IBA Compliance Connection

Your go to source for compliance!

When we make payments for taxes or insurance from a borrower’s escrow account, we are charged a fee for making the payments electronically. Can we pass the electronic payment fees on to the borrower? Or should our bank absorb that cost because we choose to make the payments electronically instead of mailing a check?

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Yes, we believe your bank may pass on the costs of these electronic payment fees to your borrowers, although to receive maximal protection under Illinois law, you should ensure that your customer agreements contain language that encompasses such passed on charges.

Neither federal nor Illinois law prohibits charging borrowers any fees imposed on the bank for making tax and insurance payments electronically. In fact, 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 grant of authority applies to banks “notwithstanding the provisions of any other law.” Subsection 4(1) of the Interest Act also permits banks to charge any fees that a customer agrees to pay, and it expressly allows a bank to contract for and charge any compensation relating to a loan secured by a mortgage on real estate.

While arguably you do not need to rely on express statutory authority to impose reasonable fees in the absence of their express prohibition, we strongly advise you to ensure that you have obtained your customers’ consent to them, in order to avail the bank of the safe harbors in these Illinois laws. You may wish to have your bank counsel review your underlying loan agreements and their incorporated fee schedules to see if they already are covered in some fashion.

For resources related to our guidance, please see:

  • Illinois Banking Act, 205 ILCS 5/5e(a) (“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.”)
  • Interest Act, 815 ILCS 205/4(1) (“It is lawful for a 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(1)(l) (“Loans secured by a mortgage on real estate, including a manufactured home as defined in subdivision (53) of Section 9-102 of the Uniform Commercial Code that is real property as defined in the Conveyance and Encumbrance of Manufactured Homes as Real Property and Severance Act”)