Lawmakers Move to Cap Interest Rates on Illinois Title Loans

Inside Subprime: March 25, 2019

By Grace Austin

Lawmakers in Illinois are looking at capping title loan interest in an effort to advocate for consumers and lessen the effects of predatory lending.

The Fair Lending Act has been reintroduced by two lawmakers in the Illinois General Assembly. It would cap the interest rate to 36 percent, seen by consumer advocates across the country as the threshold for fair interest rates.

In Illinois, title loan interest rates can reach into the triple digits, with an average of more than 200 percent.

The Fair Lending Act would also install maximum title loan term limits, and create consumer protections in the event of car repossession.

The bill was introduced in the previous session but, according to advocates, was halted by title lending industry advocates and lobbyists.

“With every year that passes, thousands of low-income families and people of color lose their cars to title loans,” said Jody Blaylock, project manager for financial empowerment policy at advocacy group Heartland Alliance, in an announcement on the bill’s reintroduction. “We call on Illinois legislators to give consumers relief and support the Fair Lending Act.”

Title loans are issued to borrowers who give up their car titles in exchange for a short-term, high-interest loan. If a borrower doesn’t pay back the loan, then their car could be taken by the lender. For many low-income individuals, that then means a lack of transportation, including to their places of employment. Many borrowers also end up renewing their title loans several times in Illinois.

Heartland Alliance said that, in 2017, more than 60,000 Illinoisans had auto title loans.

A majority of states in the union have already capped title loan interest rates at 36 percent or have banned title loans altogether.

Illinois does have regulations against payday loans and other small-money loans, but title loans are not included under those laws.

The Illinois rules for title loans — enacted in 2009 — are comparatively permissive and include such basic regulations as “the principal amount of a title loan may be no more than $4,000 and no greater than 50% of the consumer’s gross monthly income” and “no balloon payments are allowed.”

“The people of Illinois deserve dignified opportunities to get ahead, not predatory loans that will strip them of their car and their ability to make ends meet,” said Democratic Rep. Chris Welch, lead sponsor for the bill in the Illinois House, in a release. “We need to act now to stop the title loan debt trap.”

Illinois State Sen. Kimberly Lightford introduced the bill in the Illinois Senate.

For more information on subprime loans, see our city and state financial guides including Chicago , Peoria , Rockford and Springfield.