We are not aware of any federal or Illinois law prohibiting “deep discount features” for commercial ARM loans. We recommend reaching out to LaserPro for an explanation of the error.

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 provision applies to banks “notwithstanding the provisions of any other law.” Subsection 4(1) of the Interest Act permits banks to collect interest at any rate agreed upon by a bank and its borrower and specifies that it is lawful to charge, contract for, and receive any rate or amount of interest for loans secured by a mortgage on real estate. While additional requirements and limitations are imposed under Illinois and federal law for high risk home loans and high-cost and higher-priced mortgages, respectively, these requirements and limitations do not apply to commercial credit transactions.

We note that Regulation Z requires creditors to provide consumers with a loan program disclosure for each variable-rate program in which the consumer expresses interest. Regulation Z’s Official Commentary explains that the presence or absence of a “discount feature” is a difference that constitutes a separate loan program. Accordingly, it is possible that the LaserPro error has something to do with this Regulation Z requirement. However, this requirement applies only to transactions secured by a consumer’s principal dwelling with a term greater than one year where the annual percentage rate may increase after consummation.

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.”)

• 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. . . .”)

• High Risk Home Loan Act, 815 ILCS 137/10 (“‘High risk home loan’ means a consumer credit transaction, other than a reverse mortgage, that is secured by the consumer’s principal dwelling if: (i) at the time of origination, the annual percentage rate exceeds by more than 6 percentage points in the case of a first lien mortgage, or by more than 8 percentage points in the case of a junior mortgage, the average prime offer rate, as defined in Section 129C(b)(2)(B) of the federal Truth in Lending Act, for a comparable transaction as of the date on which the interest rate for the transaction is set, or if the dwelling is personal property, then as provided under 15 U.S.C. 1602(bb), as amended, and any corresponding regulation, as amended. . . .”)

• Regulation Z, 12 CFR 1026.32(a)(1) (“The requirements of this section apply to a high-cost mortgage, which is any consumer credit transaction that is secured by the consumer’s principal dwelling, other than as provided in paragraph (a)(2) of this section, and in which: (i) The annual percentage rate applicable to the transaction, as determined in accordance with paragraph (a)(3) of this section, will exceed the average prime offer rate, as defined in § 1026.35(a)(2), for a comparable transaction by more than: (A) 6.5 percentage points for a first-lien transaction, other than as described in paragraph (a)(1)(i)(B) of this section; (B) 8.5 percentage points for a first-lien transaction if the dwelling is personal property and the loan amount is less than $50,000; or (C) 8.5 percentage points for a subordinate-lien transaction. . . .”)

• Regulation Z, 12 CFR 1026.35(a)(1) (“‘Higher-priced mortgage loan’ means a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set: (i) By 1.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that does not exceed the limit in effect as of the date the transaction’s interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; (ii) By 2.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction’s interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; or (iii) By 3.5 or more percentage points for loans secured by a subordinate lien. . . .”)

• Regulation Z, 12 CFR 1026.19(b)(2) (“Except as provided in paragraph (d) of this section, if the annual percentage rate may increase after consummation in a transaction secured by the consumer’s principal dwelling with a term greater than one year, the following disclosures must be provided at the time an application form is provided or before the consumer pays a non-refundable fee, whichever is earlier (except that the disclosures may be delivered or placed in the mail not later than three business days following receipt of a consumer’s application when the application reaches the creditor by telephone, or through an intermediary agent or broker): . . . (2) A loan program disclosure for each variable-rate program in which the consumer expresses an interest. The following disclosures, as applicable, shall be provided: . . .”)

• Regulation Z, Official Interpretations, Paragraph 19(b)(2), Comment 2(i) (“Generally, if the identification, the presence or absence, or the exact value of a loan feature must be disclosed under this section, variable-rate loans that differ as to such features constitute separate loan programs. For example, separate loan programs would exist based on differences in any of the following loan features: . . . (H) The presence of a discount feature.”)