A recent survey of Illinois borrowers who took out small-dollar loans found that, after Governor JB Pritzker signed a 36 percent annual percentage rate (APR) rate cap into law last March, their financial situation did not improve as promised and actually declined in many instances.
Former borrowers report that, with the financial products they relied on no longer available in the marketplace, they have struggled to pay their bills and been unable to access credit. Many have been forced to delay bill payments, skip urgent appointments or vital expenses and pawn their valuables.
The survey also shows that the vast majority of borrowers would like the option to return to their previous lender, demonstrating support for the safe and affordable installment loan options that were available prior to the rate cap.
The Online Lenders Alliance surveyed Illinois residents who took out short-term, small-dollar loans between January 2019 and March 2021. The survey included 699 responses and was conducted from December 14-31, 2021. Among the survey’s key findings:
Those making less than $50,000 per year are more likely than other groups to say that that small-dollar loans helped them manage their financial situations.
The 36 percent APR cap that Illinois implemented has failed to improve the financial well-being of Illinois residents, specifically those who relied on short-term, small-dollar loans.
Most former short-term, small-dollar loan users struggled with paying their bills since the APR cap took effect in March 2021. At the same time, a majority of borrowers indicated they were unable to access credit at some point following the rate cap.
When unable to obtain credit, consumers said they were left with poor alternatives to meet financial needs that are unchanged.
The vast majority of borrowers want the option to return to their previous lender, demonstrating support for the loan options available before the rate cap.
The survey clearly demonstrates what NILA and others expected all along: arbitrarily capping annual interest rates on installment loans robs consumers of a key financial capability, leaving them with no safe and affordable ways to meet emergencies or consolidate existing debts and, critically, no way for them to build their credit and become more financially mobile.
We expect these consequences to worsen over time, as individuals and families exhaust scarce reserves and suffer stagnating credit scores. Meanwhile, in-state lenders, based in borrower communities, have been forced to shut up shop and leave the state, with a commensurate effect on jobs and livelihoods.
The Survey Report is available HERE.
Borrowers talking about the Illinois law can be seen HERE.
SOURCE: Online Lenders Alliance