How can we properly disclose at the origination of a home equity line of credit (HELOC) what the release fee will be when the loan is terminated? We are aware that such fees are allowable in Illinois, but we can’t say with certainty what the amount will be, and the fees vary by county.

We do not believe you are required to disclose the exact amount of the release fee at the HELOC’s origination. Rather, you can disclose the existence of the release fee and explain how it will be determined.

For home-equity plans, Regulation Z states that creditors must disclose at account opening “the circumstances under which a finance charge will be imposed and an explanation of how it will be determined.” We believe that a release fee would be considered a “finance charge” under Regulation Z, since it is a fee “imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit” and it is not the type of charge that would be “payable in a comparable cash transaction.”

Regulation Z also provides that “[t]axes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest” may be excluded from the finance charge if they are itemized and disclosed. However, since you are unable to itemize and disclose the exact amount of the release fee, we believe you may comply with Regulation Z’s disclosure requirements by describing the fee, the circumstances under which it will be imposed, and how it will be determined.

Further, we agree that Illinois law permits banks to charge HELOC lien release fees — provided your customer has agreed to pay such fees, and this is reflected in the HELOC agreement. We are not aware of any Illinois law that specifies how such fees must be disclosed. Accordingly, we believe such fees are allowable as long as they are agreed to by your customer and your disclosure of the fees is not deceptive.

Although Section 4.1 of the Interest Act appears to prohibit lenders from charging borrowers for “expenses, including recording fees and otherwise” when releasing a mortgage lien, a separate section of the Interest Act 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, except as otherwise provided in the Predatory Loan Prevention Act, with respect to . . . (l) Loans secured by a mortgage on real estate.” The Illinois Financial Services Development Act also confirms that Illinois financial institutions may charge mortgage release fees with respect to open-end credit.

Additionally, 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 Illinois Banking Act provision applies to bank lenders “[n]otwithstanding the provisions of any other law.”

For resources related to our guidance, please see:

Regulation Z, 12 CFR 1026.6(a)(1) (“The requirements of this paragraph (a) apply only to home-equity plans subject to the requirements of § 1026.40. A creditor shall disclose the items in this section, to the extent applicable: (1) The circumstances under which a finance charge will be imposed and an explanation of how it will be determined, as follows: . . . (iv) An explanation of how the amount of any finance charge will be determined, including a description of how any finance charge other than the periodic rate will be determined.”)

Regulation Z, 12 CFR 1026.4(a) (“The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.”)

Regulation Z, 12 CFR 1026.4(e) (“If itemized and disclosed, the following charges may be excluded from the finance charge: (1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.”)

Regulation Z, Official Interpretations, Paragraph 4(e), Comment 2 (“The various charges described in § 1026.4(e)(1) and (e)(3) may be totaled and disclosed as an aggregate sum, or they may be itemized by the specific fees and taxes imposed. If an aggregate sum is disclosed, a general term such as security interest fees or filing fees may be used.”)

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.”)

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. . . . It is lawful to charge, contract for, and receive any rate or amount of interest or compensation, except as otherwise provided in the Predatory Loan Prevention Act, with respect to the following transactions: . . . (l) Loans secured by a mortgage on real estate.”)

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.”)

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.”)