We are not aware of any Illinois law that prohibits so-called convenience fees that are charged for using a credit card to pay for a transaction, including the use of a credit card to make a loan payment. The Illinois Interest Act generally authorizes banks to charge reasonable loan-related fees, provided they are agreed to by the bank and the borrower, and the Illinois Banking Act permits banks to charge fees, interest and other charges, provided that the bank sets these charges based on its “prudent business judgment and safe and sound operating standards.” If your bank will be charging this fee for the first time, we recommend reviewing your account agreements and ensuring that customers have agreed to it.

There are some issues raised under federal law when charging credit card convenience fees. For instance, we believe that Regulation Z requires you to disclose such fees before they are imposed on consumer loan payments. However, we do not believe that convenience fees need to be included in the finance charge calculation. As explained in the Official Interpretations for Regulation Z, discounts for cash or check payments are excluded from the finance charge, and we believe the same logic would apply when increasing the payment amount for the use of a credit card.

We also recommend checking your operating agreements with credit card issuers regarding the acceptance of loan payments made by credit card. For example, the publicly available Visa Product and Service Rules permit certain financial institutions to collect loan payments using a Visa debit card, but not by using a Visa credit card, and there also are limitations on the use of debit cards for collecting loan payments. The MasterCard rules do not appear to impose the same limitations, but they do prohibit the use of MasterCard cards to pay debts that have been “deemed uncollectible” or that arise from the dishonor of a personal check.

Also note that the Visa and MasterCard rules are frequently revised, and you may wish to check with them as to whether these loan payment transactions are permissible and whether your bank may charge a convenience fee for their use.

For resources related to our guidance, please see:

• Interest Act, 815 ILCS 205/4(1) (“It is lawful for a state bank or a branch of an out-of-state bank . . . to receive or to contract to receive and collect interest and charges at any rate or rates agreed upon by the bank or branch and the borrower. . . .”)

• Illinois Banking Act, 205 ILCS 5/5e (“Notwithstanding the provisions of any other law in connection with extensions of credit,” banks may charge “interest, fees, and other charges . . . subject only to the provisions of subsection (1) of Section 4 of the Interest Act” and the laws applicable to real estate loans, provided that the bank sets fees based on its “prudent business judgment and safe and sound operating standards.”)

• Regulation Z, 12 CFR 1026.9(d)(1) (“Any person, other than the card issuer, who imposes a finance charge at the time of honoring a consumer's credit card, shall disclose the amount of that finance charge prior to its imposition.”)

• Official Interpretations, Regulation Z, 12 CFR 1026, Paragraph 4(b)(9), Comment 2(i) (“Exception for cash discounts. (i) Creditors may exclude from the finance charge discounts offered to consumers for using cash or another means of payment instead of using a credit card or an open-end plan. The discount may be in whatever amount the seller desires, either as a percentage of the regular price (as defined in section 103(z) of the Act, as amended) or a dollar amount. Pursuant to section 167(b) of the Act, this provision applies only to transactions involving an open-end credit plan or a credit card (whether open-end or closed-end credit is extended on the card). The merchant must offer the discount to prospective buyers whether or not they are cardholders or members of the open-end credit plan. The merchant may, however, make other distinctions. For example: (A) The merchant may limit the discount to payment by cash and not offer it for payment by check or by use of a debit card. (B) The merchant may establish a discount plan that allows a 15% discount for payment by cash, a 10% discount for payment by check, and a 5% discount for payment by a particular credit card. None of these discounts is a finance charge.”)

• Visa Core Rules and Visa Product and Service Rules, Rule 5.9.11.2, pages 419–420 (“A US Merchant may accept a Visa Card to repay a debt only if the Merchant: Is assigned to MCC 6012 (Financial Institutions – Merchandise and Services) or MCC 6051 (Non-Financial Institutions – Foreign Currency, Money Orders [not Wire Transfer], Stored Value Card/Load, and Travelers Cheques). Accepts only consumer Visa Debit Cards, Visa Business Debit cards, and Visa Prepaid Cards for debt repayment. The acceptance of Visa Credit Cards for the repayment of debt is prohibited. Is registered as a Limited Acceptance Merchant of eligible Visa Debit Category Cards (including Visa Prepaid Cards) in all channels where payments for the repayment of debt are accepted. However, the Merchant may accept all Visa Cards for any of its other lines of business that do not collect payments on debt. Includes the debt repayment indicator in the Authorization Request and Clearing Record of all debt repayment transactions. Does not accept payments for debt in any of the following categories: – Debt representing payday lending – Charged-off debt held by a non-financial institution or debt that has been sold to a nonfinancial institution – Time-barred debt.”)

• MasterCard Rules, Rule 5.11, page 220 (November 2016) (download as a PDF) (“In the U.S. Region, the Rule on this subject is replaced with the following: A Merchant must not submit to its Acquirer, and a Customer must not submit to the Interchange System, any Transaction that: 1. Is conducted with a credit Card and represents the refinancing or transfer of an existing Mastercard Cardholder obligation that has been deemed to be uncollectible; or 2. Arises from the dishonor of a Mastercard Cardholder’s personal check.”)