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Is there a restriction on charging a “payoff processing fee,” such as when providing a payoff statement to an outside entity like a title company, for a loan that is not a high-cost mortgage loan? If so, should the payoff processing fee be disclosed in the loan documents? – IBA Compliance Connection

IBA Compliance Connection

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Is there a restriction on charging a “payoff processing fee,” such as when providing a payoff statement to an outside entity like a title company, for a loan that is not a high-cost mortgage loan? If so, should the payoff processing fee be disclosed in the loan documents?

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No, other than Regulation Z’s prohibition against charging fees for payoff statements for high-cost mortgage loans, we are not aware of any law prohibiting a payoff processing fee, provided the borrower has agreed to the fee in the loan documents.

The Illinois Banking Act permits banks to charge any fees, interest and other charges based on its “prudent business judgment and safe and sound operating standards” that the borrower agrees to. Additionally, the Interest Act authorizes a bank to collect interest and charges at any rate agreed on by the bank and the borrower. For loans secured by real estate, the Illinois Supreme Court also has confirmed that the Interest Act’s restrictions on interest and fee charges have been removed, insofar as they apply to real estate loans made by banks.

For resources related to our guidance, please see:

  • 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.”)
  • Interest Act, 815 ILCS 205/4(1) (“It is lawful for a state bank or a branch of an out-of-state bank, as those terms are defined in Section 2 of the Illinois Banking Act, 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.”)
  • IDFPR Interpretive Letter 98-01 (Section 4(1)(l) of the Interest Act implicitly repealed previous restrictions on interest and fee charges on real estate loans made by banks)