An external auditor told us that the Illinois Interest Act prohibits us from charging loan release fees for home equity lines of credit (HELOCs), citing 815 ILCS 205/4.1. Is that true?

We believe that Illinois law permits banks to charge HELOC lien release fees, provided that your customer has agreed to pay such fees on the HELOC agreement.

Section 4.1 of the Interest Act appears to prohibit lenders from charging borrowers for “expenses, including recording fees and otherwise” when releasing a mortgage lien. However, the Illinois Banking Act permits banks to charge any “interest, fees, and other charges . . . subject only to the provisions of [subsection 4(1)] of the Interest Act” and any laws applicable to “credit secured by residential real estate.” This Illinois Banking Act provision applies to bank lenders “notwithstanding the provisions of any other law.”

A separate section in the Interest Act permits banks to collect “interest and charges at any rate or rates agreed upon by the bank or branch and the borrower” and further states that “it is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to . . . (l) Loans secured by a mortgage on real estate.” The Illinois Financial Services Development Act also confirms that Illinois financial institutions may charge mortgage release fees with respect to open-end credit.

For resources related to our guidance, please see:

Interest Act, 815 ILCS 205/4.1 (“Whenever a lender is granted a security interest in real property or in a beneficial interest in a land trust, the lender . . . shall agree to pay all expenses, including recording fees and otherwise, to release any such security interest of record whenever it no longer secures any credit under a revolving credit arrangement.”)
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) (“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.”)
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, subject to the other provisions of this Section 4 offer and extend credit under a revolving credit plan to a borrower and in connection therewith may charge and collect interest and other charges, may take real and personal property as security therefor and may provide in the agreement governing the revolving credit plan for such other terms and conditions as the financial institution and borrower may agree upon from time to time.”)
Illinois Financial Services Development Act, 205 ILCS 675/6 (“In addition to or in lieu of interest at a periodic rate or rates as provided in Section 5, and without limitation of the foregoing Section 4, a financial institution may, if the agreement governing the revolving credit plan so provides, charge and collect as interest, in such manner or form as the plan may provide, an annual or other periodic fee for the privileges made available to the borrower under the plan, a transaction charge or charges, late fees or delinquency charges, returned payment charges, over limit charges and fees for services rendered.”)