We are interested in charging a returned check fee for loan payments made by check that are dishonored. This fee would be charged on both the consumer and commercial side and would be applied only to new loans going forward. We are working on a new disclosure for this fee. However, we first want to know whether Illinois law allows this, and if so, whether there is a maximum amount that we can charge for this kind of fee.

We believe that Illinois law allows banks to charge returned check fees for both consumer and commercial loans, provided that the fee is properly disclosed and agreed to by the borrower. Additionally, we do not believe there is a maximum amount for returned check fees for loan payments, provided the fee is set according to your “prudent business judgment and safe and sound operating standards.” We do recommend taking care in documenting the need for the fees (which presumably would be charged in addition to late payment penalties and fees) and the fee amounts, given the CFPB’s recent scrutiny of NSF fees and other “junk” fees.

The Illinois Banking Act generally allows, “notwithstanding the provisions of any other law in connection with extensions of credit,” a state bank to “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, which exempts banks) for loans secured by a mortgage on real estate.

The Illinois Uniform Commercial Code (UCC) contains limits on returned check fees of $25 for consumer and $4.50 for commercial accounts. However, the Illinois Banking Act’s provisions regarding fees apply “[n]otwithstanding the provisions of any other law in connection with extensions of credit.” Additionally, the UCC’s $4.50 limit on returned check fees for commercial accounts applies only to checks deposited into “a commercial checking account or other similar commercial account,” and we do not believe this limit applies to loan payments.

We caution that earlier this year, the CFPB requested comments from consumers on “junk fees.” In the request for comment, the CFPB specifically asked about non-sufficient funds and returned check fees, and we expect that the scrutiny of NSF and related fees will continue.

For resources related to our guidance, please see:

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 . . . 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 UCC, 810 ILCS 5/3-806 (“Any person who issues a check or other draft that is not honored upon presentment because the drawer does not have an account with the drawee, or because the drawer does not have sufficient funds in his account, or because the drawer does not have sufficient credit with the drawee, shall be liable in the amount of $25, or for all costs and expenses, including reasonable attorney’s fees, incurred by any person in connection with the collection of the amount for which the check or other draft was written, whichever is greater.”)

Illinois UCC, 810 ILCS 5/3-806 (“A fee or charge not to exceed $4.50 may be assessed to any person or owner of a commercial checking account or other similar commercial account where a check or other draft that is deposited into the account is dishonored upon presentment because of insufficient funds or because the drawer does not have an account with the drawee; provided, however, that, the limitation on the fee or charge specified in this paragraph does not apply to any fee or charge assessed to any bank or other depository institution or to any non-commercial checking account or other similar non-commercial account.”)

CFPB, Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services, 87 Fed. Reg. 5801, 5803 (February 2, 2022) (“3. What fees exceed the cost to the entity that the fee purports to cover? For example, is the amount charged for NSF fees necessary to cover the cost of processing a returned check and associated losses to the depository institution?”)