2005 Legislative Update
The following is a summary of significant banking related legislation enacted by the Illinois General Assembly and subsequently approved by Governor Blagojevich. Complete copies of the legislation are available from the Illinois General Assembly web site at www.ilga.gov. This summary is provided for your general reference. For specific guidance concerning the applicability or effect of legislation on your institution, you should seek the advice of your legal counsel.
This summary also identifies several significant legislative bills that have passed both legislative chambers and have been sent to the Governor for signature. Although these identified legislative bills have not yet been enacted into law, the Division expects the Governor to take action upon these bills within the next 30 days.
PAYDAY LOAN REFORM ACT
Public Act 94-13 (H.B. 1100) codifies new consumer protection for those who enter into payday loans and establishes new regulations for lenders of payday loans. The Act defines a payday loan as one which has a minimum term of at least 13 days and does not exceed a term of 120 days and which has a finance charge exceeding an annual percentage rate of 36%. A payday loan by definition involves a lender accepting one or more checks dated on the date of the loan and agreeing to hold these checks for a specific period of time before deposit or presentment; the lender accepts an authorization to debit a consumers bank account; or the lender accepts an interest in the consumers wages, including a wage assignment.
Significant new consumer protections include:
(1.) A prohibition on loans that would result in a consumer being indebted to one or more payday lenders for a period in excess of 45 consecutive days. In addition, the Act establishes a cap on payday loans if the total of the principal proposed loan amount, when combined with all of the consumer’s outstanding payday loans exceed the lessor of either $1000 or 25% of the consumer’s gross monthly income;
(2.) A prohibition on new payday loans involving any consumer who has a balance on 2 exiting payday loans;
(3.) A prohibition against the payday lender taking any interest in the consumer’s personal property to secure the payday loan;
(4.) A prohibition against any charge that exceeds $15.50 per $100 loaned; and
(5.) A prohibition against rollover of payday loans.
The Payday Loan Reform Act establishes procedures for the Illinois Department of Financial and Professional Regulation, (IDFPR) to certify one or more consumer reporting services. These consumer reporting services will be used to verify that a proposed loan is permissible under the Act.
The Act also establishes a record keeping and reporting requirement upon all payday lenders who provide loans to Illinois consumers. Beginning the second year after the Act becomes effective in Illinois, IDFPR is required to publish a biennial report, available to the public, the Office of the Governor, and the General Assembly that contains a compilation of the aggregate data submitted by payday lenders regarding their operations with Illinois consumers.
Although the Payday Loan Reform Act specifically exempts lenders that are Illinois state chartered banks and thrifts, national banks or out of state banks authorized to conduct business in the state of Illinois, it does require the IDFPR to promulgate rules regarding the issuance of payday loans by these financial institutions with respect to Illinois consumers. These rules are required to be promulgated within six months of the effectiveness of the Act.
The provisions of the Payday Loan Reform Act become effective on December 6, 2005.
BREACH NOTIFICATION-PERSONAL INFORMATION DATA SYSTEM
P.A. 94-36 (H.B. 1633) establishes the Personal Information Protection Act. This new statute provides that any data collector that owns or licenses personal information concerning any Illinois resident must notify the Illinois resident if there has been any breach of a data security system. In addition, any data collector that maintains, but does not own or license personal information, is required to notify the owner or licensee of the personal information if there has been any breach of a security system if the collector reasonably believes the data has been acquired by an unauthorized person.
The Act defines “Personal Information” as an individual’s first name or first initial and last name in combination with a non-encrypted or non-redacted social security number; drivers license number or state identification number; account number or credit or debit card number; or account number, credit or debit card number in combination with any required security code, access code or password that would allow access to an individual’s financial account.
Any data collector that owns or licenses personal information concerning an Illinois resident must notify that resident in the most expedient manner following discovery of a security system breach. Any data collector that maintains, but does not own or license personal information, is required to notify the owner or licensee of the personal information immediately if there has been any breach of a security system if the collector reasonably believes the data has been acquired by an unauthorized person.
