There is an adage in Springfield that no compromise is complete until all the stakeholders are unhappy. Some might say this adage applies to HB 779 (Senate Amendment 1 and 2) (the “Bill”), which is a rewrite of the Pawnbroker Regulation Act (PRA). The Bill passed the Senate unanimously during Veto Session on November 8, 2023. From a policy standpoint, the Bill is a mixed bag, so Woodstock’s position on the Bill is “No Position.” Here is a brief summary of the key ingredients.

No Title Loans: The Bill prohibits pawnbrokers from making auto title loans. In other states, pawnbrokers use the state pawnbroker statute to evade restrictions on auto title loans. In those states, a consumer is permitted to “pawn” the title to their car. Georgia’s battle over this issue has garnered headlines. See ProPublica, How Title Lenders Trap Poor Americans in Debt With Triple-Digit Interest Rates(Nov. 14, 2022). Illinois’s Predatory Loan Prevention Act (PLPA) effectively put an end to predatory title lending. See IDFPR Press Release, IDFPR Releases Annual Consumer Lending Report (Jan. 5, 2023).

Lower Interest Rates/Finance Charges: Under the PRA now, a lender may charge 20% per month regardless of the loan term or the loan amount. As an annual percentage rate (APR), this equates to 243.3% on a 30-day loan, which far exceeds the PLPA cap of 36% APR. But the Bill, while carving pawn loans out of the PLPA, would lower monthly rates on larger loan amounts by creating a four-tiered rate structure. The Bill would cut the rate to one-sixth (16.7%) of the loan amount for loans $500-$1500, one-eighth (12.5%) of the loan amount for loans $1501-$5000, and one-twentieth (5%) of the loan amount for loans over $5000.

Improved Transparency: The Bill would revamp data collection and reporting. The last time IDFPR reported data about the pawn industry was 2017, and both the industry and IDFPR have expressed doubts about the validity of the data. The Bill would require IDFPR to report aggregate data about the pawn industry on a yearly basis based on data submitted by licensees. Some of the data fields are critical while others are frivolous. Critical is the total dollar amount financed. Frivolous is the total number of defaulted transactions sent to a collection agency. This is frivolous because that field is always zero because, in the event of default, the pawnbroker simply keeps the collateral and never involves a collection agency.

The Bill also has provisions permitting, but not requiring, IDFPR to collect loan level data for small dollar loans, including pawn loans. Illinois already has effective data collection infrastructure in place: the statewide database that has been in place since 2005, which collects data on every payday loan, auto title loan, and installment loan made by a non-depository institution in Illinois. See IDFPR, Illinois Trends Report (12/20/22). While the Bill does not take advantage of this mechanism, we have received assurances that IDFPR does intend to collect loan level data for the pawn industry as permitted by the Bill.

The hope is that this data will enable stakeholders and policymakers to revisit the issue of interest rates, finance charges, and fees in or around 2026, equipped with more information. We are grateful for the leadership of Sen. Elgie Sims who led the negotiations in the Senate and who has expressed a willingness to lead the process of revisiting the rates in future years.