Is this interest rate lawful in Illinois, and what happens if it is not?
The Interest Act's general ceiling is 9%: except as otherwise provided in Section 4.05, which is a 6% ceiling, "[n]otwithstanding any contrary provision of State law", on interest or finance charges collected from an Illinois service member who has entered military service, or that member's spouse, during the period of military service on an obligation entered into before that service. In all written contracts it is lawful for the parties to stipulate an annual percentage rate of 9% or less upon every $100 of money loaned or in any manner due and owing, 'and after that rate for a greater or less sum, or for a longer or shorter time, except as herein provided' (815 ILCS 205/4(1)); and the maximum rate that may lawfully be contracted for is fixed by the law applicable at the time the contract is made. But it is lawful to charge any rate, except as otherwise provided in the Predatory Loan Prevention Act, on listed transactions that cover most commercial lending (among them any loan to a corporation, any credit transaction between a merchandise wholesaler and retailer, and any business loan to a business association, copartnership, sole proprietor, joint venturers, limited partnership or trustee operating a business), and a state bank or branch of an out-of-state bank may contract for any rate agreed with the borrower (815 ILCS 205/4). On top of that, for consumer lending, the Predatory Loan Prevention Act provides that notwithstanding any other provision of law, for loans made or renewed on or after its effective date a lender shall not contract for or receive charges exceeding a 36% annual percentage rate on the unpaid balance of the amount financed, and that is a ceiling, not a licence, because the same section adds that "[n]othing in this Act shall be construed to permit a person or entity to contract for or receive a charge exceeding that permitted by the Interest Act or other law" (815 ILCS 123/15-5-5), but the PLPA's 'loan' does not include a commercial loan (§ 15-1-10), and banks, savings banks, savings and loan associations, credit unions and insurance companies are exempt from that Act (§ 15-1-15(c)). A lender who knowingly contracts for or receives unlawful interest by any device or subterfuge owes the obligor twice all interest, discount and charges under the contract or paid, whichever is greater, plus reasonable attorney's fees and court costs, and the payments due and to become due under the loan contract "shall be reduced by the amount which the obligor is thus entitled to recover" (815 ILCS 205/6). The Predatory Loan Prevention Act's own reach runs the same way: it applies to any person or entity that offers or makes a loan to an Illinois consumer except as its applicability section otherwise provides, and to anyone "that seeks to evade its applicability by any device, subterfuge, or pretense whatsoever" (815 ILCS 123/15-1-15(a)-(b)); its "lender" is anyone who offers or makes a loan, buys a whole or partial interest in one, arranges one for a third party or acts as a third party's agent in making one, and anyone the Department determines is in substance running a disguised loan or a subterfuge to avoid the Act (§ 15-1-10); and § 15-5-15(a) bars every device, subterfuge or pretence to evade the Act, naming sale-and-leaseback dressing, cash-rebate dressing on a pretextual installment sale, and lending at an over-cap rate by mail, telephone, internet or any electronic means whether or not the lender has a physical location in Illinois. The two Acts punish differently. Under the Interest Act the obligor's affirmative action must be brought within two years after the earlier of the last scheduled payment or full payment, the same recovery is available as a defence "at any time after the loan is transacted", and a bona fide error corrected within a reasonable time is not a violation (815 ILCS 205/6). Under the Predatory Loan Prevention Act a loan made in violation of the Act "is null and void and no person or entity shall have any right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan" (815 ILCS 123/15-5-10), and every violation is also a Consumer Fraud Act violation (§ 15-10-5(b)). Section 205/5 states the general prohibition the double-interest remedy enforces: no one may take for a loan or forbearance any greater sum than the Act or other law expressly authorizes.
The trap
Two traps sit in the fine print. First, § 4(1) voids a clause that tries to ratchet: any provision purporting to authorize, contingent upon a change in Illinois law after the contract is made, a rate greater than the maximum lawful rate at the time the contract is made is void, so a clause raising the rate to whatever the law permits from time to time is void as drafted. Second, the business-loan exemption is not available where the loan is secured by an assignment of an individual obligor's salary, wages or commissions, or by household goods, and the PLPA's 36% cap is computed using the military-APR method of 32 C.F.R. § 232.4, which sweeps in fees and charges a nominal rate leaves out. The usury remedy runs on a two-year outside clock for affirmative actions but may be raised as a defence at any time after the loan is transacted. The PLPA polices its own border: if a loan exceeds the 36% cap, a person who holds the predominant economic interest in it, or markets, brokers, arranges or facilitates it and holds a right or first right of refusal to purchase it, is a lender subject to the Act even while purporting to act as agent or service provider for an exempt entity, as is one the totality of the circumstances shows to be the lender, with indemnifying the exempt entity, predominantly designing, controlling or operating the loan programme, and lending directly in other states weighing in favour of that conclusion (§ 15-5-15(b)).
