The notice that pops up on home equity loans for amounts less than $5,000 is likely a response to the Interest Act, but we believe that your software vendor is taking an overly conservative position as to whether that limitation applies to financial institutions. The provision of the Interest Act at issue prohibits lenders from taking a security interest in real property for a revolving line of credit unless the line of credit is in excess of $5,000. 815 ILCS 205/4.1.

However, we do not believe that this provision applies in the situation you described, for two reasons. First, the loan you described was a home equity loan and not “revolving credit,” as defined in the Interest Act. Second, the Illinois Financial Services Development Act exempts banks from the Interest Act’s limitations on home equity loans. The law expressly permits banks to “take real and personal property as security” for a revolving credit plan, and it applies “notwithstanding the provisions of any other laws in connection with revolving credit plans.”205 ILCS 675/4.