Executive Summary

Since the 1980s, lenders have stripped billions of dollars from Black and Latino/a communities in Chicago through high-cost loans. These loans, including but not limited to payday, installment payday, auto title, and car loans, make consumers pay double, triple, or quadruple their original loan amount in fees and interest. By 2019, Illinois borrowers were taking out $1 billion per year in four types of small loans, before taking into account double- or triple-digit annual percentage rates (APRs).¹ Prior to passage of the Predatory Loan Prevention Act (PLPA) in 2021, tacking on excessive fees and inflated interest was entirely legal. Lenders could charge up to 404 percent APRs legally for some loans, with no cap on auto title loans.

Statewide, predatory lending has been concentrated primarily in Black Chicago neighborhoods and suburbs, with a considerable amount targeting Latino/a communities.² These loans are just one of several common practices including high interest private student loans and bias in home appraisals that have stripped billions from Black and Latino/a communities over the last three decades.

Most predatory loans end up being taken out again and again by the same lower income individuals, part of a cycle of endless debt. The majority of payday loans are borrowed by consumers who take out at least 10 loans in a row.³ In Illinois, from January 2012 to December 2020, 1,413,004 consumers took out 9,318,552 small-dollar loans—an average of 6.6 loans per person.⁴ In 2019, 48.3 percent of Illinois borrowers earned less than $30,000 per year and 78.6 percent earned less than $50,000 per year.⁵ Nationally, it has been found that increasing income reduces reliance on payday lending: A $1 increase in the state minimum wage has been associated with a 40 percent drop in payday borrowing.⁶

Over the years, predatory loans have taken a major financial toll in Black and Latino/a communities. In Chicago, payday and installment payday loans were almost ten times more common in majority Black ZIP codes and over seven times more common in majority Latino/a ZIP codes than in majority white ZIP codes.⁷ In just one year, 2019, people in majority Black and Latino/a city of Chicago ZIP codes paid over $158 million in exorbitant payday loan interest⁸ on $65 million in payday and installment payday loans.

Six out of the seven Chicago ZIP codes with the highest number of payday loans per person were all over 87 percent Black. The highest number of payday loans per capita were found in 60619 which also has the highest percentage of Black residents in the city, followed closely by 60620, which is also over 95 percent Black. These two Southside ZIP codes alone paid over $30 million in interest on just the payday loans made in one year. In 60620, the interest paid would have consumed the average mortgage payments for an entire year for 1,300 families.

While there are fewer majority Latino/a areas than Black areas, across Latino/a city and suburban areas, the highest amount owed in payday loans was found in the city in 60629 (Chicago Lawn and West Lawn) which is 72 percent Latino/a. This was followed by 60639 (Belmont-Cragin and Hermosa) and 60623 (North and South Lawndale). In 2019, individuals in 60639, which is 78 percent Latino/a, paid over $9.6 million in payday and installment payday interest on over $3.9 million in loans.

Including suburban areas with high concentrations of Black and Latino/a residents, borrowers paid over $261 million in high interest on nearly $108 million in 2019 payday and installment payday loans. Majority Black suburbs, particularly Dolton, Broadview, and Robbins, have some of the highest rates of payday and installment payday loan usage in the entire state. In majority Latino/a metro areas, the highest number of payday loans per 100 people in majority metro areas was in 60432 (Joliet) despite a lower dollar amount than city ZIP codes. Two other suburban areas, 60165 (Stone Park) and 60160 (Melrose Park), also had some of the highest numbers of payday loans per 100 people in majority Latino/a ZIP codes.

While the PLPA is an essential piece of protective legislation for Illinois’s Black and Latino/a communities, the effectiveness of the law is threatened by constant opposition from the high-interest lending lobby. Potential loopholes that have been introduced or could be introduced in Illinois include:

• Reversing the PLPA’s “all-in” annual percentage rate (APR) definition to allow lenders to charge exorbitant fees and interest rates, similar to the Truth in Lending Act (TILA).
• Introducing a regulatory sandbox that could open the door to exclusions on interest caps.
• Allowing partnerships between predatory lenders and rogue “rent-a-banks,” or Native American tribes, which don’t have the same regulatory requirements, to skirt caps on interest.
• Creating carve-outs to redefine loans or exclude specific lenders, such as pawnbrokers.

To protect the integrity of the PLPA and prevent consumers from being exploited through hidden costs and excessive interest rates, lawmakers should be wary of similar bills in future years.

Caps on interest rates put guardrails on the industry and are a good start. However, consumers aren’t always aware of affordable options and more action is required to ensure Black and Latino/a communities can protect and build wealth.

Protect Consumers from Further Predatory Practices

1. Ensure consumers can access credit without paying exorbitant interest by protecting the 36 percent cap in Illinois and expanding the national Military Lending Act (MLA) to all consumers.
2. Stop rent-a-bank predatory lending with monitoring by the Illinois Attorney General.

Improve Access to Banking and Lower-cost Alternatives to Predatory Loans

1. Develop a state fund to increase access to low-cost loans in underserved cities and towns similar to the Ag Invest program, with banks, credit unions, fintech, and nonprofits.
2. Pilot an individual and/or small business state emergency fund program for low-bank access areas through fintech and credit unions using targeted marketing.
3. Establish and enforce robust affirmative obligations through the Illinois Community Reinvestment Act for banks, credit unions, and mortgage companies to lend to and invest in communities of color.
4. Bring public banking to the post office, partnered with fintech to provide low-cost credit.
5. Invest in nonprofit financial institutions to establish affordable small-dollar loan programs through the federal Community Development Financial Institutions (CDFI) Fund or other new sources.
6. Pass the Overdraft Protection Act and limit high-to-low bank processing to protect low-income consumers from excessive banking fees.
7. Address credit algorithm bias in regulations.⁹

Give Consumers New Tools to Manage Credit

1. Ensure the accuracy of credit scores by amending the Fair Credit Reporting Act.
2. Create transparency around consumer credit scores or create a public scoring agency to address institutionalized bias in home mortgages.¹⁰