IBA Compliance Connection

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Does the Interest Act prohibit us from charging lien release fees for home equity lines of credit?

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No, we do not believe that the Interest Act would prohibit you from charging a mortgage lien release fee, on the condition that the customer contracted to pay such a fee in your loan agreement. While Section 4.1 of the Interest Act appears to prohibit charging for lien releases on revolving credit lines, that provision does not apply to banks.

The Illinois Banking Act permits banks to charge fees, interest and other charges agreed to by the customer, provided that the bank sets these charges based on its “prudent business judgment and safe and sound operating standards.” Additionally, the Interest Act authorizes a bank to collect interest and charges at any rate agreed on by the bank and the borrower. For loans secured by real estate in particular, the Illinois Supreme Court has confirmed that the Interest Act’s previous restrictions on interest and fee charges have been removed, insofar as they apply to real estate loans made by banks. In addition, the Illinois Financial Services Development Act provides that financial institutions may charge any fees or charges agreed to by the customer, including mortgage release fees.

For resources related to our guidance, please see:

  • Illinois Banking Act — 205 ILCS 5/5e (“[n]otwithstanding the provisions of any other law in connection with extensions of credit,” banks may charge “interest, fees, and other charges . . . subject only to the provisions of subsection (1) of Section 4 of the Interest Act” and the laws applicable to real estate loans, provided that the bank sets fees based on its “prudent business judgment and safe and sound operating standards”)
  • Interest Act — 815 ILCS 205/4(1) (authorizes a bank “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”)
  • IDFPR Interpretive Letter 98-01 (Section 4(1)(l) of the Interest Act implicitly repealed previous restrictions on interest and fee charges on real estate loans made by banks)
  • Illinois Financial Services Development Act, 205 ILCS 675/4 (“Notwithstanding the provisions of any other laws in connection with revolving credit plans, any financial institution may . . . charge and collect interest and other charges . . . as the financial institution and borrower may agree upon from time to time”)