Policy Recommendations

Ensuring that Illinois’s lowest-income communities are protected from exorbitant interest and have the resources they need to build wealth will require both strengthening affordable alternatives and ensuring the strength of the PLPA. Policy recommendations follow to address the remaining gaps. Most of these policy decisions are made at the state and federal levels.

1. Ensure consumers can access credit without paying exorbitant interest. Protect the 36 percent cap on all consumer loans in Illinois. Nationally, expand the national Military Lending Act’s 36 percent rate cap on consumer loans, which currently protects active-duty military and their families, to all consumers in the United States
2. Stop “rent-a-bank" predatory lending. Similar to a recent effort in the District of Columbia, the Illinois Attorney General’s office can monitor whether online lenders are making loans to Illinois consumers at rates in excess of 36 percent APR.

1. Develop a State Fund to Increase Access To Low-Cost Loans. The Illinois State Treasurer’s Office currently has a program called Ag Invest that provides loan opportunities for Illinois farmers. We recommend a similar program be created to provide small-dollar loans for underserved cities and towns in partnership with trusted banks, credit unions, fintech, and nonprofits. A loan guarantee fund could mitigate the risk to banks and credit unions of creating affordable short-term loans and engage good fintech actors to expand online options.
2. Invest in an Emergency Fund Program through Fintech and Local Credit Unions. Pilot a state model to provide funding for emergency needs in low-bank access areas. Streamlining delivery and investing in good marketing could help improve access for people who need cash quickly. The program could also be made available to small businesses.
3. Establish and Enforce Robust Community Reinvestment Requirements. The new Illinois Community Reinvestment Act should establish affirmative obligations for banks, credit unions, and mortgage companies covered by the law to lend to, invest in, and serve Black and Latino/a communities.
4. Bring Public Banking to the Post Office. The U.S. Postal Service is currently conducting a pilot program of banking, similar to other countries and a prior U.S. program. Partnering with fintechs to provide access to low-cost credit in addition to basic check cashing would expand access to needed banking in urban and rural areas that lack a bank branch. In Chicago Urban League’s focus group findings, people felt the post office could offer good locations to improve access to fair banking practices.
5. Invest in Nonprofit Financial Institutions to Establish Affordable Small-Dollar Loan Programs. The federal Community Development Financial Institutions (CDFI) Fund enables CDFIs to provide loans to underserved communities. One such CDFI, Capital Good Fund, provides affordable loans to borrowers who have an average credit score of 580. We support increasing the FY 2022 CFDI Fund appropriation from last year’s appropriation of $270 million.
6. Pass the Overdraft Protection Act. Federal legislation would limit the number of overdraft fees banks can charge to one per month and no more than six per year, and end overdraft fees based solely on debit ‘holds’ still in process. Protecting consumers from abusive overdraft practices would partially eliminate the need for payday borrowing and may alleviate some of the racial inequality in exposure to risky credit products documented in this paper.
7. Address Credit Algorithm Bias. Algorithms used to make lending decisions often perpetuate existing systems of racial inequity. New, more equitable methods of assessing creditworthiness are possible. Regulating the use of algorithms and what inputs are allowable would be a benefit to people of color who often lack access to more traditional credit options.¹

1. Pass Legislation to Ensure Accuracy of Credit Scores. Ensure that credit scores are accurate through legislation amending the Fair Credit Reporting Act.
2. Create Transparency Around Consumer Credit Scores or Create a Public Scoring Agency. Currently, credit scores are considered “trade secrets,” but there appears to be implicit bias inherent in the scores that has cost the economy trillions of dollars and has kept three-quarters of a million Black borrowers from homeownership.² Creating a public credit scoring agency could address this issue.