The Act also establishes the manner in which notice to affected Illinois residents is to be made. Permitted methods of notice include written notice; electronic notice if such electronic notice complies with the federal digital signature statute; or substitute notice if the data collector establishes that the cost of providing written notice to each affected Illinois resident would exceed $250,000 or the number of affected Illinois residents exceed 500,000. Substitute notice may be made either by e-mail to the individual Illinois residents; conspicuous posting on the data collector’s web site; or notification to a major statewide media.
The Personal Information Protection Act also allows a data collector to establish its own notification procedures, provided that the procedure is otherwise consistent with the notice timing requirement established under the Act. A violation of the Act is deemed to be a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act and could result in civil monetary penalties.
The Personal Information Protection Act will become effective on January 1, 2006.
IDENTITY THEFT-PROHIBITION AGAINST THE DENIAL OF CREDIT
P.A. 94-37 (H.B. 2696) amends the provisions of the Illinois Consumer Fraud and Deceptive Business Practices Act and provides victims of identity theft with additional protections. Now, any person that denies credit or reduces the credit limit of an Illinois consumer, based upon knowledge that the consumer has been a victim of identity theft, is deemed to have violated the Illinois Consumer Fraud and Deceptive Business Practices Act.
The amendment to the Illinois Consumer Fraud and Deceptive Business Practices Act establishes a presumption that a consumer has been an identity theft victim, provided the consumer submits certain credible information to the credit provider. Credible evidence of identity theft includes a copy of an identity theft report as defined under the federal Fair Credit Reporting Act, an affidavit of fact acceptable to the credit provider, or evidence that the consumer has obtained placement of an extended fraud alert in his or her credit file maintained by a nationwide consumer reporting agency.
This amendment to the Illinois Consumer Fraud and Deceptive Business Practices Act became effective on June 16, 2005.
PROHIBTION AGAINST SECRETLY PHOTOGRAPHING OR RECORDING USE OF FINANCIAL TRANSACTION DEVICE
P.A. 94-38 (H.B. 2697) amends the Illinois Criminal Code and establishes new criminal penalties based upon secretly photographing or recording the use of a financial transaction device or distributing, disseminating or electronically transmitting personal identifying information related to a financial transaction by a person who is not involved in that financial transaction.
The amendment defines a financial transaction devise as including any electronic funds transfer card, a credit card, debit card, point of sale card or any instrument device, code, account number or personal identification number or other means of access to a credit account or deposit account. The amendment also provides a lengthy list of items that are defined as Personal Identifying Information that is protected from dissemination or electronic transmission by a party not related to a financial transaction. The amendment specifically does not prohibit the capturing or transmission of personal identifying information in the ordinary course of business.
A violation of these new consumer protections will be punished as a Class A misdemeanor.
The amendment to the Illinois Criminal Code was effective on June 16, 2005.
INDENTITY THEFT CRIMINAL SANCTIONS ENHANCED
P.A. 94-39 (H.B. 2699) also amends the Illinois Criminal Code and increases the criminal penalties that may be imposed upon individuals who utilize personal identifying information or the personal identification documents of another to obtain credit, money, goods, services or property. The criminal felony sanctions increase according to the monetary value of credit by one level from the current class of felonies based upon the monetary value of illegally obtained goods, money, services or property illegally obtained as a result of the identity theft. Criminal penalties now range from a Class 2 felony for theft of less than $300 up to a Class X felony for theft exceeding $100,000. In addition, a second conviction of an individual previously convicted of aggravated identity theft will be guilty of a Class X felony, regardless of the actual value of the second theft.
These increased criminal sanctions for identity theft became effective on June 16, 2005.
TAX PAYMENT FROM ESCROW ACCOUNT-REQUIRED NOTICE
P.A. 94-50 (H.B. 1428) amends the Mortgage Escrow Account Act and establishes a new disclosure requirement for all mortgage lenders, including state banks and thrifts, and agents or successors that grant or service single family-owner occupied mortgages, provided that the lender or agent pays property taxes from escrow accounts. Pursuant to this new amendment, whenever the lender pays property taxes from an escrow account, the lender or agent must give the borrower written notice within 45 business days. The notice must also identify the amount and date the tax was paid and must reference the permanent index number or mortgage account number assigned to the property. The property associated with the tax payment must also be referenced either by a specific address or by any other property description that is used for assessment and taxation purposes under the Property Tax Code.
