We would like to raise the post-maturity rate that we charge on consumer loans. This rate is charged after the consumer defaults on a loan. Is there a maximum post-maturity rate we can charge in Illinois?

No, we are not aware of a maximum post-maturity rate set by Illinois law. There are very few limitations on interest rates and fees charged by banks under Illinois law, whether for consumer or commercial loans. Post-maturity rates (also known as default rates) must be agreed to by your customers in your loan agreements, and they may be subject to court scrutiny if they are not considered “reasonable.”

Some limitations on post-maturity rates may apply under federal law, such as the Servicemembers Civil Relief Act’s protections (which also apply under the Illinois version of that law). Also, if your institution obtains a court judgment against a borrower, both Illinois and federal rules of civil procedure limit interest that can be charged post-judgment. If a borrower files for bankruptcy, the court may scrutinize interest rates you charge after the bankruptcy was filed to determine whether your interest rate is “reasonable.”

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,” 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. . . .”)

Inland Bank and Trust v. Knight, 399 Ill.App.3d 378, 383 (1st Dist. 2010) (A default interest rate increase “will be enforced if the damages are ‘reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. . . .’”)

Inland Bank and Trust v. Knight, 399 Ill.App.3d 378, 384 (1st Dist. 2010) (“Illinois has upheld liquidated damages clauses over a fairly wide range of values. From the previously cited cases, the supreme court in Baker upheld an increase from 6% to 7%. In Bane, the court upheld a provision in a promissory note which required the debtor to pay interest at the rate of 30% per annum after maturity. The supreme court in Walker v. Abt, 83 Ill. 226 (1876), upheld a provision in a note increasing the interest rate from 10% per annum to 20% per annum upon maturity of the note. While the relatively ancient cases of Bane and Walker predate usury laws, they nevertheless provide support for our holding that provisions for higher interest in the Note are valid and enforceable.”)

In re Kimbrell Realty/Jeth Court, LLC, 483 B.R. 679, 689 (Bankr. C.D. Ill. 2012) (“Under Illinois law, default interest provisions are generally valid and enforceable so long as the higher rate is reasonable in light of the anticipated or actual loss caused by the breach and the difficulty of proving the loss. Inland Bank & Trust v. Knight, 399 Ill.App.3d 378, 340 Ill.Dec. 38, 927 N.E.2d 777 (Ill.App. 1 Dist.2010).”)

Servicemembers Civil Relief Act, 50 USC App. 527(a) (“An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember’s spouse jointly, before the servicemember enters military service shall not bear interest at a rate in excess of 6 percent (A) during the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage; or (B) during the period of military service, in the case of any other obligation or liability.”)

Illinois Service Member Civil Relief Act, amending the Interest Act, 815 ILCS 205/4.05(b) (“Notwithstanding any contrary provision of State law, but subject to the federal Servicemembers Civil Relief Act, no creditor in connection with an obligation entered into on or after the effective date of this amendatory Act of the 94th General Assembly, but prior to a service member's period of military service, shall charge or collect from a service member who has entered military service, or the spouse of that service member, interest or finance charges exceeding 6% per annum during the period of military service.”)

Illinois Code of Civil Procedure, 735 ILCS 5/2-1303 (“Judgments recovered in any court shall draw interest at the rate of 9% per annum from the date of the judgment until satisfied . . . .”)

Federal Code of Civil Procedure, 28 USC 1961 (“Interest shall be allowed on any money judgment in a civil case recovered in a district court. . . . Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield . . . .”)

U.S. Bankruptcy Code, 11 USC 506(b) (“To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose.”)