Although it is likely that the Illinois High Risk Home Loan Act is partially preempted by federal law, we are not aware of any national banks that do not comply with the state requirements in order to avoid the necessity of using federal preemption as a defense in court. This is an unsettled and untested area of the law and we recommend you consult with your counsel before engaging in any activity that may violate state financial laws.

Federal preemption arises out of the federal laws and regulations that govern national banks’ activities, and the standard for preemption is articulated in the Consumer Financial Protection Act (CFPA). 12 USC 25b. Federal and Illinois courts have generally held that provisions in Illinois laws (such as the Illinois Interest Act and the Illinois Consumer Fraud and Deceptive Business Practices Act) restricting the interest rates and fees national banks may charge to customers are preempted under federal law. Dannewitz v. EquiCredit Corp. of Am., 362 Ill. App. 3d 82, (1 Dist. 2005).  The same preemption likely applies to provisions in the High Risk Home Loan Act relating to interest. However, preemption may not apply to other portions of the Act, such as those that relate to disclosures.