'Predatory' Loan Interest Rate Controls.

• Author: Van Doren, Peter

* "Credit for Me but Not for Thee: The Effects of the Illinois Rate Cap," by J. Brandon Bolen, Gregory Elliehausen, and Thomas W. Miller Jr. SSRN Working Paper no. 4315919, June 2023.

On March 23, 2021, Illinois enacted the Predatory Loan Prevention Act (PLPA). The PLPA sets a 36 percent "all-in APR" (including non-credit charges, making it more restrictive than the Truth in Lending rate) ceiling for loans below $40,000. Banks and credit unions are exempt from the Illinois rate ceiling.

The costs of making loans do not vary that much with loan size, so costs are a higher percentage of small loans and thus interest rates on smaller loans must be higher. One estimate in the literature concludes that a 36 percent interest rate cap would preclude loans of less than $2,900 from breaking even. Thus, Illinois' 36 percent all-in APR is likely binding on small-dollar unsecured installment loans from finance companies.

This paper examines credit bureau data from Illinois and Missouri (which had no interest rate controls) over four consecutive quarters, from the fourth...