IBA Compliance Connection

Your go to source for compliance!

We make consumer loans to finance purchases of powersports vehicles, such as motorcycles, snowmobiles and all-terrain vehicles (ATVs). We make the loans directly to the consumer borrowers, rather than taking an assignment of a retail installment sales contract from the dealer. We plan to start providing balloon loans, and we have seen that many non-bank lenders are subject to states’ retail installment sale laws, some of which prohibit balloon loans and impose other consumer protections. Do those laws apply to our bank?

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While we cannot comment on the laws in other states, in Illinois both the Motor Vehicle Retail Installment Sales Act and the Retail Installment Sales Act apply only to credit sales of motor vehicles and consumer goods or services, respectively. Because banks are not in the business of making credit sales of motor vehicles, goods or services, and additionally because banks do not derive their lending authority from these laws, we do not believe that either Illinois law would apply to your bank. 

Also, as an Illinois-chartered bank, your institution is exempt from certain other Illinois laws on rates, fees and terms. For example, the Illinois Banking Act, the Interest Act and the Financial Services Development Act exempt Illinois-chartered banks from most of the state’s limitations on interest rates, fees and terms that remain applicable to nonbank lenders.

For resources related to our guidance, please see:

  • Motor Vehicle Retail Installment Sales Act, 815 ILCS 375/2.4 (“‘Retail installment transaction’ means a credit sale of a motor vehicle by a retail seller to a retail buyer for a deferred payment price payable in one or more installments.”)
  • Retail Installment Sales Act, 815 ILCS 405/2.5 (“‘Retail installment transaction’ means a credit sale of goods or a furnishing or rendering of services by a retail seller to a retail buyer for a deferred payment price payable in one or more installments pursuant to a retail installment contract or a retail charge agreement.”)
  • Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2L(a) (“Any retail sale of a used motor vehicle made after the effective date of this amendatory Act of the 99th General Assembly to a consumer by a licensed vehicle dealer within the meaning of Chapter 5 of the Illinois Vehicle Code or by an auction company at an auction that is open to the general public is made subject to this Section.”)
  • Illinois 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 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.”)
  • 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. . . .”)