SB1853 104TH GENERAL ASSEMBLY

LRB104 07583 SPS 17627 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
SB1853

Introduced 2/5/2025, by Sen. Willie Preston

SYNOPSIS AS INTRODUCED:

205 ILCS 670/15	from Ch. 17, par. 5415
205 ILCS 670/15d	from Ch. 17, par. 5419
205 ILCS 670/16	from Ch. 17, par. 5420
205 ILCS 670/17	from Ch. 17, par. 5423
205 ILCS 670/17.5
815 ILCS 123/15-1-5
815 ILCS 123/15-5-5

Amends the Consumer Installment Loan Act. In provisions concerning an charges permitted, provides that the annual percentage rate shall be calculated using the system for calculating the annual percentage rate under the federal Truth in Lending Act (rather than a military annual percentage rate). Provides that a licensee shall not charge, impose, or receive any penalty for the prepayment of a loan. Provides that, before disbursing loan proceeds to a borrower, a licensee shall offer the borrower a credit education program or seminar provided by the licensee or a third party provider. Sets forth criteria for credit education programs or seminars. Makes changes in provision concerning the disclosure of Terms of contract and maximum loan terms and amount. Amends the Predatory Loan Prevention Act. In provisions concerning an annual percentage rate cap, provides that the annual percentage rate shall be calculated using the system for calculating the annual percentage rate under the federal Truth in Lending Act (rather than a military annual percentage rate). Makes changes in provisions concerning the purpose and construction of the Act. Effective immediately.

A BILL FOR

AN ACT concerning business.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Consumer Installment Loan Act is amended by changing Sections 15, 15d, 16, 17, and 17.5 as follows:

(205 ILCS 670/15) (from Ch. 17, par. 5415)

Sec. 15. Charges permitted.

(a) Every licensee may lend a principal amount not exceeding $40,000 and may charge, contract for and receive thereon an annual percentage rate of no more than 36% plus the Federal Funds Rate, subject to the provisions of this Act. For purposes of this Section, the annual percentage rate shall be calculated as such rate is calculated using the system for calculating the annual percentage rate under the federal Truth in Lending Act, 15 U.S.C. 1601 et seq., and its implementing regulations under Regulation Z, 12 CFR 1026.1 et seq. As used in this subsection, "Federal Funds Rate" means the rate published by the Board of Governors of the Federal Reserve System in its Statistical Release H.15 Selected Interest Rates in effect on the first day of the month immediately preceding the month during which the loan is consummated. If the Federal Reserve System stops publication of the Federal Funds Rate, the Director of the Division of Financial Institutions shall designate a substantially equivalent index 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 amendatory Act of the 101st General Assembly.

(b) For purpose of this Section, the following terms shall have the meanings ascribed herein.

"Applicable interest" for a precomputed loan contract means the amount of interest attributable to each monthly installment period. It is computed as if each installment period were one month and any interest charged for extending the first installment period beyond one month is ignored. The applicable interest for any monthly installment period is that portion of the precomputed interest that bears the same ratio to the total precomputed interest as the balances scheduled to be outstanding during that month bear to the sum of all scheduled monthly outstanding balances in the original contract.

"Interest-bearing loan" means a loan in which the debt is expressed as a principal amount plus interest charged on actual unpaid principal balances for the time actually outstanding.

"Precomputed loan" means a loan in which the debt is expressed as the sum of the original principal amount plus interest computed actuarially in advance, assuming all payments will be made when scheduled.

"Substantially equal installment" includes a last regularly scheduled payment that may be less than, but not more than 5% larger than, the previous scheduled payment according to a disclosed payment schedule agreed to by the parties.

(c) Loans may be interest-bearing or precomputed.

(d) To compute time for either interest-bearing or precomputed loans for the calculation of interest and other purposes, a month shall be a calendar month and a day shall be considered 1/30th of a month when calculation is made for a fraction of a month. A month shall be 1/12th of a year. A calendar month is that period from a given date in one month to the same numbered date in the following month, and if there is no same numbered date, to the last day of the following month. When a period of time includes a month and a fraction of a month, the fraction of the month is considered to follow the whole month. In the alternative, for interest-bearing loans, the licensee may charge interest at the rate of 1/365th of the agreed annual rate for each day actually elapsed.

(d-5) No licensee or other person may condition an extension of credit to a consumer on the consumer's repayment by preauthorized electronic fund transfers. Payment options, including, but not limited to, electronic fund transfers and Automatic Clearing House (ACH) transactions may be offered to consumers as a choice and method of payment chosen by the consumer.

