Topic: Usury Laws
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Do you know of any limitations on default interest rates in Illinois and Indiana?
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We can provide guidance on Illinois law, but we cannot provide any guidance on Indiana law and recommend that you contact a state banking association based in Indiana, if possible. We believe that banks in Illinois can charge any interest rate after the borrower defaults (provided that the customer agreed to the default rate in…
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Is it true that Illinois requires loan interest to be calculated on a 365/365 basis?
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There have been no Illinois laws enacted on this subject since Public Act 96-1421 (August 3, 2010). The Illinois Interest Act still states that banks may use the 365/360 method to calculate interest on commercial loans. 815 ILCS 205/4(5). (Note that it is not the prevailing industry practice to use the 365/360 method for consumer…
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Is the topic of post-maturity interest rates (also known as default rates) addressed in Illinois law?
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The Illinois Interest Act does address default rates. Section 4.1a states that default rates are limited to five-percent of the installment amount and that they cannot be charged until ten days after default. 815 ILCS 205/4.1a(f). However, we do not believe that the restrictions on interest rates and charges in the Interest Act apply to…
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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…
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We are thinking about charging a “coupon book fee” to customers that request a coupon book for loan payments. Would this be considered a finance charge? Would we have to rebate the fee if the customer prepays the loan before the end of its term?
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We believe that the fee for providing a coupon book would be considered a finance charge, as it would not be charged in a comparable cash transaction and does not fall into any of the categories that are exempted from the definition of a finance charge. 12 CFR 1026.4(a). Whether it is a prepaid finance…
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Can we charge dormancy fees on inactive accounts?
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Illinois law permits a bank to determine an appropriate dormancy fee in accordance with the bank’s prudent business judgment and safe and sound operating standards. 205 ILCS 5/5e(b). Further, the Uniform Disposition of Unclaimed Property Act [Repealed effective 1/1/18] allows the bank to withhold any lawful charges, including dormancy fees, from abandoned property. 765 ILCS…
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Is it true that Illinois law prohibits mortgages on revolving lines of credit of $5,000 or less?
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We understand that your sfotware vendor is taking a conservative position as to possibly conflicting provisions in Illinois law. The Interest Act does not allow a lender to take a security interest in real property unless the loan is in excess of $5,000. 815 ILCS 205/4.1. However, the Illinois Financial Services Development Act allows financial institutions…
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Does Illinois have any usury laws as to consumer loans that would apply to national banks?
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Late Fees on Loans We do not believe that there are any restrictions on interest rates for consumer (or other) loans, provided that the customer contracted to pay such fees in your loan agreement. Section 5e of the Banking Act states that “[n]otwithstanding the provisions of any other law in connection with extensions of credit”…
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Is there a minimum interest rate that we have to charge on any types of loans?
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We do not believe that there are any laws that require a minimum interest rate that a bank must charge for a loan. As stated in the Illinois Interest Act, a bank is authorized “to receive or contract to receive and collect interest and charges at any rate or rates agreed upon by the bank…
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Is there a cap on the late fees that we can charge on consumer loans (residential and non-residential, such as auto loans)?
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Late Fees on Loans We do not believe that there are any restrictions on charging fees for a loan secured by a mortgage on real estate or on consumer loans, provided that the customer contracted to pay such fees in your loan agreement. As stated in the Illinois Interest Act, a bank is authorized “to…