In Illinois, any payday loan or other consumer loan carrying an annual percentage rate above 36% is illegal and unenforceable. The Predatory Loan Prevention Act (PLPA), which took effect on March 23, 2021, imposed a hard 36% all-in APR ceiling on virtually every loan made to an Illinois consumer. Because the traditional payday-loan business model relies on triple-digit APRs (often 300% to 400% or more), that single rule effectively shut down conventional storefront and online payday lending in the state. Payday loans are not technically "banned" by name, but the rate cap is set so low that lenders cannot legally make the high-cost product they once offered.
The 36% APR cap and how it is calculated
The PLPA, codified at 815 ILCS 123/15-1-1 and following sections, states that no lender may make a loan to an Illinois consumer with an APR over 36%. Critically, this is not the narrow interest-only figure many lenders like to quote. The PLPA borrows its math from the federal Military Lending Act, using an "all-in" or Military Annual Percentage Rate approach. That means the 36% calculation must include:
- Ordinary interest charges;
- Most finance charges and fees;
- Credit insurance premiums and fees for ancillary products; and
- Certain application and participation fees.
By folding fees into the rate, Illinois closed the loophole that let lenders advertise a modest interest rate while loading the real cost into separate charges. A two-week payday advance with a flat fee that translates to a 300%+ APR simply cannot be made legally to an Illinois resident.
What happens to a loan that breaks the cap
The PLPA has unusually strong teeth. A loan that exceeds the 36% APR limit is declared null and void, and the lender has no right to collect, receive, or retain any principal, interest, fees, or other charges connected with that loan. In other words, if a lender makes an illegal high-rate loan to an Illinois consumer, the borrower may not owe anything at all, not even the amount originally borrowed. A violation is also treated as a violation of the Illinois Consumer Installment Loan Act and the Illinois Consumer Fraud and Deceptive Business Practices Act, which opens the door to additional remedies and penalties.
Who is covered and what is exempt
The cap reaches a broad range of consumer credit, including payday loans, installment loans, title loans, and many small-dollar online loans made to Illinois residents. However, several categories fall outside the PLPA:
- Banks, savings banks, savings and loan associations, and credit unions chartered under federal or state law are generally exempt from the PLPA's specific provisions, though many face other regulatory limits.
- Commercial and business loans, as opposed to loans for personal, family, or household purposes, are not the target of the Act.
- Pawnbrokers and certain other transactions are governed by separate Illinois statutes.
Borrowers should be cautious about so-called "rent-a-bank" arrangements, in which a non-bank lender tries to use a partner bank's charter to dodge the cap. Illinois regulators have signaled that they will look at the substance of who is truly making and profiting from the loan, not just whose name is on the paperwork.
Maximum loan amount, term, and rollovers
Illinois still has an older framework, the Payday Loan Reform Act (815 ILCS 122), that historically limited payday loans to the lesser of $1,000 or 25% of the borrower's gross monthly income, set loan terms between 13 and 120 days, and restricted refinancing and rollovers to prevent borrowers from being trapped in repeat debt. In practice, those amount, term, and rollover rules are now largely academic for high-cost lenders because the 36% PLPA cap makes the traditional payday product unprofitable, so very few, if any, licensed payday lenders continue to originate these loans in Illinois. If you are offered a small-dollar loan today, the controlling question is almost always whether the all-in APR stays at or below 36%.