20 authorities
- statute815 ILCS 205/4enactment date not established
The words that state the rule
(1) Except as otherwise provided in Section 4.05, in all written contracts it shall be lawful for the parties to stipulate or agree that an annual percentage rate of 9%, or any less sum, shall be taken and paid upon every $100 of money loaned or in any manner due and owing from any person to any other person or corporation in this state, and after that rate for a greater or less sum, or for a longer or shorter time, except as herein provided.
- statute815 ILCS 205/4enactment date not established
The words that state the rule
It is lawful to charge, contract for, and receive any rate or amount of interest or compensation, except as otherwise provided in the Predatory Loan Prevention Act, with respect to the following transactions: (a) Any loan made to a corporation;
- statute815 ILCS 205/4enactment date not established
The words that state the rule
(c) Any credit transaction between a merchandise wholesaler and retailer; any business loan to a business association or copartnership or to a person owning and operating a business as sole proprietor or to any persons owning and operating a business as joint venturers, joint tenants or tenants in common, or to any limited partnership, or to any trustee owning and operating a business or whose beneficiaries own and operate a business, except that any loan which is secured (1) by an assignment of an individual obligor's salary, wages, commissions or other compensation for services, or (2) by his household furniture or other goods used for his personal, family or household purposes shall be deemed not to be a loan within the meaning of this subsection;
- statute815 ILCS 205/4enactment date not established
The words that state the rule
It is lawful for a state bank or a branch of an out-of-state bank, as those terms are defined in Section 2 of the Illinois Banking Act, to receive or to contract to receive and collect interest and charges at any rate or rates agreed upon by the bank or branch and the borrower.
- statute815 ILCS 205/4enactment date not established
The words that state the rule
The maximum rate of interest that may lawfully be contracted for is determined by the law applicable thereto at the time the contract is made. Any provision in any contract, whether made before or after July 1, 1969, which provides for or purports to authorize, contingent upon a change in the Illinois law after the contract is made, any rate of interest greater than the maximum lawful rate at the time the contract is made, is void.
- statute815 ILCS 123/15-5-5enactment date not established
The words that state the rule
Notwithstanding any other provision of law, for loans made or renewed on and after the effective date of this Act, a lender shall not contract for or receive charges exceeding a 36% annual percentage rate on the unpaid balance of the amount financed for a loan. For purposes of this Section, the annual percentage rate shall be calculated as such rate is calculated using the system for calculating a military annual percentage rate under Section 232.4 of Title 32 of the Code of Federal Regulations as in effect on the effective date of this Act.
- statute815 ILCS 205/6enactment date not established
The words that state the rule
If any person or corporation knowingly contracts for or receives, directly or indirectly, by any device, subterfuge or other means, unlawful interest, discount or charges for or in connection with any loan of money, the obligor may, recover by means of an action or defense an amount equal to twice the total of all interest, discount and charges determined by the loan contract or paid by the obligor, whichever is greater, plus such reasonable attorney's fees and court costs as may be assessed by a court against the lender.
- statute815 ILCS 123/15-1-10enactment date not established
The words that state the rule
"Loan" means money or credit provided to a consumer in exchange for the consumer's agreement to a certain set of terms, including, but not limited to, any finance charges, interest, or other conditions. "Loan" includes closed-end and open-end credit, retail installment sales contracts, motor vehicle retail installment sales contracts, and any transaction conducted via any medium whatsoever, including, but not limited to, paper, facsimile, Internet, or telephone. "Loan" does not include a commercial loan.
- statute815 ILCS 123/15-1-15enactment date not established
The words that state the rule
(c) Banks, savings banks, savings and loan associations, credit unions, and insurance companies organized, chartered, or holding a certificate of authority to do business under the laws of this State or any other state or under the laws of the United States are exempt from the provisions of this Act.
