No, we are not aware of any laws or regulations that would prevent you from adding accrued interest to the loan’s principal balance (i.e., capitalizing the interest). However, we recommend reviewing the terms of your loan contract and forbearance agreement to determine whether the capitalization is contractually permissible.

Section 4013 of the CARES Act allows a financial institution to receive temporary relief from certain accounting and reporting requirements applicable to troubled debt restructurings if it has extended an eligible loan modification, such as a forbearance arrangement, to a borrower related to COVID-19.

Section 4013 does not dictate the repayment terms of eligible loan modifications, so we recommend reviewing the terms of your loan contract and forbearance agreement to determine if the terms permit unpaid interest to be capitalized or dictate how interest accrued during the forbearance period must be repaid. If your agreements are silent on these points, we believe you may capitalize the interest as part of the renewal — provided the borrower agrees to these terms.

Additionally, note that for purposes of the Illinois Banking Act’s basic lending limits, a financial institution is considered to have made a new loan if it capitalizes interest at renewal.

For resources related to our guidance, please see:

• CARES Act, Section 4013(b)(1) (“During the applicable period, a financial institution may elect to . . . (A) suspend the requirements under United States generally accepted accounting principles for loan modifications related to the coronavirus disease 2019 (COVID-19) pandemic that would otherwise be categorized as a troubled debt restructuring; and (B) suspend any determination of a loan modified as a result of the effects of the coronavirus disease 2019 (COVID-19) pandemic as being a troubled debt restructuring, including impairment for accounting purposes.”)

• CARES Act, Section 4013(b)(2) (“Any suspension under paragraph (1) (A) shall be applicable for the term of the loan modification, but solely with respect to any modification, including a forbearance arrangement, an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest, that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019; and (B) shall not apply to any adverse impact on the credit of a borrower that is not related to the coronavirus disease 2019 (COVID-19) pandemic.”)

• Illinois Lending Limit Rules, 38 Ill. Adm. Code 320.20 (For purposes of the Illinois Banking Act’s basic lending limits, “a renewal of a loan or extension of credit shall not be deemed to be a new loan or extension of credit except in instances when interest on the renewed loan or extension of credit is capitalized”)