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90_SB0670eng 815 ILCS 205/4.1a from Ch. 17, par. 6406 Amends the Interest Act. Adds a caption to a Section concerning charges that are deemed not to be consideration for a loan. LRB9003309JSgc SB670 Engrossed LRB9003309JSgc 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 SB670 Engrossed -2- LRB9003309JSgc 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 SB670 Engrossed -3- LRB9003309JSgc 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; SB670 Engrossed -4- LRB9003309JSgc 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) Whenever the rate of interest exceeds 8% per 29 annum on any written contract, agreement or bond for deed 30 providing for the installment purchase of residential 31 real estate, or on any loan secured by a mortgage on 32 residential real estate, it shall be unlawful to provide 33 for a prepayment penalty or other charge for prepayment. 34 (b) No agreement, note or other instrument SB670 Engrossed -5- LRB9003309JSgc 1 evidencing a loan secured by a mortgage on residential 2 real estate, or written contract, agreement or bond for 3 deed providing for the installment purchase of 4 residential real estate, may provide for any change in 5 the contract rate of interest during the term thereof. 6 However, if the Congress of the United States or any 7 federal agency authorizes any class of lender to enter, 8 within limitations, into mortgage contracts or written 9 contracts, agreements or bonds for deed in which the rate 10 of interest may be changed during the term of the 11 contract, any person, firm, corporation or other entity 12 not otherwise prohibited from entering into mortgage 13 contracts or written contracts, agreements or bonds for 14 deed in Illinois may enter into mortgage contracts or 15 written contracts, agreements or bonds for deed in which 16 the rate of interest may be changed during the term of 17 the contract, within the same limitations. 18 (c) For any home equity line of credit secured by 19 residential real estate of a borrower, it shall be lawful 20 to charge a cancellation fee not exceeding $500 to the 21 borrower in the event the borrower cancels the line of 22 credit. 23 (3) In any contract or loan which is secured by a 24 mortgage, deed of trust, or conveyance in the nature of a 25 mortgage, on residential real estate, the interest which is 26 computed, calculated, charged, or collected pursuant to such 27 contract or loan, or pursuant to any regulation or rule 28 promulgated pursuant to this Act, may not be computed, 29 calculated, charged or collected for any period of time 30 occurring after the date on which the total indebtedness, 31 with the exception of late payment penalties, is paid in 32 full. 33 For purposes of this Section, a prepayment shall mean the 34 payment of the total indebtedness, with the exception of late SB670 Engrossed -6- LRB9003309JSgc 1 payment penalties if incurred or charged, on any date before 2 the date specified in the contract or loan agreement on which 3 the total indebtedness shall be paid in full, or before the 4 date on which all payments, if timely made, shall have been 5 made. In the event of a prepayment of the indebtedness which 6 is made on a date after the date on which interest on the 7 indebtedness was last computed, calculated, charged, or 8 collected but before the next date on which interest on the 9 indebtedness was to be calculated, computed, charged, or 10 collected, the lender may calculate, charge and collect 11 interest on the indebtedness for the period which elapsed 12 between the date on which the prepayment is made and the date 13 on which interest on the indebtedness was last computed, 14 calculated, charged or collected at a rate equal to 1/360 of 15 the annual rate for each day which so elapsed, which rate 16 shall be applied to the indebtedness outstanding as of the 17 date of prepayment. The lender shall refund to the borrower 18 any interest charged or collected which exceeds that which 19 the lender may charge or collect pursuant to the preceding 20 sentence. The provisions of this amendatory Act of 1985 shall 21 apply only to contracts or loans entered into on or after the 22 effective date of this amendatory Act, but shall not apply to 23 contracts or loans entered into on or after that date that 24 are subject to Section 4a of this Act, the Consumer 25 Installment Loan Act, or the Retail Installment Sales Act, or 26 that provide for the refund of precomputed interest on 27 prepayment in the manner provided by such Act. 28 (Source: P.A. 89-208, eff. 9-29-95.)