While Illinois’ pawnbrokers may have found a judge to give them a loophole that allows them to charge 240% APR or more despite the state rate cap of 36% APR — they are not immune from federal law.
Woodstock Institute has been fighting to end all predatory lending in Illinois for decades, and we uncovered two pawnshops charging 243.3% APR to an active-duty service member in the week leading up to Veterans Day 2022. Woodstock’s investigation showed that Illinois pawnbrokers are failing to inquire about the borrower’s military status and overcharging active-duty service members with triple-digit interest rates.
These actions are a blatant violation of the Military Lending Act (MLA), which is a federal law that protects active-duty military and their dependents with a 36% rate cap on consumer loans. The MLA was passed by Congress after it was found predatory loans were a threat to national security.
Beginning to hold these pawnshops accountable, the state’s chief regulatory agency, the Illinois Department of Financial and Professional Regulation (IDFPR), recently entered into a consent order with a pawnshop in Champaign that charged an active-duty service member 243% APR. The order requires the pawnshop to enhance its training and internal policies to comply with the MLA. The order also requires them to pay a small fine of only $500.
Woodstock Institute applauds IDFPR’s move, but we believe the fine is too small. As the consent order notes, IDFPR may impose a civil penalty of $10,000 per day. Woodstock’s investigation made it clear this pawnshop’s conduct was not an isolated incident. In Woodstock’s investigation, pawnbrokers failed to inquire as to the borrower’s military status in all but two out of 13 instances, strongly suggesting that pawnbrokers have been making predatory loans to active-duty service members for years.
Corrective steps to take
No lender in Illinois should be permitted to charge any consumer an interest rate of 243%, but the stakes are especially high when the borrower is tasked with protecting our country and when there’s a federal law in place to protect them. We are glad IDFPR and the state of Illinois are paying attention to pawnbrokers who prey on consumers.
There are at least two steps that could better protect service members from predatory pawn loans. First, require pawnbrokers to comply with the state’s 36% cap on all loans, which would better ensure a lender does not overcharge a service member.
Second, require pawnbrokers to enter their loans into the same statewide database already used by payday lenders, auto title lenders and installment lenders. For each loan made, pawnbrokers should be required to enter the military status of the borrower into the database to ensure the pawnbroker is inquiring about the borrower’s military status and making a loan in compliance with the MLA.
Tracking data about pawnbrokers is critical to creating some transparency around an industry that has operated in the shadows for too long.
Tommy Fitzgibbon is board chair of the Woodstock Institute, a former financial executive and a retired member of the United States Navy.
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