“If you want to build wealth, you first have to stop wealth being sucked out of the community,” said Raul Raymundo, Chief Executive Officer of The Resurrection Project. “The predatory lender community is well funded, and they are organizing… to prevent caps going in and trying to eliminate them. I encourage you to stay strong and support the cap.”

Raymundo and TRP’s Director of Financial Wellness Lizette Carretero joined U.S. Rep. Chuy García, D-Ill. and the Woodstock Institute team in briefing 50 Latino legislative and community leaders Monday to hear about prospects for a national 36% APR cap, affordable alternatives on the WeProsperIL.org website, and the status of Illinois’ Predatory Loan Prevention Act, PLPA.

Also participating in the event were members of the Predatory Loan Prevention Act coalition, including Chicago Urban League, Catholic Conference of IL, Financial Inclusion for All Illinois, Heartland Alliance, and New America Chicago.

“My constituents are trapped in cycles of endless debt that they can’t pay off,” García said. “That’s why I endorsed the Predatory Loan Prevention Act that Governor Pritzker signed last spring, and that’s why I introduced the nonpartisan Veterans and Consumers Fair Credit Act.”

Similar to the PLPA, García’s bill expands the protections of the Military Lending Act, which has a strict 36% APR cap including all costs and fees that are part of a loan. García shared that the bill has been introduced in the Senate and is a bipartisan bill in the House, where he and U.S. Rep. Glenn Grothman, R-Wis introduced it in November.

Predatory Lending vs the Predatory Loan Prevention Act

Woodstock Senior Vice President for Policy and Communication Brent Adams presented a high-level overview to open. He shared 2014 research from the Consumer Financial Protection Bureau that found more than four out of five payday loans are re-borrowed within a month, and the majority of payday loans are borrowed by consumers who take out at least 10 loans in a row.

Before 1985, Adams said, it was a felony to charge in excess of 20% interest in Illinois. With the legalization of payday and other forms of high-cost lending in Illinois that year, payday loans, auto title loans, pawn loans, and high-interest installment loans came to drain billions of dollars from Illinois consumers- more than half a billion dollars a year.

That ended last March when Governor JB Pritzker signed the Predatory Lending Prevention Act into law in March 2021, establishing a rate cap of 36% on consumer loans in Illinois.

New data

“This research provides irrefutable proof that payday lenders in Illinois targeted Black and Brown communities,” Adams said. It’s based on data from the Illinois Department of Financial and Professional Regulation, which Woodstock Institute received under the Freedom of Information Act.

He shared Chicago-area Zip codes with the greatest number of high-interest predatory loans before the PLPA. (Download the presentation to see details below)

Adams also shared data that shows Illinois consumers saved $200 million in fees in mid-2021 as compared to the same period of 2019. Due to the concentration of high-cost loans among borrowers of color in Illinois, those savings also disproportionately helped consumers of color in Illinois, he noted.

Last but certainly not least, in addition to discussing what’s working in Illinois and prospects at the national level, Adams underscored what Raymundo said. He warned those on the call that they must beware of “wolves in sheep’s clothing.”

Predatory lenders may, for example, seek to alter  the method by which interest rates are calculated in the Predatory Loan Prevention Act which includes all fines and fees in the Annual Percentage Rate. They may engage in so-called ‘rent-a-bank’ schemes in which lenders partner with banks that are not subject to the PLPA in order to get around its rate cap.

Download the briefing presentation