By Natalie Mojica 

On March 23, 2021, J.B. Pritzker, the Illinois Governor, signed a 36% interest rate cap into law that applies to most consumer loan products. Dr. Tom Miller, a professor of finance at Mississippi State University and Consumers Research fellow, and Justin Fisk, Research Director at the Online Lenders Alliance (OLA), led a conversation on Feb. 23 about the repercussions of this law taking effect.  

The bulk of Miller’s current research focuses on unsecured installment loans, a century-old competitive market. To contextualize these loans, Miller spoke about the Uniform Small Loan Law of 1916, which established a new industry to end illegal loan sharks and worked with lenders to make small-dollar cash installment loans up to 42% APR seven times above state-imposed interest rate caps.   

Using Missouri as a control because it doesn’t have caps, Miller’s data showed how different demographics in Illinois counties are affected by the loan loss. These figures illustrated how people with varying types of credit are eligible for other options in loans and struggle financially as a result. 

Fisk’s data from credit bureaus showed that loan volume decreased in Illinois with increased loan applications. Consumers are applying for loans, but lenders are unable to keep up. He also cited an Illinois consumer loan survey with 699 responses from subjects that had taken out loans over 36% APR to determine how well these loans are servicing people.   

When asked how a lack of financial literacy affects consumers with lesser credit loan options, Andrew Duke, the moderator of the conversation and the executive director of OLA responded. In his words, The OLA seeks, “A scenario where an informed consumer [has] access to a broad array of loan options [which is] the ideal scenario.” Thus, they require their members to make financial literacy readily available to consumers to make the best decision for their needs.   

Miller finished his presentation with resources to help consumers better their financial literacy and establish their answer to the pivotal question of whether consumers are better off with fewer choices. These resources are on OLA’s website and offer short, to-the-point advice for people looking to educate themselves.