(e) With respect to interest-bearing loans:

(1) Interest shall be computed on unpaid principal balances outstanding from time to time, for the time outstanding, until fully paid. Each payment shall be applied first to the accumulated interest and the remainder of the payment applied to the unpaid principal balance; provided however, that if the amount of the payment is insufficient to pay the accumulated interest, the unpaid interest continues to accumulate to be paid from the proceeds of subsequent payments and is not added to the principal balance.

(2) Interest shall not be payable in advance or compounded. However, if part or all of the consideration for a new loan contract is the unpaid principal balance of a prior loan, then the principal amount payable under the new loan contract may include any unpaid interest which has accrued. The unpaid principal balance of a precomputed loan is the balance due after refund or credit of unearned interest as provided in paragraph (f), clause (3). The resulting loan contract shall be deemed a new and separate loan transaction for all purposes.

(3) Loans must be fully amortizing and be repayable in substantially equal and consecutive weekly, biweekly, semimonthly, or monthly installments. Notwithstanding this requirement, rates may vary according to an index that is independently verifiable and beyond the control of the licensee.

(4) The lender or creditor may, if the contract provides, collect a delinquency or collection charge on each installment in default for a period of not less than 10 days in an amount not exceeding 5% of the installment on installments in excess of $200, or $10 on installments of $200 or less, but only one delinquency and collection charge may be collected on any installment regardless of the period during which it remains in default.

(f) With respect to precomputed loans:

(1) Loans shall be repayable in substantially equal and consecutive weekly, biweekly, semimonthly, or monthly installments of principal and interest combined, except that the first installment period may be longer than one month by not more than 15 days, and the first installment payment amount may be larger than the remaining payments by the amount of interest charged for the extra days; and provided further that monthly installment payment dates may be omitted to accommodate borrowers with seasonal income.

(2) Payments may be applied to the combined total of principal and precomputed interest until the loan is fully paid. Payments shall be applied in the order in which they become due, except that any insurance proceeds received as a result of any claim made on any insurance, unless sufficient to prepay the contract in full, may be applied to the unpaid installments of the total of payments in inverse order.

(3) When any loan contract is paid in full by cash, renewal or refinancing, or a new loan, one month or more before the final installment due date, a licensee shall refund or credit the obligor with the total of the applicable interest for all fully unexpired installment periods, as originally scheduled or as deferred, which follow the day of prepayment; provided, if the prepayment occurs prior to the first installment due date, the licensee may retain 1/30 of the applicable interest for a first installment period of one month for each day from the date of the loan to the date of prepayment, and shall refund or credit the obligor with the balance of the total interest contracted for. If the maturity of the loan is accelerated for any reason and judgment is entered, the licensee shall credit the borrower with the same refund as if prepayment in full had been made on the date the judgment is entered.

(4) The lender or creditor may, if the contract provides, collect a delinquency or collection charge on each installment in default for a period of not less than 10 days in an amount not exceeding 5% of the installment on installments in excess of $200, or $10 on installments of $200 or less, but only one delinquency or collection charge may be collected on any installment regardless of the period during which it remains in default.

(5) If the parties agree in writing, either in the loan contract or in a subsequent agreement, to a deferment of wholly unpaid installments, a licensee may grant a deferment and may collect a deferment charge as provided in this Section. A deferment postpones the scheduled due date of the earliest unpaid installment and all subsequent installments as originally scheduled, or as previously deferred, for a period equal to the deferment period. The deferment period is that period during which no installment is scheduled to be paid by reason of the deferment. The deferment charge for a one-month period may not exceed the applicable interest for the installment period immediately following the due date of the last undeferred payment. A proportionate charge may be made for deferment for periods of more or less than one month. A deferment charge is earned pro rata during the deferment period and is fully earned on the last day of the deferment period. Should a loan be prepaid in full during a deferment period, the licensee shall credit to the obligor a refund of the unearned deferment charge in addition to any other refund or credit made for prepayment of the loan in full.

(6) If 2 or more installments are delinquent one full month or more on any due date, and if the contract so provides, the licensee may reduce the unpaid balance by the refund credit which would be required for prepayment in full on the due date of the most recent maturing installment in default. Thereafter, and in lieu of any other default or deferment charges, the agreed rate of interest may be charged on the unpaid balance until fully paid.

