IBA Compliance Connection

Your go to source for compliance!

In Indiana (where our main office and most branches are located), a lender may contract for a minimum loan finance charge of up to $30 on certain closed-end consumer loans (other than mortgage transactions). However, the lender cannot impose that charge if it also charges a loan origination fee. Does Illinois have similar restrictions?

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No, Illinois does not impose the same restrictions. The Illinois 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.”  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.”

For resources related to our guidance, please see:

  • Illinois Banking Act, 205 ILCS 5/5e (Notwithstanding the provisions of any other law in connection with extensions of credit, a State bank may elect to contract for and receive interest, fees, and other charges for extensions of credit subject only to the provisions of subsection (1) of Section 4 of the Interest Act, except for extensions of credit secured by residential real estate, which shall be subject to the laws applicable thereto.”)
  • Illinois Interest Act, 815 ILCS 205/4(1) (“It is lawful for a state bank or a branch of an out-of-state bank, as those terms are defined in Section 2 of the Illinois Banking Act, to receive or to contract to receive and collect interest and charges at any rate or rates agreed upon by the bank or branch and the borrower.”)
  • Ind. Code § 24-4.5-3-201 (“Loan finance charge and origination fee for consumer loans other than supervised loans. With respect to a consumer loan not made pursuant to a revolving loan account, the lender may contract for and receive a minimum loan finance charge of not more than thirty dollars ($30).The minimum loan finance charge allowed under this subsection maybe imposed only if the lender does not assess a loan origination fee under subsection (8) and (a) the debtor prepays in full a consumer loan, refinancing, or consolidation, regardless of whether the loan, refinancing, or consolidation is precomputed;(b) the loan, refinancing, or consolidation prepaid by the debtor is subject to a loan finance charge that: (i) is contracted for by the parties; and(ii) does not exceed the rate prescribed in subsection (1); and (c) the loan finance charge earned at the time of prepayment is less than the minimum loan finance charge contracted for under this subsection.”)
  • Ind. Code § 24-4.5-3-501 (“Supervised loan” means a consumer loan in which the rate of the loan finance charge exceeds twenty-five percent (25%) per year as determined according to the provisions on loan finance charge for consumer loans in section 201 of this chapter.)