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90_SB1680
815 ILCS 205/4 from Ch. 17, par. 6404
Amends the Interest Act. Prohibits prepayment penalties
with respect to mortgage loans and agreements for the
installment purchase of residential real estate. Currently
prepayment penalties are prohibited only if the interest rate
exceeds 8% per year. Effective immediately.
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LRB9009521JSmb
1 AN ACT to amend the Interest Act by changing Section 4.
2 Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
4 Section 5. The Interest Act is amended by changing
5 Section 4 as follows:
6 (815 ILCS 205/4) (from Ch. 17, par. 6404)
7 Sec. 4. General interest rate.
8 (1) In all written contracts it shall be lawful for the
9 parties to stipulate or agree that 9% per annum, or any less
10 sum of interest, shall be taken and paid upon every $100 of
11 money loaned or in any manner due and owing from any person
12 to any other person or corporation in this state, and after
13 that rate for a greater or less sum, or for a longer or
14 shorter time, except as herein provided.
15 The maximum rate of interest that may lawfully be
16 contracted for is determined by the law applicable thereto at
17 the time the contract is made. Any provision in any
18 contract, whether made before or after July 1, 1969, which
19 provides for or purports to authorize, contingent upon a
20 change in the Illinois law after the contract is made, any
21 rate of interest greater than the maximum lawful rate at the
22 time the contract is made, is void.
23 It is lawful for a state bank or a branch of an
24 out-of-state bank, as those terms are defined in Section 2 of
25 the Illinois Banking Act, to receive or to contract to
26 receive and collect interest and charges at any rate or rates
27 agreed upon by the bank or branch and the borrower.
28 It is lawful to receive or to contract to receive and
29 collect interest and charges as authorized by this Act and as
30 authorized by the Consumer Installment Loan Act and by the
31 "Consumer Finance Act", approved July 10, 1935, as now or
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1 hereafter amended. It is lawful to charge, contract for, and
2 receive any rate or amount of interest or compensation with
3 respect to the following transactions:
4 (a) Any loan made to a corporation;
5 (b) Advances of money, repayable on demand, to an
6 amount not less than $5,000, which are made upon
7 warehouse receipts, bills of lading, certificates of
8 stock, certificates of deposit, bills of exchange, bonds
9 or other negotiable instruments pledged as collateral
10 security for such repayment, if evidenced by a writing;
11 (c) Any credit transaction between a merchandise
12 wholesaler and retailer; any business loan to a business
13 association or copartnership or to a person owning and
14 operating a business as sole proprietor or to any persons
15 owning and operating a business as joint venturers, joint
16 tenants or tenants in common, or to any limited
17 partnership, or to any trustee owning and operating a
18 business or whose beneficiaries own and operate a
19 business, except that any loan which is secured (1) by an
20 assignment of an individual obligor's salary, wages,
21 commissions or other compensation for services, or (2) by
22 his household furniture or other goods used for his
23 personal, family or household purposes shall be deemed
24 not to be a loan within the meaning of this subsection;
25 and provided further that a loan which otherwise
26 qualifies as a business loan within the meaning of this
27 subsection shall not be deemed as not so qualifying
28 because of the inclusion, with other security consisting
29 of business assets of any such obligor, of real estate
30 occupied by an individual obligor solely as his
31 residence. The term "business" shall be deemed to mean a
32 commercial, agricultural or industrial enterprise which
33 is carried on for the purpose of investment or profit,
34 but shall not be deemed to mean the ownership or
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1 maintenance of real estate occupied by an individual
2 obligor solely as his residence;
3 (d) Any loan made in accordance with the provisions
4 of Subchapter I of Chapter 13 of Title 12 of the United
5 States Code, which is designated as "Housing Renovation
6 and Modernization";
7 (e) Any mortgage loan insured or upon which a
8 commitment to insure has been issued under the provisions
9 of the National Housing Act, Chapter 13 of Title 12 of
10 the United States Code;
11 (f) Any mortgage loan guaranteed or upon which a
12 commitment to guaranty has been issued under the
13 provisions of the Veterans' Benefits Act, Subchapter II
14 of Chapter 37 of Title 38 of the United States Code;
15 (g) Interest charged by a broker or dealer
16 registered under the Securities Exchange Act of 1934, as
17 amended, or registered under the Illinois Securities Law
18 of 1953, approved July 13, 1953, as now or hereafter
19 amended, on a debit balance in an account for a customer
20 if such debit balance is payable at will without penalty
21 and is secured by securities as defined in Uniform
22 Commercial Code-Investment Securities;
23 (h) Any loan made by a participating bank as part
24 of any loan guarantee program which provides for loans
25 and for the refinancing of such loans to medical
26 students, interns and residents and which are guaranteed
27 by the American Medical Association Education and
28 Research Foundation;
29 (i) Any loan made, guaranteed, or insured in
30 accordance with the provisions of the Housing Act of
31 1949, Subchapter III of Chapter 8A of Title 42 of the
32 United States Code and the Consolidated Farm and Rural
33 Development Act, Subchapters I, II, and III of Chapter 50
34 of Title 7 of the United States Code;
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1 (j) Any loan by an employee pension benefit plan,
2 as defined in Section 3 (2) of the Employee Retirement
3 Income Security Act of 1974 (29 U.S.C.A. Sec. 1002), to
4 an individual participating in such plan, provided that
5 such loan satisfies the prohibited transaction exemption
6 requirements of Section 408 (b) (1) (29 U.S.C.A. Sec.