(7) Fifteen days after the final installment as originally scheduled or deferred, the licensee, for any loan contract which has not previously been converted to interest-bearing under paragraph (f), clause (6), may compute and charge interest on any balance remaining unpaid, including unpaid default or deferment charges, at the agreed rate of interest until fully paid. At the time of payment of said final installment, the licensee shall give notice to the obligor stating any amounts unpaid.

(g) A licensee shall not charge, impose, or receive any penalty for the prepayment of a loan.

(Source: P.A. 103-1014, eff. 8-9-24.)

(205 ILCS 670/15d) (from Ch. 17, par. 5419)

Sec. 15d. Extra charges prohibited; exceptions.

(a) No amount in addition to the charges authorized by this Act shall be directly or indirectly charged, contracted for, or received, except (1) lawful fees paid to any public officer or agency to record, file or release security; (2) (i) costs and disbursements actually incurred in connection with a real estate loan, for any title insurance, title examination, abstract of title, survey, or appraisal, or paid to a trustee in connection with a trust deed, and (ii) in connection with a real estate loan those charges authorized by Section 4.1a of the Interest Act, whether called "points" or otherwise, which charges are imposed as a condition for making the loan and are not refundable in the event of prepayment of the loan; (3) costs and disbursements, including reasonable attorney's fees, incurred in legal proceedings to collect a loan or to realize on a security after default; and (4) an amount not exceeding $25, plus any actual expenses incurred in connection with a check or draft that is not honored because of insufficient or uncollected funds or because no such account exists; and (5) an administrative fee of up to $75 on loans up to $5,000 as described in subsection (b). This Section does not prohibit the receipt of a commission, dividend, charge, or other benefit by the licensee or by an employee, affiliate, or associate of the licensee from the insurance permitted by Sections 15a and 15b of this Act or from insurance in lieu of perfecting a security interest provided that the premiums for such insurance do not exceed the fees that otherwise could be contracted for by the licensee under this Section. Obtaining any of the items referred to in clause (i) of item (2) of this Section through the licensee or from any person specified by the licensee shall not be a condition precedent to the granting of the loan.

(b) A licensee may contract for and receive an administrative fee that shall be fully earned immediately upon making the loan with a principal amount of not more than $5,000, excluding the administrative fee, at a rate not to exceed $75. No administrative fee may be contracted for or received in connection with the refinancing of a loan unless at least one year has elapsed since the receipt of a previous administrative fee paid by the borrower. Only one administrative fee may be contracted for or received after the consummation of the loan. An administrative fee shall not be considered as a penalty for the prepayment of a loan.

(Source: P.A. 101-658, eff. 3-23-21.)

(205 ILCS 670/16) (from Ch. 17, par. 5420)

Sec. 16. Disclosure of Terms of Contract. In any loan transaction under this Act, the licensee must disclose the following items to the obligor of the loan before the transaction is consummated:

(a) The amount and date of the loan contract;

(b) The amount of the loan using the term "amount financed";

(c) Any deduction from the amount financed or payment made by the obligor for insurance and the type of insurance for which each deduction or payment was made;

(d) Any additional deduction from the loan or payment made by the obligor in connection with obtaining the loan;

(e) The date on which the finance charge begins to accrue if different from the date of the transaction;

(f) The total amount of the loan charge with a description of each amount included using the term "finance charge";

(g) The finance charge expressed as an annual percentage rate using the term "annual percentage rate".

"Annual percentage rate" means the nominal annual percentage rate of finance charge determined in accordance with the actuarial method of computation with an accuracy at least to the nearest 1/4 of 1%; or at the option of the licensee by application of the United States rule so that it may be disclosed with an accuracy at least to the nearest 1/4 of 1%;

(h) The number, amount and due dates or periods of payments scheduled to repay the loan and the sum of such payments using the term "total of payments";

(i) The amount, or method of computing the amount of any default, delinquency or similar charges payable in the event of late payments;

(j) The right of the obligor to prepay the loan in full on any installment date and the fact that such prepayment in full will reduce the insurance charge for the loan;

(k) A description or identification of the type of any security interest held or to be retained or acquired by the licensee in connection with the loan and a clear identification of the property to which the security interest relates. If after-acquired property will be subject to the security interest, or if other or future indebtedness is or may be secured by any such property, this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held, retained or acquired;

(l) A description expressly stating there are no penalties for prepayment of the loan of any penalty charge that may be imposed by the licensee for prepayment of the principal of the obligation with an explanation of the method of computation of such penalty and the conditions under which it may be imposed;

(m) Identification and description of the method of computing any unearned portion of the finance charge in the event of prepayment of the loan, and if the licensee uses the "Rule of 78THS" method, including a statement explaining such method substantially as follows:

Unearned finance charges under the Rule of 78ths are computed by calculating for all fully unexpired monthly installment periods, as originally scheduled or deferred, which follow the day of prepayment, the portion of the precomputed interest that bears the same ratio to the total precomputed interest as the balances scheduled to be outstanding during that monthly installment period bear to the sum of all scheduled monthly outstanding balances originally contracted for.