This recent amendment also establishes the manner in which the required disclosure is to be made and make it permissible to include the required notice on or with other documents, notices or statements provided to the borrower. If more than one borrower is listed on the loan document, notice must only be provided to the borrower primarily responsible for repayment. The notice may be delivered or transmitted by any usual means of communication, or by telephone, facsimile, e-mail or internet access.
These new disclosure requirements become effective on January 1, 2006.
ID THEFT PROSECUTION-VENUE
P.A. 94-51 (H.B. 2700) is another amendment to the Illinois Criminal Code dealing with Identity theft and establishes that prosecution of the crime may be initiated in either the county where the theft occurred, where the personal identity information was illegally used, or where the victim resides.
These amendments to the Illinois Criminal Code will become effective on January 1, 2006.
SMALL ESTATE ADMINISTRATION
P.A. 94-57 (S.B. 460) assists in the administration of small estates. The new Public Act clarifies that any action undertaken with respect to the administration of a small estate after the August 6, 2004 statutory increase in the maximum value of a decedent’s personal estate from $50,000 to $100,000 will be valid, regardless of the date of the decedent’s death. This new clarifying language became effective on June 17, 2005.
IDENTITY THEFT CREDIT REPORT FREEZE
P.A. 94-74 (H.B. 1058) amends the Illinois Consumer Fraud and Deceptive Business Practices Act to provide victims of identity theft an opportunity to initiate a security freeze to their credit reports. The freeze must be initiated by written demand delivered by certified mail to the consumer credit reporting agency accompanied by a valid copy of a police report or complaint filed by the victim. The amendment requires a credit reporting agency that receives a valid request for a security freeze to implement the consumer’s request within five business days and a confirmation of the freeze must be provided to the requesting consumer within ten business days. The credit reporting agency is prohibited from charging the consumer a fee to implement the security freeze.
The new credit report security freeze provisions will become effective on January 1, 2006
PROHIBITED DEPOSITS OF PUBLIC FUNDS-SUDAN
P.A. 94-79 (S.B. 23) amends the Deposit of State Moneys Act and the Illinois Pension Code. The new amendment specifically prohibits the Illinois Treasurer from depositing state funds in any financial institution that makes loans with any entity of individuals that conducts business in or with the Government of Sudan. It also prohibits the investment of state moneys in any bond, note or similar obligation issued by the Sudanese Government. In addition, P.A. 94-79 amends the Illinois Pension Code to prohibit the investment of State of Illinois Pension Fund assets in securities issued by the Sudanese Government or with any Sudanese company. The deposit and investment prohibitions became effective on January 27, 2006.
During the time the freeze remains in effect, the consumer credit reporting agency must obtain prior approval from the consumer before releasing any information from the credit report. The consumer also has the ability to temporarily lift the freeze in order for a specific time period or to allow a specific entity to obtain the information contained in the credit report.
A violation of the credit report freeze provisions will constitute a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The consumer protection provisions contained in P.A. 94-74 will become effective on January 1, 2006.
RENTAL HOUSING SUPPORT PROGRAM ACT
P.A. 94-118 (S.B. 75) provides authority for the Illinois Housing Development Authority to award monetary grants to assist the development of affordable rental housing and to supplement rent paid by low income tenants to Illinois landlords. This new Public Act imposes a $10 surcharge for the recordation of any real estate related document with any county recorder as a source of funding for the grants and rent supplement payments.
The Rental Housing Support Program Act became effective on July 5, 2005.
