Topic: Insufficient Funds Fees
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We charge our consumer deposit customers two fees when we have to return a check deposited by the customer for NSF: a reclear fee, and, if the check is returned for a second time, a chargeback fee. We send a notice after charging either fee. Do you see any UDAAP issues with this practice?
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A reclearing fee assessed in combination with a chargeback fee does raise the possibility of some UDAAP concerns, but under the appropriate circumstances it arguably would be defensible. To clarify the terminology for these fees, which is not consistent across financial institutions, your institution charges a fee (which you call a “chargeback fee”) when a…
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Can we charge a fee for ACH loan payments or payments that are made by check that are returned to us NSF?
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We do not believe that there are any limitations on charging reasonable NSF fees that would apply to a bank. There are very few limitations on interest rates and fees charged by banks under Illinois law. However, any NSF fees must be agreed to by your customers in your loan agreement. Section 5e of the…
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We are going to start charging a dishonored item/insufficient funds (NSF) fee for loan payments that are returned unpaid. One concern is that returned checks written on a deposit account at our bank will get hit with a second returned check fee under our deposit account agreements. Do you see a problem with this?
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We agree that you may contract for and charge fees for returned checks for loan payments, even though some customers may be charged fees both on a loan at your bank and on the customer’s deposit account held at your bank. Overall, there are very few limitations on interest rates and fees charged by banks…
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Our residential mortgage agreements authorize us to charge dishonored item fees, but we haven’t been charging the fees so far. Are these types of fees permitted under Illinois law?
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We do not believe that there are any limitations on NSF fees that apply to your institution. In fact, there are very few limitations on interest rates and fees charged by banks under Illinois law. Section 5e of the Banking Act states that a bank may “elect to contract for and receive interest, fees, and…
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Are NSF fees allowed under the Illinois Interest Act for loans of less than $25,000?
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We do not believe that the limitations on installment loan fees in Section 4a of the Interest Act apply to your institution. In fact, there are very few limitations on interest rates and fees charged by banks under Illinois law. Section 5e of the Banking Act states that a bank may “elect to contract for…
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Can we start charging insufficient fund (NSF) fees on our current loans by amending our existing loan agreements? If so, are we required to provide thirty days’ notice to the affected customers?
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While there are few limitations on fees banks may charge under Illinois law, you cannot start charging NSF fees to existing customers who have not contracted to pay such fees in their loan agreements. That said, we recommend contacting your bank counsel, as your current loan agreements may already include provisions permitting you to charge…
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Is there an Illinois law that prohibits returned check fees that exceed $4.50?
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Under the Uniform Commercial Code, returned check fees may not exceed $4.50 for “a commercial checking account or other similar commercial account.” 810 ILCS 5/3-806. As to consumer accounts, we are not aware of any limitations on returned check fees that would apply to banks. Under Illinois law, there are very few limitations on fees…
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Can we charge a returned check fee to consumers and commercial accounts, and is there a maximum fee?
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Under the Uniform Commercial Code, returned check fees may not exceed $4.50 for “a commercial checking account or other similar commercial account.” 810 ILCS 5/3-806. As to consumer accounts, we are not aware of any limitations on returned check fees that would apply to banks. Under Illinois law, there are very few limitations on fees…
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Has there ever been any prohibition against charging business customers (or customers in general) returned check fees?
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In Illinois, the answer is yes as to commercial accounts. The UCC caps returned check fees on commercial accounts at $4.50. 810 ILCS 5/3-806. As to consumer accounts, that rule does not apply. Instead, the general rule from the Banking Act applies, which is that banks may charge any fees “subject only to the provisions…
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Do you know why we got a warning from our loan software stating that we cannot charge a dishonored item fee on consumer loans?
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We do not believe that there are any restrictions on charging fees for a loan secured by a mortgage on real estate, provided that the customer contracted to pay such fees in your loan agreement. Section 4(1) of the Illinois Interest Act states that “it is lawful to charge, contract for, and receive any rate…