IBA Compliance Connection

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Is there an Illinois law that specifies a maximum percentage or dollar amount for a late charge that can be charged on a consumer loan if the loan payment is above or below $200 per month?

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No, we do not believe that Illinois law limits the late fees and charges that your bank may impose, provided that your customer has agreed to the late fees and charges.

The Illinois Interest Act limits delinquency and collection charges for installment loans, providing that such charges may not exceed “5% of the installment on installments in excess of $200 or $10 on installments of $200 or less.”  However, the Interest Act’s limitations on installment loan charges do not apply to banks.

The Illinois Banking Act states that “[n]otwithstanding the provisions of any other law in connection with extensions of credit,” a bank may charge any fees “subject only to the provisions of [subsection 4(1)] of the Interest Act,” provided the bank sets the fees based on its “prudent business judgment and safe and sound operating standards.” Further, subsection 4(1) of the Interest Act provides that it shall be lawful for a state bank or a branch of an out-of-state bank to “collect interest and charges at any rate or rates agreed upon by the bank or branch and the borrower.”

For resources related to our guidance, please see:

  • Interest Act, Installment loan rate 815 ILCS 205/4a(e) (“The lender or creditor may, if the contract provides, collect a delinquency and collection charge on each installment in default for a period of not less than 10 days in an amount not exceeding 5% of the installment on installments in excess of $200 or $10 on installments of $200 or less, but only one delinquency and collection charge may be collected on any installment regardless of the period during which it remains in default.”)
  • Illinois Banking Act, 205 ILCS 5/5e (“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 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. . . .”)