Governor Pritzker signed legislation creating the Predatory Loan Prevention Act (PLPA) yesterday afternoon, and takes effect immediately. The PLPA impacts motor vehicle retail installment contracts by imposing an interest rate cap of 36% Military APR (MAPR) as defined under the Military Lending Act.  

The PLPA was described by its proponents as imposing a 36% interest rate cap on motor vehicle retail installment contracts. That description was misleading because the PLPA distorts the cost of credit by substituting Military APR, also known as "All-In APR", when determining whether an offer of credit complies with the PLPA. As a matter of fact, IADA supports Senate Bill 2306, which would create an actual 36% APR cap under the Truth-in-Lending Act's long-standing definition of APR.

Capping the APR using the MAPR definition reclassifies the fees for any "credit-related product" as a finance charge rather than as an additional product that is financed as part of a customer's vehicle purchase. The term "credit-related product" is not defined, but could potentially include some combination of the following: fees for voluntary protection products like GAP waivers, credit insurance, and extended service contracts as well as cash out financing.  

IADA has been trying to get State regulators to define the term "credit-related product" since this legislation passed out of the General Assembly in mid-January, and we will keep you posted if they do. To contact the Consumer Credit Section of the Division of Financial Institutions within the Department of Financial and Professional Regulation, you can dial 312-814-5145 or email fpr.consumercredit@illinois.gov.

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