Despite significant objections from the American Financial Services Association, in collaboration with the Illinois Financial Services Association, the Independent Finance Association of Illinois and the Illinois Automobile Dealers Association, Gov. J.B. Pritzker signed into a law Illinois Senate Bill 1792 last week.

The signature created the Predatory Loan Prevention Act and instituted a 36% rate cap based on the federal military annual percentage rate for all loans including auto financing not exceeding $40,000.

In response, Carleton, a provider of compliant financing calculation and digital document software solutions, looked to provide some additional information about the new law that went into effect immediately and will significantly impact the extension of credit in the state of Illinois.

As the consumer-finance industry awaits to see if regulations are released for guidance implementing the law, Carleton recapped that it started calculation changes in order to help clients and partners stay ahead of this compliance challenge.

According to a news release, Carlton spelled out these details:  

Significant provisions impacting computational requirements

The new law replaces existing maximum charge statutory requirements with:

—A 36% annual percentage rate limit
—Aligns computational requirements with the MAPR for the Military Lending Act
—The new 36% cap will extend to both loans and retail installment sales

Exempt institutions include:

—Federally chartered banks
—Savings banks
—Savings and loan associations
—Credit Unions

SB 1792 Aligns compliance requirements with the military apr

Carleton reiterated that the Military Loan Act defines “interest” for purposes of complying with the rate cap as including:

—Application fees
—Points, origination fees, participation fees — all fees in the TILA finance charge
—Any fee, premium, or charge for credit insurance
—Any debt protection charges/fees (cancellation and suspension)
—Any credit-related ancillary product sold in conjunction with the transaction

“The controversy over the undefined term “credit-related ancillary product” will extend to this legislation unless subsequent rules and regulations provide specific clarity,” Carlton said in the news release also posted on its website.

“To date, the Department of Defense has refused to define this term in relation to the MAPR calculation,” Carlton continued. “Hopefully, new rules and regulations implementing SB 1792 will dive further into the granular details on calculating a MAPR in compliance with this new law.

“Carleton has maintained regular communication with industry professionals and trade associations to ensure we are assisting our clients implement these necessary updates,” the firm went on to say.