliance with the database reporting requirements of the Law and on declarations do not apply to collateral transactions – Consumer protection



United States: Illinois Regulatory Authority Issues Proposed Predatory Loan Prevention Act Provisions; Lawsuits filed with the aim of preventing the fulfillment of the requirements for reporting on the database of the Law, as well as for declaring, do not apply to transactions with a pledge

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In March 2021, Governor of Illinois Pritzker SB Act 1792 signedwhich contains the Predatory Loans Prevention Act (hereinafter – the “Law”). The new law took effect immediately upon signing, despite the authority it gives the Illinois Department of Financial and Professional Regulation (“IDFPR”) to enact rules “compliant with [the] Act.”

The law extends the 36% marginal military annual percentage rate (MAPR) tax rate set by the Federal Military Credit Act (MLA) to “any person or entity that offers or grants a consumer loan in Illinois,” if not already a legal entity exempted from taxation. The law stipulates that any loan made in excess of 36% of MAPR will be void and no legal entity has “the right to collect, attempt to collect, receive or withhold any principal, commission, interest or fees associated with the loan.” Each violation The law is punishable by a fine of up to US $ 10,000.

Proposed rules… IDFPR suggested rules for the implementation of the Law. In addition to the section on definitions (Section 215.10), the proposal contains a section on the terms of the loan (Section 215.20). Loan terms discussed in Section 215.20 include:

  • Calculation of the annual interest rate for the purposes of the Law (i.e. what fees should be included in the annual interest rate)
  • Good faith fees charged on credit card accounts that may be excluded from the annual interest rate, including standards for assessing the reasonableness of good faith fees, a reasonable safe haven for good faith fees, and indications of the reasonableness of a fee for participation
  • The Impact of Financial Fees on Fair Fees

In addition to these proposed regulations implementing the Act, IDFPR is simultaneously proposing amendments to the implementing provisions of the Illinois Hire Purchase Loans Act and the Payday Loans Reform Act. The amendments propose, without change, extending the core and disclosure restrictions that previously targeted payday loan programs and high-interest vehicle ownership rights to loans with MAPRs of 36% or less. For example, a principal loan secured by a consumer’s vehicle with a MAPR of 1% would, among other things, be subject to a principal ceiling of US $ 4,000, refinancing restrictions, “ability to repay” restrictions in the form of gross monthly income. a check and various brochures and disclosure requirements that do not make much sense in the context of a loan with MAPR 36% or less.

The claim for blocking the reporting requirements on the database of the Law… Prior to the Law’s entry into force, only lenders providing certain more expensive loans with an annual rate above 36% were required to report the loan information to a government database operated by Veritec. The law amended the Illinois Consumer Installment Loans Act (“CILA”), which requires all licensed lenders, regardless of the rate charged, to pay a Veritec commission on each loan and report the loan information to the database. Since the law went into effect immediately and Veritec’s adaptation usually takes several months, Illinois lenders first faced catch-22: either breaking the amended law or terminating all lending operations. To address this dilemma, IDFPR issued a Notice in April 2021 stating that it “does not intend to take adverse supervisory or enforcement action for reporting violations” under applicable Illinois law until further notice.

American Financial Services Association and Illinois Financial Services Association filed a lawsuit against IDFPR seeking to prohibit retrospective compliance with the reporting law until 23 March 2021 and requiring a declaration that this requirement is unconstitutionally vague and impossible to comply with. In its complaint, the IFSA argues that despite the failure to comply, licensed lenders may be subject to civil claims under the CILA, and that implementation of the Act would expose consumer finance lenders to significant risk of loss.

The claim for the recognition of the Law does not apply to transactions with a pledge… Two trading groups and two pawnshop companies filed a lawsuit against IDFPR seek a statement that the Law cannot apply to secured transactions unless and until IDFPR amends or repeals its regulations implementing the Illinois Moneylenders Regulations Act (“PRA”) that are inconsistent with the Law. The PRA requires mortgagees to be licensed by IDFPR to legally operate in Illinois, and sets acceptable conditions and financial fees for mortgage transactions.

In April 2021 released a series of Frequently Asked Questions on the Law it lists “collateral loans” as an example of loans subject to the Act. In his complaint plaintiffs argue that the law does not amend the PRA and does not mention collateral transactions. They also argue that the Law’s legislative history suggests that the Law was never intended to affect a pawnshop. Plaintiffs said IDFPR did not provide any guidance to the pawnshop on key issues, such as how the Law and the PRA interact and what, if anything, needs to change in terms of compliance in terms of how collateral transactions are conducted.

Plaintiffs argue that, as a result of their FAQ, “IDFPR not only raised many questions in terms of how the pawn shop industry in Illinois should operate, but it did so by putting a goal on the industry’s back and opening it up to consumer litigation.” Plaintiffs also argue that if a 36% APR were applied to collateral transactions, “it would have a devastating effect on the industry and would likely lead to the closure of most, if not all of the pawnshops in Illinois, as the pawnshop segment is most important. The main source of business income. “

The content of this article is intended to provide general guidance on the subject. You should seek professional advice regarding your specific circumstances.

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