The description shall also include an example of its application solely for purposes of illustration in substantially the following form: PREPAYMENT - "RULE OF 78THS" Sum of balances due every month after Unearned = Original x prepayment Charge Charge* Sum of balances due every month of contract *for Finance Charge (excluding any charges added for a first payment period of more than one month) or credit insurance charges. Example: 12 monthly payments of $10 (balance is $120 1st month, $110 2nd month, and so on), $20 Finance Charge. If 5 payments are prepaid in full, unearned Finance Charge is: $20 x _____________50+40+30+20+10___________ = $3.85 120+110+100+90+80+70+60+50+40+30+20+10

The terms "finance charge" and "annual percentage rate" shall be printed more conspicuously than other terminology required by this Section.

If a loan made under this Act is prepaid, the computation of the unearned portion of the finance charge as described in this Section shall not be considered as a penalty for the prepayment of the loan.

At the time disclosures are made, the licensee shall deliver to the obligor a duplicate of the instrument or statement by which the required disclosures are made and on which the licensee and obligor are identified and their addresses stated. All of the disclosures shall be made clearly, conspicuously and in meaningful sequence and made together on either:

(i) the note or other instrument evidencing the obligation. Where a creditor elects to combine disclosures with the contract, security agreement, and evidence of a transaction in a single document, the disclosures required under Section 16 shall be made on the face of the document, on the reverse side, or on both sides, provided that the amount of the finance charge and the annual percentage rate shall appear on the face of the document, and, if the reverse side is used, the printing on both sides of the document shall be equally clear and conspicuous, both sides shall contain the statement, "NOTICE: See other side for important information", and the place for the obligor's signature shall be provided following the full content of the document; or

(ii) One side of a separate statement which identifies the transaction.

The amount of the finance charge shall be determined as the sum of all charges, payable directly or indirectly by the obligor and imposed directly or indirectly by the licensee as an incident to or as a condition to the extension of credit, whether paid or payable by the obligor, any other person on behalf of the obligor, to the licensee or to a third party, including any of the following types of charges:

(1) Interest, time price differential, and any amount payable under a discount or other system of additional charges.

(2) Service, transaction, activity, or carrying charge.

(3) Loan fee, points, finder's fee, or similar charge.

(4) Fee for an appraisal, investigation, or credit report.

(5) Charges or premiums for credit life, accident, health, or loss of income insurance, written in connection with any credit transaction unless:

(i) the insurance coverage is not required by the licensee and this fact is clearly and conspicuously disclosed in writing to the obligor; and

(ii) any obligor desiring such insurance coverage gives specific dated and separately signed affirmative written indication of such desire after receiving written disclosure to him of the cost of such insurance.

(6) Charges or premiums for insurance, written in connection with any credit transaction, against loss of or damage to property or against liability arising out of the ownership or use of property unless a clear, conspicuous, and specific statement in writing is furnished by the licensee to the obligor setting forth the cost of the insurance if obtained from or through the licensee and stating that the obligor may choose the person through which the insurance is to be obtained.

(7) Premium or other charge for any other guarantee or insurance protecting the licensee against the obligor's default or other credit loss.

(8) Any charge imposed by a licensee upon another licensee for purchasing or accepting an obligation of an obligor if the obligor is required to pay any part of that charge in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.

A late payment, delinquency, default, reinstatement or other charge is not a finance charge if imposed for actual unanticipated late payment, delinquency, default or other occurrence.

A licensee who complies with the federal Truth in Lending Act, amendments thereto, and any regulations issued or which may be issued thereunder, shall be deemed to be in compliance with the provisions of this Section, except with respect to the disclosure in paragraph (m), which may be set forth in any manner.

(Source: P.A. 90-437, eff. 1-1-98.)

(205 ILCS 670/17) (from Ch. 17, par. 5423)

Sec. 17. Maximum term and amount.

(a) The loan contract for a loan of more than $10,000 shall provide for repayment of the principal and charges within 181 months from the date of the loan contract or the last advance, if any, required by the loan contract.

