We are currently assessing a “fax/email” fee when we send payoff statements for home equity lines of credit (HELOCs). Are there any prohibitions against this practice under state law?

No, other than Regulation Z’s prohibition against charging fees for payoff statements for high-cost mortgage loans, we are not aware of any law prohibiting charging fees for sending payoff statements, provided the borrower has agreed to the fee in the loan documents.

Regulation Z requires that for consumer loans secured by a consumer’s dwelling, the creditor must provide an accurate payoff statement within seven business days of a consumer’s request. However, it does not limit or prohibit fees charged in connection with providing a payoff statement.

As a matter of contract law, and under Illinois law, fees charged for payoff statements must be agreed to by your customers. The Illinois Banking Act generally provides that a state bank may “elect to contract for and receive interest, fees, and other charges for extensions of credit” according to its “prudent business judgment and safe and sound operating standards” subject only to section 4(1) of the Interest Act and any laws applicable to “credit secured by residential real estate.” Subsection 4(1) of the Interest Act permits banks to collect interest and charges at any rate agreed upon by a bank and its borrower and, with respect to a mortgage loan, specifies 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) for loans secured by a mortgage on real estate.

For loans that are considered high-cost mortgages under Regulation Z, fees for payoff statements generally are prohibited, unless the customer requests that you provide the statement by fax or courier service. If you will be charging such a fee for payoff statements provided by fax or courier, you should disclose that payoff statements are otherwise available for free.

We caution that earlier this year, the CFPB requested comments from consumers on “junk fees.” While the CFPB did not highlight fees charged for payoff statements in its request for comments, we believe your bank is prudent to be reassessing fees charged for ancillary services like faxing and emailing payoff statements.

For resources related to our guidance, please see:

Regulation Z, 12 CFR 1026.36(c)(3) (“Payoff statements. In connection with a consumer credit transaction secured by a consumer’s dwelling, a creditor, assignee or servicer, as applicable, must provide an accurate statement of the total outstanding balance that would be required to pay the consumer’s obligation in full as of a specified date. The statement shall be sent within a reasonable time, but in no case more than seven business days, after receiving a written request from the consumer or any person acting on behalf of the consumer.”)

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.”)

Illinois Banking Act, 205 ILCS 5/5e(b) (“The establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to be made by a bank according to 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. . . . 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.”)

Regulation Z, 12 CFR 1026.34(a)(9)(i) (“In general, a creditor or servicer . . . 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.”)

Regulation Z, 12 CFR 1026.34(a)(9)(ii) (“A creditor or servicer may charge a processing fee to cover the cost of providing a payoff statement, as described in paragraph (a)(9)(i) of this section, by fax or courier, provided that such fee may not exceed an amount that is comparable to fees imposed for similar services provided in connection with consumer credit transactions that are secured by the consumer’s principal dwelling and are not high-cost mortgages. A creditor or servicer shall make a payoff statement available to a consumer, or a person authorized by the consumer to obtain such information, by a method other than by fax or courier and without charge pursuant to paragraph (a)(9)(i) of this section.”)

Regulation Z, 12 CFR 1026.34(a)(9)(iii) (“Prior to charging a processing fee for provision of a payoff statement by fax or courier, as permitted pursuant to paragraph (a)(9)(ii) of this section, a creditor or servicer shall disclose to a consumer or a person authorized by the consumer to obtain the consumer’s payoff statement that payoff statements, as described in paragraph (a)(9)(i) of this section, are available by a method other than by fax or courier without charge.”)

CFPB, Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services, 87 Fed. Reg. 5801, 5803 (February 2, 2022) (“1. If you are a consumer, please tell us about your experiences with fees associated with your bank, credit union, prepaid or credit card account, credit card, mortgage, loan, or payment transfers, including:

a. Fees for things you believed were covered by the baseline price of a product or service.

b. Unexpected fees for a product or service.

c. Fees that seemed too high for the purported service.

d. Fees where it was unclear why they were charged.

2. What types of fees for financial products or services obscure the true cost of the product or
service by not being built into the upfront price?”)