Illinois caps interest rates on consumer loans at 36%

The Illinois state legislature passed a bill Thursday that will impose a 36% interest rate cap on all consumer loans, including payday and car title loans.

Illinois becomes the 18^th state plus the District of Columbia to impose a rate cap and the second state in the past three months to do so after Nebraska voters approved a ballot measure last year.

The Consumer Federation of America called the legislation “historic,” noting that it was supported by more than 50 consumer, faith, labor, community and civil rights organizations, as well as some financial institutions.

“I think it’s a big deal,” said Chris Peterson, a law professor at the University of Utah, who was the Democratic nominee in 2020 for governor of Utah. “It’s an important step for the country and it shows that mainstream financial institutions can live with the restrictions based on the Military Lending Act.”

Peterson is a former director of financial services at the Consumer Federation of America. The federal Military Lending Act caps interest rates for service members and their families at 36% for most credit transactions.

The Illinois law comes on the heels of renewed calls by consumer advocates for a national interest rate cap, though many lawmakers are opposed to the idea.

Last year, the Consumer Financial Protection Bureau rescinded strict underwriting requirements for payday loans that required lenders to determine borrowers' ability to repay. Some industry experts think the 2017 payday rule that was rolled back under the Trump administration could be reinstated under the Biden administration.