Regulation Threatens to Undermine Illinois’s New 36% Rate Cap


CONTACT: Jane Doyle, 312-368-0310 ext. 2022,

CHICAGO: Consumer advocates are applauding the United States Senate’s vote last night to repeal the so-called “true lender” rule, a Trump-era bank regulation that helps predatory lenders to evade state laws and charge interest rates as high as 199%. The rule could enable predatory lenders to evade Illinois’s recently enacted Predatory Loan Prevention Act (PLPA), which established a 36% rate cap on personal loans. Predatory lenders have taken advantage of federal regulations to evade rate caps in other states.

S.J. Res. 15, a resolution under the Congressional Review Act, was introduced by Sens. Chris Van Hollen (D-MD) and Sherrod Brown (D-OH). All Democrats present and three Republicans — Sens. Cynthia Lummis (R-WY), Susan Collins (R-ME), and Marco Rubio (R-FL) — voted for the measure. Congressman Chuy García, who represents the 4th District of Illinois, is the lead sponsor of an identical resolution in the House.

“The federal government has no business undermining states like Illinois that pass laws to protect consumers from predatory lenders, especially while working class communities like mine struggle to recover from the COVID-19 pandemic. The Trump administration’s True Lender rule undermines states and hurts consumers, and I urge the House to follow the Senate’s lead and pass my resolution to repeal it,” said Congressman García.

Illinois’s new rate cap was passed in January 2021 by a large bipartisan majority – 110-0 in the House and 35-9 in the Senate.

“As a whole, the Illinois General Assembly approved the new rate cap by a margin of 145-9,” said Horacio Mendez, the President and CEO of Woodstock Institute and, until recently, a top executive at a national bank. “We are encouraging the State’s entire Congressional delegation to come together and follow the Senate in voting to repeal the so-called ‘true lender’ rule.”

Federal law shields many banks, including national banks, from having to comply with state rate caps. Some predatory lenders partner with banks to attempt to hide behind that shield when making loans. Consumer advocates term these partnerships “rent-a-bank” schemes. The rule is called “true lender” because, under the regulation, the national bank is deemed to be the “true” – or actual – lender simply by naming itself as the lender in the loan agreement even if the predatory lender designs, markets, processes, and collects the loan, while harvesting most of the proceeds.

In many states with rate caps, several high-cost online installment lenders that have operated in Illinois, including Chicago-based OppLoans (a.k.a. OppFi), are offering loans up to 160% or higher by putting an obscure bank’s name on the loan agreement. OppLoans offers 160% APR loans in 26 states that prohibit triple-digit rate loans. The company cited the “true lender” rule in defense of its loan to a disabled veteran in California, where the legal rate on the loan is 24%. Those rent-a-bank programs will likely expand to Illinois.

“Repealing the ‘true lender’ rule should be a top priority because we expect the rent-a-bank lenders to invade Illinois any day now,” said Andy Posner, the Founder and CEO of Capital Good Fund, a nonprofit lender. “Illinois just took bold action to protect consumers and level the playing field for equitable lenders like Capital Good Fund. It’s critical that the House approve this resolution to ensure that predatory lenders don’t evade the 36% rate cap recently established in Illinois.”

Following the Senate vote, the House of Representatives now has until the end of the legislative session to approve the resolution repealing the rule. If approved by the House, the resolution goes to the President’s desk for his signature. The White House supports the repeal.