Late Fees on Loans

We do not believe that there are any restrictions on interest rates for consumer (or other) loans, provided that the customer contracted to pay such fees in your loan agreement. 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. And that section of the Interest Act authorizes banks “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).

With that said, federal and state law set the interest rates that banks may charge after obtaining a judgment against a debtor, and regulatory limitations on interest rates may apply. The Illinois Code of Civil Procedure sets the post-judgment interest rate at nine-percent. 735 ILCS 5/2-1303. Also, the federal Code of Civil Procedure limits interest that can be charged post-judgment, and bankruptcy courts may require that your post-default rate be “reasonable” (a restriction that applies to all creditors in bankruptcy). Finally, Regulation Z prohibits an increased interest rate after default for HOEPA (i.e., higher-cost) loans (12 CFR 1026.32(d)(4)), and both the federal and state versions of the Service Member Civil Relief Act/Servicemembers Civil Relief Act limit interest rates during a service member’s active duty (815 ILCS 205/4.0550 USC App. 527(a)).

Relationship of State and Federal Laws (Preemption)

Because you are a national bank, you may charge any interest or 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. (Also, 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).) We do not believe that the Dodd-Frank provisions regarding preemption change this conclusion.