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Are we allowed to charge a payoff processing fee on mortgage loans? – IBA Compliance Connection

Are we allowed to charge a payoff processing fee on mortgage loans?

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We do not believe that there is any restriction on charging a payoff processing fee, on the condition that the customer contracted to pay such a fee in your loan agreement. Section 4.1 of the Interest Act appears to prohibit such fees on revolving credit lines, as it states that lenders must pay “all expenses, including recording fees and otherwise, to release any such security interest.” 815 ILCS 205/4.1. However, 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. 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). That section goes on to state that “it is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to . . . (l) Loans secured by a mortgage on real estate.” 815 ILCS 205/4(1)(l)see also United States Bank Nat’l Ass’n v. Clark, 216 Ill.2d 334, 349 (2005).