EXCEPTION TO A PRESUMPTION OF ABANDONED PROPERTY
P.A. 94-255 (H.B. 583) amends the Uniform Disposition of Unclaimed Property Act and establishes new exceptions to a presumption that properties held by financial institutions have been abandoned and is subject to escheatment to the State. Under the provisions of the new amendment, any demand account, savings account or matured time deposit will not be presumed abandoned after five years of inactivity, provided the owner has done any of the following actions:
(1.) Increased or decreased the amount of deposit of any account that appears on a consolidated statement with the inactive account;
(2.) Corresponded in writing concerning a deposit that appears on consolidated statement with the inactive account;
(3.) Otherwise indicated an interest in a deposit of any account that appears on consolidated statement with the inactive account;
(4.) Increased or decreased the amount of funds in any other account the owner has with a financial institution, provided the financial institution’s records indicate that the mailing address for the owner of both an active and inactive account are the same; and
(5.) Engaged in any other relationship with the financial institution, including payment of any amounts due on a loan, provided the financial institution’s records indicate that the mailing address for the owner of both an active and inactive account are the same.
This amendment to the Uniform Disposition of Unclaimed Property Act will become effective on January 1, 2006.
PREDATORY LENDING DATABASE PILOT PROGRAM
P.A. 94-280 (H.B. 4050) amends the Residential Real Property Disclosure Act to establish a new Predatory Lending Database Pilot Program and imposes reporting duties upon various parties to residential real estate transactions. In addition, P.A. 94-280 establishes a pilot program related to pre-loan credit counseling for loans originating in portions of Cook County with a high rate of foreclosures primarily resulting from predatory lending practices. The pilot program area will be designated by the Department of Financial and Professional Regulation within 30 days after the effective date of January 1, 2006.
No legally binding transactions can take place with respect to a real estate loan in the pilot program area until the Department has made a determination whether the borrower should receive credit counseling. Further, if the Department recommends credit counseling, those transactions cannot proceed until credit counseling has occurred. In addition, P.A. 94-280 will require lenders and title insurance companies to report certain information related to residential real estate transactions in the pilot program area to the Department for inclusion in a database maintained by the Department.
Generally, only those lenders subject to the Residential Mortgage License Act are subject to P.A. 94-280. Because state-chartered banks are exempt from the Residential Mortgage License Act, they also are exempt from the new amendments to the Residential Real Property Disclosure Act. However, banks that fund or purchase loans brokered or originated from the pilot program area by Residential Mortgage License Act licensees should implement procedures to ensure compliance with the new provisions of the Residential Real Property Disclosure Act if those provisions become law.
P.A. 94-280 will become effective on January 1, 2006.
DIGITAL SIGNATURE ACT- SUBSTITUTE CHECKS
P.A. 94-458 (H.B. 2404) amends the Financial Institutions Digital Signature Act and renames this Act as the Illinois Electronic Documents and Digital Signature Act. The new statutory provisions assist in the implementation of the federal “Check 21” Act. The amendatory language provides a definition of term “substitute check” consistent with the federal statute and grants a substitute check generated by any electronic or computer generating process with the same force and effect as one created on paper.
This amendment became effective on August 4, 2005.
ADDITIONAL AUTHORITY TO RELEASE CUSTOMER FINANCIAL INFORMATION
P.A. 94-495 (H.B. 1301) is intended to provide additional protections to elderly or disabled customers of state-chartered financial institutions. The Bill amends specific provisions of the Illinois Banking Act to provide statutory authority for state banks to release information related to accounts held by customers aged 60 years or over or who are disabled if there is a suspicion that these account holders have been or may become victims of financial exploitation. Under the provisions of the newly amended section of the Illinois Banking Act, a suspicion of financial exploitation may be presented by law enforcement authorities, the Illinois Department on Aging and its regional administrative and provider agencies, the Department of Human Services Office of Inspector General, or any public guardian. Once the suspicion of financial exploitation has been presented by the designated authorities, a state-chartered financial institution may release the customer financial information and will be provided the same degree of protection from liability as that provided under the Elder Abuse and Neglect Act, the Illinois Domestic Violence Act of 1986, and the Abuse of Adults with Disabilities Intervention Act.
This amendment to Section 48.1 of the Illinois Banking Act will become effective on January 1, 2006.