Late Fees on Loans
We do not believe that there are any restrictions on charging fees for a loan secured by a mortgage on real estate or on consumer loans, provided that the customer contracted to pay such fees in your loan agreement. As stated in the Illinois Interest Act, a bank is authorized “to receive or contract to receive and collect interest and charges at any rate or rates agreed upon by the bank or branch and the borrower.” 815 ILCs 205/4(1). Also, Section 4(1) of the Illinois Interest Act states that “it is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to . . . (l) Loans secured by a mortgage on real estate.” 815 ILCS 205/4(1)(l).
Some limitations on interest rates and charges may lurk elsewhere in the Interest Act. Section 4.1a of the Interest Act limits charges in excess of the interest rate to 3% of the principal loan amount if the loan rate exceeds 8% and if the loan is secured by residential real estate. 815 ILCS 205/4.1a. However, the Illinois Supreme Court has held that Section 4.1a’s restrictions on loans secured by real estate were implicitly repealed by the later-enacted Section 4(1)(l) of the Interest Act. 815 ILCS 205/4(1)(l)United States Bank Nat’l Ass’n v. Clark, 216 Ill.2d 334, 349 (2005); see also IDFPR Interpretive Letter 98-01. Section 4a of the Interest Act limits delinquency and collection charges on installment loans, but Section 5e of the Banking Act states that “[n]otwithstanding the provisions of any other law in connection with extensions of credit” banks may charge any fees, “subject only to the provisions of [subsection 4(1)] of the Interest Act,” provided that the bank sets fees based on its “prudent business judgment and safe and sound operating standards.” 205 ILCS 5/5e.
Relationship of State and Federal Laws (Preemption)
Because you are a national bank, you may charge any fees that an Illinois bank may charge under Illinois law. The National Bank Act allows national banks to charge “interest at the rate allowed by the laws of the State, Territory, or District where the bank is located.” 12 USC 85. The regulations define “interest” to include “late fees,” and therefore national banks may charge late fees in states that allow their most favored lenders to charge late fees. 12 CFR 7.4001(a), (c).