7 1108 (b) (1)) or Section 2003 (a) (26 U.S.C.A. Sec. 4975
8 (d) (1)) of the Employee Retirement Income Security Act
9 of 1974;
10 (k) Written contracts, agreements or bonds for deed
11 providing for installment purchase of real estate;
12 (1) Loans secured by a mortgage on real estate;
13 (m) Loans made by a sole proprietorship,
14 partnership, or corporation to an employee or to a person
15 who has been offered employment by such sole
16 proprietorship, partnership, or corporation made for the
17 sole purpose of transferring an employee or person who
18 has been offered employment to another office maintained
19 and operated by the same sole proprietorship,
20 partnership, or corporation;
21 (n) Loans to or for the benefit of students made by
22 an institution of higher education.
23 (2) Except for loans described in subparagraph (a), (c),
24 (d), (e), (f) or (i) of subsection (1) of this Section, and
25 except to the extent permitted by the applicable statute for
26 loans made pursuant to Section 4a or pursuant to the Consumer
27 Installment Loan Act:
28 (a) With respect to Whenever the rate of interest
29 exceeds 8% per annum on any written contract, agreement,
30 or bond for deed providing for the installment purchase
31 of residential real estate, or on any loan secured by a
32 mortgage on residential real estate, it shall be unlawful
33 to provide for a prepayment penalty or other charge for
34 prepayment.
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1 (b) No agreement, note or other instrument
2 evidencing a loan secured by a mortgage on residential
3 real estate, or written contract, agreement or bond for
4 deed providing for the installment purchase of
5 residential real estate, may provide for any change in
6 the contract rate of interest during the term thereof.
7 However, if the Congress of the United States or any
8 federal agency authorizes any class of lender to enter,
9 within limitations, into mortgage contracts or written
10 contracts, agreements or bonds for deed in which the rate
11 of interest may be changed during the term of the
12 contract, any person, firm, corporation or other entity
13 not otherwise prohibited from entering into mortgage
14 contracts or written contracts, agreements or bonds for
15 deed in Illinois may enter into mortgage contracts or
16 written contracts, agreements or bonds for deed in which
17 the rate of interest may be changed during the term of
18 the contract, within the same limitations.
19 (3) In any contract or loan which is secured by a
20 mortgage, deed of trust, or conveyance in the nature of a
21 mortgage, on residential real estate, the interest which is
22 computed, calculated, charged, or collected pursuant to such
23 contract or loan, or pursuant to any regulation or rule
24 promulgated pursuant to this Act, may not be computed,
25 calculated, charged or collected for any period of time
26 occurring after the date on which the total indebtedness,
27 with the exception of late payment penalties, is paid in
28 full.
29 For purposes of this Section, a prepayment shall mean the
30 payment of the total indebtedness, with the exception of late
31 payment penalties if incurred or charged, on any date before
32 the date specified in the contract or loan agreement on which
33 the total indebtedness shall be paid in full, or before the
34 date on which all payments, if timely made, shall have been
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1 made. In the event of a prepayment of the indebtedness which
2 is made on a date after the date on which interest on the
3 indebtedness was last computed, calculated, charged, or
4 collected but before the next date on which interest on the
5 indebtedness was to be calculated, computed, charged, or
6 collected, the lender may calculate, charge and collect
7 interest on the indebtedness for the period which elapsed
8 between the date on which the prepayment is made and the date
9 on which interest on the indebtedness was last computed,
10 calculated, charged or collected at a rate equal to 1/360 of
11 the annual rate for each day which so elapsed, which rate
12 shall be applied to the indebtedness outstanding as of the
13 date of prepayment. The lender shall refund to the borrower
14 any interest charged or collected which exceeds that which
15 the lender may charge or collect pursuant to the preceding
16 sentence. The provisions of this amendatory Act of 1985 shall
17 apply only to contracts or loans entered into on or after the
18 effective date of this amendatory Act, but shall not apply to
19 contracts or loans entered into on or after that date that
20 are subject to Section 4a of this Act, the Consumer
21 Installment Loan Act, or the Retail Installment Sales Act, or
22 that provide for the refund of precomputed interest on
23 prepayment in the manner provided by such Act.
24 (Source: P.A. 89-208, eff. 9-29-95.)
25 Section 99. Effective date. This Act takes effect upon
26 becoming law.