(b) The loan contract for a loan of $10,000 or less shall provide for repayment of the principal and charges at least 12 months and no more than 60 months and 15 days from the date of the loan contract or the last advance, if any, required by the loan contract.

(c) No licensee shall permit an obligor to owe such licensee or an affiliate (including a corporation owned or managed by the licensee) or agent of such licensee an aggregate principal amount of more than $40,000 at any time for loans transacted pursuant to this Act.

(Source: P.A. 93-264, eff. 1-1-04.)

(205 ILCS 670/17.5)

Sec. 17.5. Reporting to consumer reporting agencies and financial education Consumer reporting service.

(a) Beginning on January 1, 2026, every licensee shall report each borrower's payment performance to at least one consumer reporting agency that compiles and maintains files on consumers on a nationwide basis. For purposes of this Section, a "consumer reporting agency that compiles and maintains files on consumers on a nationwide basis" has the meaning ascribed to that term in 15 U.S.C. 1681a(p). For the purpose of this Section, "certified database" means the consumer reporting service database established pursuant to the Payday Loan Reform Act. "Title-secured loan" means a loan in which, at commencement, a consumer provides to the licensee, as security for the loan, physical possession of the consumer's title to a motor vehicle.

(b) No later than January 1, 2026, every licensee shall obtain approval to report to at least one consumer reporting agency and, once approved, shall report borrower payment performance to that consumer reporting agency in connection with all loans made on and after January 1, 2026. Licensees shall enter information regarding each loan into the certified database and shall follow the Department's related rules.

(c) Before disbursing loan proceeds to a borrower, a licensee shall offer the borrower a credit education program or seminar provided by the licensee or a third party provider that has been reviewed and approved by the Director for use in complying with this Section. A credit education program or seminar may be provided in writing, electronically, or orally, but, if provided orally, shall be accompanied by written or electronic materials that a prospective borrower can retain or access following the conclusion of the program or seminar For every title-secured loan made, the licensee shall input information as provided in 38 Ill. Adm. Code 110.420.

(d) The Director shall approve credit education programs or seminars that, at a minimum, cover all of the following topics concerning credit scores and credit reports provided by consumer reporting agencies:

(1) the value of establishing a credit score;

(2) ways to establish a credit score;

(3) ways to improve a credit score;

(4) factors that impact a credit score;

(5) ways to check a credit score;

(6) ways to obtain a free copy of a credit report; and

(7) ways to dispute an error in a credit report The certified database provider shall indemnify the licensee against all claims and actions arising from illegal or willful or wanton acts on the part of the certified database provider. The certified database provider may charge a fee not to exceed $1 for each loan entered into the certified database. The database provider shall not charge any additional fees or charges to the licensee.

(e) A credit education program or seminar offered under this Section shall be offered at no cost to the borrower.

(f) A licensee shall not require a borrower to participate in a credit education program or seminar as a condition of a loan.

(Source: P.A. 101-658, eff. 3-23-21.)

Section 10. The Predatory Loan Prevention Act is amended by changing Sections 15-1-5 and 15-5-5 as follows:

(815 ILCS 123/15-1-5)

Sec. 15-1-5. Purpose and construction. Illinois families pay over $500,000,000 per year in consumer installment, payday, and title loan fees. As reported by the Department in 2020, nearly half of Illinois payday loan borrowers earn less than $30,000 per year, and the average annual percentage rate of a payday loan is 297%. The purpose of this Act is to protect consumers from predatory loans consistent with federal law and the Military Lending Act which protects active duty members of the military. This Act shall be construed as a consumer protection law for all purposes. This Act shall be liberally construed to effectuate its purpose.

(Source: P.A. 101-658, eff. 3-23-21.)

(815 ILCS 123/15-5-5)

Sec. 15-5-5. Rate cap. 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 an annual percentage rate of a 36% plus the Federal Funds Rate 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 the annual percentage rate under the federal Truth in Lending Act, 15 U.S.C. 1601 et seq., and its implementing regulations under Regulation Z, 12 CFR 1026 et seq 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. 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. As used in this Section, "Federal Funds Rate" means the rate published by the Board of Governors of the Federal Reserve System in its Statistical Release H.15 Selected Interest Rates in effect on the first day of the month immediately preceding the month during which the loan is consummated. If the Federal Reserve System stops publication of the Federal Funds Rate, the Director of the Division of Financial Institutions shall designate a substantially equivalent index.

(Source: P.A. 101-658, eff. 3-23-21.)

Section 99. Effective date. This Act takes effect upon becoming law.