Our new loan origination software requires us to assign one Illinois law to each type of loan to help the software identify the permissible interest rate for the loan product. For consumer non-real estate loans, should we assign the Interest Act or the Consumer Installment Loan Act? For home equity lines of credit (HELOCs), should we assign the Interest Act or the Financial Services Development Act? Also, does the Interest Act permit us to charge commercial real estate borrowers a fee for real estate valuations completed by a bank staff member?

We are hesitant to answer your question to the extent that it might imply we believe attributing a single law to a loan type, even if only with respect to interest rates, constitutes a best practice (or even an acceptable practice in some circumstances).

Having said that, the Consumer Installment Loan Act does not apply to banks, so we do not recommend “assigning” it to any of your bank’s loan products. Both the Interest Act and the Financial Services Development Act (and numerous other Illinois and federal laws) will apply to your HELOCS — regardless of which laws are assigned to a loan type in your software. Consequently, we cannot recommend choosing one of these laws over the other.

We do note that both the Interest Act and the Financial Services Development Act permit banks to establish their own interest rates through their loan agreements with their customers. The Interest Act expressly permits banks to collect “interest and charges at any rate or rates agreed upon by the bank or branch and the borrower” and also provides 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 provides that Illinois financial institutions may collect interest and other charges as “the financial institution and the borrower may agree from time to time” — and this is “[n]otwithstanding the provisions of any other laws in connection with revolving credit plans . . . .”

Also, we are not aware of any Illinois law — including the Interest Act — that would prohibit your bank from charging commercial customers a fee for the cost of an in-house property valuation, which is expressly permitted by Regulation B. As mentioned above, the Interest Act states that a bank is authorized to contract to receive any charges agreed upon by the bank and the borrower.

For resources related to our guidance, please see:

Consumer Installment Loan Act, 205 ILCS 670/21 (“This Act does not apply to any person, partnership, association, limited liability company, or corporation doing business under and as permitted by any law of this State or of the United States relating to banks, savings and loan associations, savings banks, credit unions, or licensees under the Residential Mortgage License Act for residential mortgage loans made pursuant to that Act. This Act does not apply to business loans. This Act does not apply to payday loans.”)

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. . . .”)

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.”)

Regulation B, 12 CFR 1002.14(a)(3) (“A creditor shall not charge an applicant for providing a copy of appraisals and other written valuations as required under this section, but may require applicants to pay a reasonable fee to reimburse the creditor for the cost of the appraisal or other written valuation unless otherwise provided by law.”)