The Illinois Interest Act does address default rates. Section 4.1a states that default rates are limited to five-percent of the installment amount and that they cannot be charged until ten days after default. 815 ILCS 205/4.1a(f). However, we do not believe that the restrictions on interest rates and charges in the Interest Act apply to banks. 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. And subsection 4(1) of the Interest Act states that a bank is authorized “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). For loans secured by real estate, the Illinois Supreme court has confirmed that the Section 4.1a’s restrictions on such loans were implicitly repealed by the later-enacted Section 4(1)(l) of the Interest Act (815 ILCS 205/4(1)(l)).  United States Bank Nat’l Ass’n v. Clark, 216 Ill.2d 334, 349 (2005) (see also IDFPR Interpretive Letter 98-01).

Of course, any limitations on interest in federal law would still apply. For example, Regulation Z prohibits an increased interest rate after default for HOEPA (that is, high-cost) loans. 12 CFR 1026.32(d)(4). Also, the federal rules of civil procedure limit interest that can be charged post-judgment, and bankruptcy courts may scrutinize interest rates you charge after the bankruptcy was filed to determine whether your interest rate is “reasonable.” 28 USC 1961, 11 USC 506(b).