We believe that Illinois law permits banks to charge lien release fees for HELOCs and junior lien residential mortgage loans, provided that your customers have agreed to pay such fees in your loan agreement. In this case, your bank’s HELOC and junior lien residential mortgage loan agreements prohibit such fees, and the agreements’ restrictive language will control unless and until it is updated.

Section 4.1 of Illinois’s Interest Act generally prohibits a lender from charging a borrower for “expenses, including recording fees and otherwise” when releasing a mortgage lien for a revolving credit arrangement. However, we believe that this prohibition is inapplicable to banks; the Illinois Banking Act expressly 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.” It also requires banks to charge fees based on their “prudent business judgment and safe and sound operating standards,” with the agreement of their customers. This Illinois Banking Act language applies to bank lenders “notwithstanding the provisions of any other law.”

Subsection 4(1) of the Interest Act, referenced in the Illinois Banking Act language discussed above, permits banks to collect “interest and charges at any rate or rates agreed upon by the bank or branch and the borrower” and further states 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.”

For loans secured by real estate, the Illinois Supreme Court has confirmed that the Interest Act’s restrictions on interest and fee charges have been removed, insofar as they apply to real estate loans made by banks. The Illinois Financial Services Development Act also confirms that Illinois financial institutions may charge mortgage release fees with respect to open-end credit. Accordingly, if your HELOC and junior lien residential mortgage loan agreements permitted such fees, you could charge them.

Note that federal laws or regulations may limit certain payoff-related fees, although we are unaware of any federal fee limitations that specifically target lien release fees. For example, Regulation Z prohibits lenders from charging fees for payoff statements for high-cost mortgage loans.

For resources related to our guidance, please see:

• Interest Act, 815 ILCS 205/4.1 (“Whenever a lender is granted a security interest in real property or in a beneficial interest in a land trust, the lender . . . shall agree to pay all expenses, including recording fees and otherwise, to release any such security interest of record whenever it no longer secures any credit under a revolving credit arrangement.”)

• 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, as those terms are defined in Section 2 of the Illinois Banking Act, 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) (“It is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to the following transactions: . . . (l) Loans secured by a mortgage on real estate, including a manufactured home . . . .”)

• 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.”)

• United States Bank Nat’l Ass’n v. Clark, 216 Ill.2d 334, 349 (2005) (“[W]e agree with the Seventh Circuit Court of Appeals . . . that the 1981 amendments to section 4 [of the Interest Act] implicitly repealed section 4.1a’s limitation on noninterest charges lenders may impose on residential mortgage loans.”)

• IDFPR Interpretive Letter 98-01 (“[W]e  conclude  that  loans  secured  by  real  estate  are  governed  by Section 4(1)(l), and not Section 4a(a)(i) of the Act.”)

• Regulation Z, 12 CFR 1026.34(a)(9)(i) (“Payoff statements — (i) Fee prohibition. In general, a creditor or servicer (as defined in 12 CFR 1024.2(b)) may not charge a fee for providing to a consumer, or a person authorized by the consumer to obtain such information, a statement of the amount due to pay off the outstanding balance of a high-cost mortgage.”)