Illinois Legislature Passes 36% Interest Rate Cap for Consumer Loans

Manatt, Phelps & Phillips, LLP

The Illinois legislature has passed a new law setting an interest rate cap of 36% on most consumer loans.

What Happened

Under the new bill, “a lender shall not contract for or receive charges exceeding a 36% annual percentage rate on the unpaid balance of the amount financed.” Section 15-5-5. The new statute designates use of the same method of APR calculation used under federal law for military-related loans.

The act excludes commercial loans and grants an exemption for banks (in- or out-of-state banks and national banks), credit unions and insurance companies duly licensed under state or federal law.

The act designates any violation of the interest rate cap to also be a violation of Illinois’ Consumer Fraud and Deceptive Business Practices Act. Illinois regulators are also empowered to pursue enforcement actions and impose fines of up to $10,000 per violation. Furthermore, any loan made exceeding the new limit, barring applicable exceptions, is null and void.

Why It Matters

Prior to the law’s passage, Illinois generally permitted parties to contract for any desired interest rate. As a result, certain consumer finance products prior to the bill’s passage routinely exceeded 150% APR on an annualized basis.

The bill will become effective immediately if it is signed by the Governor, or 60 days after its passage by the legislature on January 14, 2021, if the Governor does not sign but does not exercise a veto.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Manatt, Phelps & Phillips, LLP

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