Payday Loans in Chicago: What You Need to Know

Inside Subprime: Sept 13, 2018

By Jessica Easto

Payday loans—short-term, small-dollar loans offered at high-interest rates—are not legal everywhere, but, unfortunately, they are legal in the city of Chicago.

Payday lenders prey on vulnerable populations, including the impoverished. According to the Pew Charitable Trusts, most payday loan borrowers need cash quick—for overdue rent, car payments, and other “ordinary living expenses over the course of months.”

There are a few factors that make Chicagoans susceptible to payday loans. Although payday lending reaches across demographics, renters, low-income households, and minorities are among the groups most vulnerable to payday lenders. In Chicago, the majority of citizens rent, 21.7 percent of Chicagoans live in poverty, and the city is home to large black and Hispanic populations.

In fact, as of 2016, Illinois residents take out an average of 398,194 payday loans per year—a 64.5 percent increase since 2012—and Chicago alone is home to 125 payday lenders, 70 percent of which are located in areas where per capita income is below $28,500, the city average.

Payday loans are difficult to repay because the interest rates are so high (a 400 percent APR is common) and the repayment period so short (usually 2 weeks) that it’s difficult for people to make their payments. This forces them to “roll over” their loans, which compounds the already high interest rates and sends borrowers further into a cycle of debt.

Chicago does not have any city-wide regulation regarding payday loans, so it follows Illinois state regulations. Chicago payday lenders must follow guidelines set forth by the Payday Loan Reform Act, which was enacted in 2011 to help protect borrowers. The legislation bans rollovers, and loan terms must be based on the borrower’s ability to pay—for example, loans are capped at $1,000 or 25 percent of a borrower’s monthly income (whichever is less).

There are also restrictions on repayment plans. If borrowers are not squared up after 35 days, they have the right to repay in installments at no additional cost for at least 55 days. APR is capped at 403 percent and repayment plans must be between 13 and 120 days.

The Consumer Installment Loan Act also regulates payday loans. It caps fees and finance charges at $15.50 per $100 borrowed (plus a $1 verification fee), and it caps rates at 99 percent for loans with a principal of less than $4,000.

In Chicago, you can’t have more than two outstanding loans at a time, and after 45 consecutive days of having a loan, there is a mandatory “cooling off” period of 7 days.

Payday loans are dangerous products that should be avoided. Before borrowing money in Chicago, verify that the lender is licensed in the state of Illinois. You can also check a list of unlicensed lenders that try to lend in Illinois and avoid them.

Payday loans are not the only option for Chicagoans looking for short-term debt solutions. For more detailed information, visit our Chicago city guide.

Read the full Chicago Subprime Reports and check out the following reports including:

Chicago | Peoria | Rockford | Springfield