- statute815 ILCS 123/15-5-15enactment date not established
The words that state the rule
(b) If a loan exceeds the rate permitted by Section 15-5-5, a person or entity is a lender subject to the requirements of this Act notwithstanding the fact that the person or entity purports to act as an agent, service provider, or in another capacity for another entity that is exempt from this Act, if, among other things: (1) the person or entity holds, acquires, or maintains, directly or indirectly, the predominant economic interest in the loan; or (2) the person or entity markets, brokers, arranges, or facilitates the loan and holds the right, requirement, or first right of refusal to purchase loans, receivables, or interests in the loans; or (3) the totality of the circumstances indicate that the person or entity is the lender and the transaction is structured to evade the requirements of this Act. Circumstances that weigh in favor of a person or entity being a lender include, without limitation, where the person or entity: (i) indemnifies, insures, or protects an exempt person or entity for any costs or risks related to the loan; (ii) predominantly designs, controls, or operates the loan program; or (iii) purports to act as an agent, service provider, or in another capacity for an exempt entity while acting directly as a lender in other states.
- statute815 ILCS 205/6enactment date not established
The words that state the rule
Recovery by means of a defense may be had at any time after the loan is transacted. Recovery by means of an action may be had at any time after the loan is transacted and prior to the expiration of 2 years after the earlier of (1) the date of the last scheduled payment of the loan after giving effect to all renewals or extensions thereof, if any, or (2) the date on which the total amount due under the terms of the loan contract is fully paid. A bona fide error in connection with a loan shall not be a violation under this section if the lender corrects the error within a reasonable time.
- statute815 ILCS 123/15-5-10enactment date not established
The words that state the rule
Sec. 15-5-10. Violation. Any loan made in violation of this Act is null and void and no person or entity shall have any right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.
- statute815 ILCS 123/15-10-5enactment date not established
The words that state the rule
(b) Any violation of this Act, including the commission of an act prohibited under Article 5, constitutes a violation of the Consumer Fraud and Deceptive Business Practices Act.
- statute815 ILCS 205/5enactment date not established
The words that state the rule
No person or corporation shall directly or indirectly accept or receive, in money, goods, discounts or thing in action, or in any other way, any greater sum or greater value for the loan, forbearance or discount of any money, goods or thing in action, than is expressly authorized by this Act or other laws of this State.
- statute815 ILCS 205/4.05enactment date not established
The words that state the rule
(b) Notwithstanding any contrary provision of State law, but subject to the federal Servicemembers Civil Relief Act, no creditor in connection with an obligation entered into on or after the effective date of this amendatory Act of the 94th General Assembly, but prior to a service member's period of military service, shall charge or collect from a service member who has entered military service, or the spouse of that service member, interest or finance charges exceeding 6% per annum during the period of military service.
- statute815 ILCS 205/6enactment date not established
The words that state the rule
The payments due and to become due including all interest, discount and charges included therein under the terms of the loan contract, shall be reduced by the amount which the obligor is thus entitled to recover.
- statute815 ILCS 123/15-5-5enactment date not established
The words that state the rule
Nothing in this Act shall be construed to permit a person or entity to contract for or receive a charge exceeding that permitted by the Interest Act or other law.
- statute815 ILCS 123/15-5-15enactment date not established
The words that state the rule
(a) No person or entity may engage in any device, subterfuge, or pretense to evade the requirements of this Act, including, but not limited to, making loans disguised as a personal property sale and leaseback transaction; disguising loan proceeds as a cash rebate for the pretextual installment sale of goods or services; or making, offering, assisting, or arranging a debtor to obtain a loan with a greater rate or interest, consideration, or charge than is permitted by this Act through any method including mail, telephone, internet, or any electronic means regardless of whether the person or entity has a physical location in the State.
- statute815 ILCS 123/15-1-15enactment date not established
The words that state the rule
(a) Except as otherwise provided in this Section, this Act applies to any person or entity that offers or makes a loan to a consumer in Illinois. (b) The provisions of this Act apply to any person or entity that seeks to evade its applicability by any device, subterfuge, or pretense whatsoever.
- statute815 ILCS 123/15-1-10enactment date not established
The words that state the rule
"Lender" means any person or entity, including any affiliate or subsidiary of a lender, that offers or makes a loan, buys a whole or partial interest in a loan, arranges a loan for a third party, or acts as an agent for a third party in making a loan, regardless of whether approval, acceptance, or ratification by the third party is necessary to create a legal obligation for the third party, and includes any other person or entity if the Department determines that the person or entity is engaged in a transaction that is in substance a disguised loan or a subterfuge for the purpose of avoiding this Act.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.