Illinois Governor Pat Quinn signed a law capping interest rates on consumer installment loans -- paid over a period of time and with interest rates sometimes exceeding 1,000% -- and increasing the amount of time for people to pay.
"Many consumers who take out short-term loans are doing so as a last resort to pay their bills and provide for their families," Quinn said in a public statement. "It is all too easy for lenders to take advantage of them by raising interest rates and setting very short repayment periods."
Still, the law, which goes into effect next March, allows lenders to charge borrowers 99% interest rates for loans of $4,000 and less. Above $4,000, the rate is reduced to 36%.
In addition to the interest caps, the law provides more reasonable terms to help loan recipients pay back the money. Borrowers now have a six-month minimum loan repayment term rather than four, with payment amounts no more than 22.5% of their gross monthly income.
Consumer installment loans will be tracked through a statewide database to confirm consumer finance companies are obeying the new law.
Illinois to cap interest rates on short-term consumer loans