We are not aware of any Illinois laws that would prohibit a bank from offering an unsecured consumer loan with a demand feature, even if the loan terms also contemplate monthly payments for a 24 month term. While the Consumer Installment Loan Act requires that loans be “repayable in substantially equal and consecutive weekly, biweekly, semimonthly, or monthly installments” (205 ILCS 670/15(e)(3)), that law does not apply to banks. 205 ILCS 670/21.

However, we note that courts in Illinois have occasionally called into question whether a demand feature is enforceable — as in the two cases discussed below, certain loan terms (whether found in the note or incorporated by reference) may be considered inconsistent with a “payable on demand” term. 

One example of an inconsistent term would be a payment schedule that included payments of the loan principal. The U.S. Court of Appeals for the Seventh Circuit has held that a note’s demand feature was not invalidated by the inclusion of scheduled interest payments. However, the court suggested that it might reach the opposite conclusion if a note included scheduled principal payments. Reger Development, LLC v. National City Bank, 592 F.3d 759 (7th Cir. 2010).

Another example of an inconsistent term is an acceleration provision. In one Illinois case, a note had “on demand” printed prominently in two places, but it also included default provisions outlining the events that would trigger the bank’s right to accelerate payment. The court recited the Uniform Commercial Code (UCC) rule, which states that a note is a demand note if it states that it is “payable on demand . . . or otherwise indicates that it is payable at the will of the holder.” (810 ILCS 5/3-108). However, the court reasoned that if the note was truly payable on demand, an acceleration provision was unnecessary. As a result, the court found that the note was ambiguous and ordered an additional trial to determine the intent behind the note. NWI Intern., Inv. v. Edgewood Bank, 291 Ill.App.3d 247 (1st Dist. 1997).

Also, we note that we are aware of at least one Illinois case confirming that including a demand feature in consumer loans should not be considered a deceptive act. In this case, a consumer challenged the use of a demand feature in a loan agreement, but the court decided in the lender’s favor. Nilsson v. NBD Bank of Illinois, 313 Ill.App.3d 751 (1st Dist. 1999). The borrower had signed a promissory note for a personal line of credit, and the promissory note included a demand feature that the lender later exercised. The borrower claimed that the inclusion of a demand feature was a deceptive act under the Illinois Consumer Fraud and Deceptive Business Practices Act. However, the court held that the demand feature, alone, was not deceptive and concluded that the inclusion of a demand feature in a consumer note did not violate the law.