If we want to build economic stability in communities that have been devastated by the deadly COVID pandemic and its destructive economic wake, we must first shore up protections against practices that strip the meager wealth of those very communities. That’s why I call on Governor Pritzker to swiftly sign SB 1792, the Predatory Loan Prevention Act, and bring down 297% interest rates on payday and car-title loans to 36%.
I sponsored SB 1792 as part of the economic equity omnibus package proposed by the Illinois Legislative Black Caucus, and I am pleased that it passed with broad bipartisan support — unanimously in the House. My esteemed colleagues clearly see through claims of predatory lenders that they are serving our communities, and understand the depth of the harm caused when the proverbial redline is drawn around communities of color, with responsible, safe financial services walled out and toxic products funneled in.
The racial wealth gap is stunning in its scale, as wide as it was in 1968, with Black households holding less than a tenth of the wealth of white families. The foreclosure crisis set back families who were painstakingly making progress toward middle-class security, and that lost wealth has not been recovered. Now we see the worst health calamity in recent history taking both the lives and the livelihoods of people of color disproportionately.
The omnibus bill proposed major long-term strategies for addressing these deep economic inequities, but stopping the high- cost debt trap of payday lending is a relatively swift first step toward relief. Thousands of Illinois families are stuck in these loans every year, which are deceptively marketed as quick relief when they are actually designed with terms that make it very difficult for cash-strapped people to pay them off and move on. They suck fees out of their customers’ bank accounts unrelentingly, until these families are much worse off than when they first took the loan, and often even driven out of mainstream banking and into bankruptcy.
One Chicago borrower took a $1,200 loan at 197% APR to support her small business, has so far paid back nearly $3,000, and will have paid at least $5,461 by the time the loan is paid off. One person’s experience being caught up in a wealth-stripping machine that is set up lawfully if unethically in hundreds of locations across the state adds up to a scheme of major proportions. Illinois families pay over $500 million per year to these predatory lenders, the fourth highest wealth drain from predatory lending in the country.
This is a huge amount of wealth transferred from those with the very least – nearly half of Illinois payday loan borrowers earn less than $30,000 per year – to companies set up entirely to keep this machine going. Payday lenders make 75% of their fees from borrowers with more than 10 loans per year.
Data from the Woodstock Institute show the racial disparities in Chicago, where zip codes in communities of color represent 47% of the city’s population but have 72% of the city’s payday loans. If you live in Austin, you are 13 times more likely to have a payday loan than if you live in Lincoln Park.
Austin is also, incidentally, one of the neighborhoods hardest hit by COVID. But while you may have difficulty finding a COVID testing or vaccination site in Austin, you will have no trouble at all coming across a payday loan store that is ready, willing and able to draw you into a machine bearing a neon sign that promises relief, but that keeps you entrapped in an engine cranking along until there are no funds left in your bank account to feed it.
Seventeen states and DC have already put a stop to this bad business by limiting interest rates on payday loans to around 36%. Illinois has so far been behind the times, but once Governor Pritzker has signed the Predatory Loan Prevention Act, we will join a trend toward broader protections across the country, and can move on to the business of rebuilding economic stability in our communities with safe, responsible resources and opportunities for families who are currently suffering from immense loss.
Illinois State Senator Jacqueline Collins serves the 16th Senate District.