Illinois’ 36% APR cap on personal loans took effect March 23, the day Governor Pritzker signed the Predatory Loan Prevention Act. “Within days, we saw an increase in Illinois’ daily application volume of about 70%,” says Andy Posner, CEO of Capital Good Fund, which provides loans whose average interest rate is 13%.
In this Q and A interview, Posner shares some background on providing alternatives to predatory loans and where he sees the market for personal loans heading.
Q. What is Capital Good Fund and what you do?
A. Capital Good Fund is a nonprofit, U.S. Treasury-certified Community Development Financial Institution founded in 2009 as an alternative to predatory lenders. Our clients are people who can’t access mainstream loan products for a variety of reasons including being low income, having poor credit, and being undocumented. This leaves them one emergency expense away from financial ruin.
Q. How do you work with consumers around the U.S. and specifically in Illinois?
A. Capital Good Fund provides equitable loans to low-income families for a variety of key needs. Some of the reasons people borrow from us include:
- Expenses incurred due to COVID-19
- Immigration expenses (citizenship applications, green card renewal, family petitions, etc.)
- Security deposits
- Other types of emergencies
Capital Good Fund has financed more than 7,500 loans worth $15.2 million to residents of seven states. In Illinois, we have financed 293 loans worth $275,540 since January 2020. We also provide judgement-free financial coaching programs.
Q. How do your loans help people who have been burned by predatory loans in the past?
A. The average interest rate for a Capital Good Fund loan is 13%. This is a fraction of the high-double and even triple-digit interest rates predatory lenders would charge.
Our rates allow clients to pay off loans and rebuild credit instead of endless payments that do nothing to reduce their debt. For example, one of our Illinois clients had taken out multiple loans with interest rates between 300-400% before learning about Capital Good Fund. We were able to finance a Crisis Relief loan at 5% over 24 months, which allowed him to pay back rent and attain a stronger financial position.
Our repayment rate – the percent of loans borrowers successfully repay – is 95%.
Q. What changes have you seen if any since the 36% APR cap went into effect in Illinois?
A. Within days of the law going into effect, we saw an increase in daily application volume of about 70%, with a similar increase in loan closings.
Q. Are you surprised by the increase in applications?
A. We expected this to happen. As predatory lenders close their doors, families will look to other options. At the same time, the cost of reaching those families, for instance through Google AdWords ads, has gone down because there are now fewer lenders bidding on certain keywords.
In short, more families are coming to us for affordable loans, both because they are seeking out alternatives and because it has become easier for us to market our products. Put another way, the marketplace has been leveled, benefitting consumers and equitable lenders alike.
‘[M]ore families are coming to us for affordable loans, both because they are seeking out alternatives and because it has become easier for us to market our products.’– Andy Posner
Q. What do you envision will happen with predatory lending in the U.S. in the next few years? Any changes we should look for around the country and/or in Illinois?
A. There are more safeguards in place than just a few months ago. Late last month President Biden signed Congress’ repeal of the so called “true lender” rule that the Office of the Comptroller of the Currency issued towards the end of the Trump administration.
Thanks to the leadership of the Illinois Legislative Black Caucus and advocates like Woodstock, the Illinois Asset Building Group, Illinois PIRG, ourselves, and many others, in March Illinois became one of 18 states and Washington D.C. with interest rate caps. More efforts are underway in many states – including my organization’s home state of Rhode Island to push legislation that would impose interest rate caps.
But there is great pushback from the predatory lending industry, not only to block these new pieces of legislation, but to limit existing caps already in place. The fight against unfair lending practices is far from over and we must be ready to do what we can to contribute.
Specifically, we expect to see a fight this year and next over proposed federal legislation, which we strongly support, to establish a national 36% rate cap by extending the existing protections affordable active-duty military under the Military Lending Act to all families. Momentum is building for consumer protection.