Are there any limitations in Illinois on late fees for a home equity line of credit (HELOC) or for first or second lien real estate mortgages? Is there a required grace period before we can charge late fees?

There are very few limitations on loan late fees under Illinois law, provided that your customers have agreed to such fees in the loan agreements.

The Illinois Financial Services Development Act authorizes late fees on revolving credit plans (such as HELOCs) without any specific limit. Financial institutions may set the fee amount in their plan agreements with their borrowers. Regarding closed-ends loans, the Illinois Banking Act permits banks to charge fees, interest and other charges, 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.

In addition, we are not aware of any specific grace period requirements. Section 4.1a of the Illinois Interest Act requires a ten-day grace period (among other restrictions on late fees), but 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.

For resources related to our guidance, please see:

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.”)

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 . . . 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. . . .”)

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

United States Bank Nat’l Ass’n v. Clark, 216 Ill.2d 334, 349 (2005) (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.)