IBA Compliance Connection

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We understand that loans made by banks generally are exempt from the Predatory Loan Prevention Act (PLPA). However, we are also aware that the PLPA may apply to loans made by a covered lender and purchased by a bank, such as an indirect automobile loan originated by a dealer and sold to a bank. For this reason, should we be requiring dealers to provide us with a signed disclosure of the PLPA’s 36% rate cap for each auto loan that we purchase?

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Yes, we recommend requiring automobile dealers to provide the 36% PLPA rate cap disclosure for each covered loan made to a consumer borrower that your bank purchases.

You are correct that banks are generally exempt from the PLPA, and that loans made by a covered lender and purchased by a bank, such as an indirect automobile loan originated by a dealer that sells the loan to a bank, would be covered by the PLPA.

Additionally, the administrative rules under the Motor Vehicle Retail Installment Sales Act require that all retail installment contracts for motor vehicles include a separate disclosure of the PLPA’s 36% rate cap signed by the consumer. The signed disclosure must be clear and conspicuous and substantially similar to the “Disclosure of 36% Rate Cap” form provided in the administrative rules.

We believe that requiring dealers to provide the PLPA rate cap disclosure signed by the buyer will help you to demonstrate that the dealer complied with the disclosure requirements in the Motor Vehicle Retail Installment Sales Act’s administrative rules for each loan purchased by your bank.

For resources related to our guidance, please see:

  • Predatory Loan Prevention Act, 815 ILCS 123/15-1-15 (“Banks, savings banks, savings and loan associations, credit unions, and insurance companies organized, chartered, or holding a certificate of authority to do business under the laws of this State or any other state or under the laws of the United States are exempt from the provisions of this Act.”)
  • Predatory Loan Prevention Act, 815 ILCS 123/15-1-10 (“‘Lender’ means any person or entity, including any affiliate or subsidiary of a lender, that offers or makes a loan, buys a whole or partial interest in a loan, arranges a loan for a third party, or acts as an agent for a third party in making a loan, regardless of whether approval, acceptance, or ratification by the third party is necessary to create a legal obligation for the third party, and includes any other person or entity if the Department determines that the person or entity is engaged in a transaction that is in substance a disguised loan or a subterfuge for the purpose of avoiding this Act.”)
  • Predatory Loan Prevention Act, 815 ILCS 123/15-1-10 (“‘Loan’ means money or credit provided to a consumer in exchange for the consumer’s agreement to a certain set of terms, including, but not limited to, any finance charges, interest, or other conditions. ‘Loan’ includes closed-end and open-end credit, retail installment sales contracts, motor vehicle retail installment sales contracts, and any transaction conducted via any medium whatsoever, including, but not limited to, paper, facsimile, Internet, or telephone. ‘Loan’ does not include a commercial loan.”)
  • Motor Vehicle Retail Installment Sales Act, 815 ILCS 375/2.5 (“‘Retail Installment contract’, ‘installment contract’ or ‘contract’ means an instrument or instruments prescribing the terms of a retail installment transaction and entered into in this State.”)
  • Motor Vehicle Retail Installment Sales Act, 815 ILCS 375/2.4 (“‘Retail installment transaction’ means a credit sale of a motor vehicle by a retail seller to a retail buyer for a deferred payment price payable in one or more installments.”)
  • Motor Vehicle Retail Installment Sales Act Administrative Rules, 38 Ill. Adm. Code 217.100 (“All retail installment contracts or agreements must include a separate disclosure signed by the consumer that states: ‘A retailer shall not contract for or receive charges exceeding a 36% annual percentage rate on the unpaid balance of the amount financed for a retail installment contract, as calculated under the Illinois Predatory Loan Prevention Act (PLPA APR). Any retail installment contract with a PLPA APR over 36% is null and void, such that no person or entity shall have any right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the retail installment contract. The annual percentage rate disclosed in any retail installment contract may be lower than the PLPA APR.’ This disclosure shall be clear and conspicuous, and shall be substantially similar to the form in Appendix A. A retailer shall provide all disclosures required by this section in English and in the same language as the retail installment contract agreement.”)