Survey Says: High interest loans aren’t the only option for Illinois families

In Fall 2021, the WeProsper Coalition (New America Chicago, the Chicago Urban League, and Woodstock Institute) set out to find out how families were weathering the COVID pandemic following the passage of the Predatory Loan Prevention Act (PLPA) the previous Spring. With billions of dollars a year being stripped out of low and middle income communities in exorbitant interest, the PLPA sought to cap loan annual percentage rates (APR) at a generous 36 percent. Predictions from the payday and auto title loan industries had been dire. But, a community survey of 119 Illinois households showed people found other ways to make ends meet without the 100 to 400 percent APR predatory loans that once proliferated, in Chicago especially.

Before the bill even passed, companies that profited from making exorbitant triple digit interest on payday and auto title loans began making wild claims about how this would impact low-income communities. Rather than charge more reasonable interest and fees, some predatory loan companies chose to get out of the business entirely, while new companies with longer term installment payday loans willing to offer rates under 36 percent opened.

The intention of the new law was to make short-term borrowing more affordable for Illinois families when they need it, not eliminate it entirely. So between September 2021 and January 2022, the WeProsper coalition conducted a survey to learn more about how people were handling financial emergencies or mismatches between bills and paychecks after the passage of the bill. Woodstock Institute also released a follow-up survey in September 2022 with additional findings. Survey responses from community members provide valuable information about what Chicago residents and others around Illinois did around that time when money was tight or a major unexpected expense came up. These surveys, interviews, and upcoming meetings with community members will help New America Chicago and Woodstock Institute work with Illinois legislators to ensure the law meets community needs and open the door for more affordable short-term loan options in the future.

Almost all of the 119 Illinoisans surveyed had needed money for an emergency or to meet basic expenses since the law had passed. Around 8 in 10 had needed money or knew someone who did. Almost everyone who responded had either needed money since the law had passed or tried to borrow money in the last six months. In addition, half of all those who responded had recent experience with payday or auto title loans, and had taken one out in the last two years.

Illinoisans were able to handle new cash emergencies without taking out predatory loans

A major goal of our survey was to understand how people handled cash emergencies after the PLPA was passed. After the bill was passed and some payday loan stores chose to close their doors, people used a number of different ways to make ends meet or pay for unexpected expenses. The most common was borrowing from family or friends, followed by using COVID relief dollars, then using personal savings.

As might be expected, the people who had needed extra cash in the preceding months were more likely than the overall survey respondents to come from lower-income groups. Young people aged 18 to 24 and those making under $50,000 per year were slightly more likely to find themselves in need of extra cash for emergencies or basic living costs. Women were also slightly more likely to have needed extra cash. African-Americans, Latinos, and Asians were also slightly more likely to have found themselves in that situation than White Illinoisans who were slightly less likely to have needed extra cash among survey respondents.

Among people surveyed, three quarters had tried to borrow money in the past six months or had a friend or relative who had. Despite the claims of the payday loan industry, passage of the Predatory Loan Prevention Act did not keep people from borrowing money for financial emergencies. The majority of people (88 percent) we surveyed who had tried to borrow money in the previous six months were able to find some or all of the money they needed without a high cost predatory loan. Only a small number of people (11 percent) weren’t able to find the money needed.

What’s next for Illinois?

Over the next few years, New America Chicago and our partner organization, Woodstock Institute, will be working with Illinois banks, credit unions, and nonprofit lenders to improve access to a number of different affordable loan products for low and moderate income households. This is particularly important for Illinoisans looking to rebuild their savings accounts and pay off debts after months with no pay during the pandemic. Many products currently exist to help low to moderate income families and individuals make ends meet or pay for emergency expenses. WeProsper will continue to work to expand access to these by working with lenders and seeking changes to government policy to improve options available to those who need them.

See the most recent 2022 survey results from Woodstock Institute.

Special thanks to Vanessa Rangel, Greg Porter, Spencer Cowan, Kathie Kane-Willis, and Naomi Johnson for all their hard work on this survey.