Charging a skip-a-payment fee in Illinois

Illinois law permits banks to determine the amount of the fee charged for “skip-a-payment” programs.  In Illinois, account service charges agreed to by a borrower, including fees for a skip-a-payment program, are authorized without limitation, “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, subsection 4(1) of the Interest Act essentially states the same rule, that 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). Needless to say, the bank still must provide adequate disclosures of the fee, as described in our article.

Charging a skip-a-payment fee in other states

We do not have any resources that would cover the state laws for states other than Illinois. Other states may prohibit banks from charging a fee or additional interest for “skip-a-payment” programs, and such laws may depend on the type of loan, the type of entity offering the loan, the type of borrower, etc.

Offering the skip-a-payment program only to Illinois residents

It may be possible (but unlikely) that offering the skip-a-payment option only to Illinois residents may have a discriminatory impact on borrowers in a protected class. But, the bank can counter any discrimination concerns by documenting its business reasons for sending the mailing only to Illinois residents (for example, by documenting your research indicating that other states may prohibit “skip-a-payment” fees). As stated in the interagency fair lending guidelines, a bank can justify a bank policy that has a discriminatory impact by demonstrating the “business necessity” for the policy. FFIEC Interagency Fair Lending Procedures, p. iv.