A “tangible benefit” test is required under the Illinois Fairness in Lending Act and under the Illinois High Risk Home Loan Act, though both laws have slightly different tests.

The Illinois Fairness in Lending Act prohibits several lending practices, including “loan flipping.” 815 ILCS 120/3. The definition of “loan flipping” includes a tangible net benefit test: “‘Loan flipping’ means to assist a person in refinancing a loan secured by the person’s principal residence for the primary purpose of receiving fees related to the refinancing when (i) the refinancing of the loan results in no tangible benefit to the person and (ii) at the time the loan is made, the financial institution does not reasonably believe that the refinancing of the loan will result in a tangible benefit to the person.” 815 ILCS 120/2.

The Illinois High Risk Home Loan Act requires lenders to apply a net tangible benefit test when refinancing loans that qualify as “high risk home loans,” as defined in that law. It prohibits lenders from refinancing any high risk home loan if the lender charges additional points and fees, the refinancing occurs within the twelve-month period after the original loan agreement was signed, and the refinancing does not result in a tangible net benefit to the borrower. 815 ILCS 137/45.