We do not believe that the 9% limit on annual interest rates, found in subsection 4(1) of the Illinois Interest Act, would apply to Illinois banks. In fact, there are very few limitations on interest rates (or on charges and fees) under Illinois law. Section 5e of the Banking Act states that “[n]otwithstanding the provisions of any other law,” banks may charge any “interest, fees, and other charges . . . subject only to the provisions of [subsection 4(1)] of the Interest Act” and any laws applicable to “credit secured by residential real estate.” The only provisos are that the customer must agree to the charges and that the bank must use its “prudent business judgment and safe and sound operating standards” in setting the fees. 205 ILCS 5/5e.

While the Banking Act does refer to the subsection (4)(1) of the Interest Act, that law also allows banks to charge any interest rate that a customer agrees to pay — it 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).

There are some restrictions on interest rates that banks may charge in certain situations. For example, if a bank sues a debtor and obtains a judgment, the Illinois Code of Civil Procedure limits the interest rate charged after judgment to nine-percent. 735 ILCS 5/2-1303. The federal Code of Civil Procedure also limits interest that can be charged post-judgment, and bankruptcy courts require that the interest rate banks charge after the debtor defaults be “reasonable.” 28 USC 196111 USC 506(b). Finally, Regulation Z prohibits an increased interest rate after default for HOEPA (i.e., higher-cost) loans (12 CFR 1026.32(d)(4)), and both the federal and state versions of the Servicemembers Civil Relief Act limit interest rates during a service member’s active duty (815 ILCS 205/4.0550 USC App. 527(a)).