Bill that would have capped interest rates for pawn shops stalls in Illinois

By Kevin Haas
Rock River Current
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ROCKFORD — A bill that would have capped interest rates for pawn shops in Illinois has stalled in Springfield without being called for a vote by the end of the lame-duck session.

The bill’s demise is a victory for pawn shop owners here and across Illinois who felt the proposed law unfairly lumped them in with predatory lenders. They’ve argued that the cap doesn’t make sense for the collateral-based mini loans they offer, which they say don’t trap customers in a cycle of debt the way a pay day or title loan can.

“Every other type of loan you can’t get away from,” said Jason Vandiver, vice president of Paymaster Pawn and Jewelers, which has locations in Rockford and South Beloit. “Whereas a pawn, if at the end of 30 days you can’t come up with the money to pick it up, you’ve simply sold your item.”

Previously: Pawn shops in Rockford, across Illinois raise issue with proposed interest rate caps

Paymaster, which is a third generation family-run business, closed both its stores Tuesday and brought its nine employees down to Springfield to help fight the bill. It was a “drastic measure” that Vandiver felt was needed to make sure pawn brokers got to tell lawmakers their side.

“I think they all realized, maybe they don’t think the pawn industry is perfect, but this would be much more detrimental to the communities they were concerned about than it would be helpful,” he said in a phone interview while returning to Rockford from Springfield. “They really realized that we do provide a service at a reasonable cost and a better alternative to a lot of other choices.”

“One of the Democratic senators said, and I think everybody agreed, ‘we’ve had complaints about pay day lenders, we’ve had complaints about title loans, we’ve never had a complaint about a pawn transaction.”

The bill was intended to expand the Predatory Loan Prevention Act to apply to pawn shops the same 36% annual percentage rate cap that other lenders face.

Gov. JB Pritzker signed the act into law in March 2021. It was created in response to triple-digit interest rates for payday and title loans. The average Illinois payday loan was 297% and the average title loan was 179% at the time, according to the state. Illinois also ranked fourth highest in the nation with roughly $500 million that Illinois families paid in those loan fees.

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Lawmakers initially intended the law to include pawn shops, but they weren’t specifically mentioned in the act. The Illinois Pawnbrokers Association then won an injunction in Sangamon County Court in Springfield to prevent the law from applying to them.

State Sen. Jacqueline Collins, a Democrat from Chicago behind the initial law, introduced the new bill to expand it to pawn shops.

“Loans that charge 240% APR are a perfect example of an issue that is controversial only in the Capitol,” Collins said today in a statement. “Ordinary people resoundingly support rate caps and oppose exceptions for pawnbrokers. Last night was a win for highly paid industry lobbyists and industry cronies – at the expense of consumers.”

Today was the last day of Collins 20-year career in the state Senate.

A study of 2020 data by Woodstock Institute, which had worked to pass the law, found that pawn shop loans cost Illinois consumers more than $44 million, which is more than eight times as much in interest and fees as payday loans did. Its research also noted that Black and Latino residents were about twice as likely to use pawn loans.

“Every day we wait to close this loophole costs customers more than $100,000 a day in pawnbrokers fees,” William McNary, co-director of Citizen Action/Illinois, said in a news release. “Capping the interest rate at 36% means more money in consumers pockets for spending, saving, and investing. That’s not only good for consumers, but also the community and the local economy.”

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Paymaster said the annual percentage yield is an irrelevant rate for their industry because most pawns are very short term. When the rate is applied, their APY would be about 240%. However, the owners said the rate is actually 120% because of their policy to return the collateral after 12 months if payments are made.

“Pawning is so different and we have so much more costs and overhead in our loans that are small dollars that we just can’t lend at the rate that everyone else is capped at,” Jason said.

Here’s an example of how a typical pawn plays out in Rockford, according to Vandiver. A customer would offer collateral such as a video game system and receive a $100 loan. After a minimum of two days, or within 30 days, they can repay $100 plus $20 and receive their system back. Or, they can pay $20 and extend the loan for another month. Vandiver said most pawns are repaid within three months, which would equate to $160 in this example. He says that’s still cheaper than if the customer had to sell their collateral and then try to buy it again later on.

“This entire thing, it never really came from the consumers,” Vandiver said. “The consumers are by and large happy with the pawn industry in the state of Illinois.”

He and other pawn shop owners in the state are now breathing a sigh of relief at the proposal’s failure to move forward.

“I feel like there’s been a weight lifted off my chest,” he said.

This article is by Kevin Haas. Email him at khaas@rockrivercurrent.com or follow him on Twitter at @KevinMHaas or Instagram @thekevinhaas.