Can we charge a late fee after a ten-day delinquency on a loan secured by a mortgage? It appears that Illinois law permits late fees after ten days, but the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) preemption provisions permit late fees after fifteen days.

We are not aware of any law that would prevent you from charging a late fee after a ten-day delinquency on a loan that is secured by a mortgage, provided that your customers have agreed to such charges in their loan agreements. While Section 4.1a of the Illinois Interest Act requires a ten-day grace period (among other restrictions on late fees), we believe that those restrictions are inapplicable to banks, based on provisions elsewhere in the Interest Act, the Illinois Banking Act, an Illinois Supreme Court decision and an IDFPR interpretive letter.

The Illinois Banking Act permits banks to charge fees, interest and other charges agreed to by the borrower, 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 and an IDFPR Interpretive Letter have 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 Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) does not impose any restrictions on late fees. The provision you cited in DIDMCA preempts state laws that require a longer grace period, but it doesn’t impose a fifteen day grace period on states that permit a lesser period. You may be looking at former OTS rules that require a fifteen day grace period for late fees, but those rules apply only to residential manufactured housing loans and would not apply to your institution.

For resources related to our guidance, please see below:

Interest Act — 815 ILCS 205/4.1a(f) (ten-day grace period requirement and limitation on late fees)

Illinois Banking Act — 205 ILCS 5/5e (“Notwithstanding 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”)

Interest Act — 815 ILCS 205/4(1)(l) (a bank may receive and collect interest and charges at any rate on loans secured by a mortgage on real estate)

United States Bank Nat’l Ass’n v. Clark, 216 Ill.2d 334, 349 (2005) (amendments to the Interest Act implicitly repealed previous restrictions on interest and fee charges on real estate loans)

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)