Introduction

Since the 1980s, lenders have stripped billions of dollars from Black and Latino/a communities in Chicago through high-cost, short-term loans. These loans, including but not limited to payday, installment payday, auto title, and car loans, often come with incredibly high interest rates and fees that make consumers pay double, triple, or quadruple their original loan amount. Sadly, many predatory lenders have targeted these loans to Black and Latino/a communities where access to bank branches and other financial services has been limited. Statewide, predatory lending has been concentrated primarily in Black low- and moderate-income Chicago neighborhoods and suburbs, although a considerable amount of predatory lending also targeted Latino/a communities.

Over the last four decades, this access to small-dollar credit has come at an incredibly high cost for Illinois families. Prior to the passage of the Predatory Loan Prevention Act (PLPA) in early 2021, charging inflated interest rates and tacking on high fees and draconian late payment penalties was an entirely legal, very lucrative scheme in Illinois. By 2019, the total annual loan principal on four types of predatory loans had gone up to over $1 billion per year in Illinois.¹ Across different types of consumer loans, caps on rates varied widely. Lenders could charge families taking out a payday loan or short-term installment loan up to 404 percent legally. With the fourth-highest payday and auto title loan fee drain in the nation, Illinois families lost incredible amounts of money to the high-interest and fees on auto title loans, which had no caps prior to the PLPA.² With incredibly high-interest and fees, small-dollar credit became an instrument for stripping billions of dollars from low- and moderate-income Illinois communities.

In particular, predatory lending is one of several common practices that have stripped billions of dollars from hard-working Black and Latino/a communities where they have been heavily targeted.³ In 2019, people in 17 ZIP codes with high concentrations of Black and Latino/a residents in the city of Chicago paid over $158 million in exorbitant payday loan interest.⁴ Including suburban areas with high concentrations of Black and Latino/a residents, borrowers paid over $261 million in high-interest rates on payday loans in one year. Now imagine those losses multiplied over decades and combined with billions lost in interest and fees on auto title loans, higher mortgage interest, disproportionate use of collection lawsuits for small debts, high-interest student loans, and bias in home appraisals. The massive impact on Black and Latino/a asset building is undeniable.

“It was a $1,500 loan, but we ended up paying $3,000 because of late payments when my mom had triple bypass surgery. We were paying double trying to play catch up. With a payday loan it is almost impossible to catch up when you miss payments.” – Indyia, former installment payday loan borrower