The Illinois Appellate Court, First District, recently issued a decision in one of the “365/360 method” cases. (See attached). As you are aware, claims and defenses under the Illinois Interest Act based on lenders’ use of the 365/360 method for calculating interest are quite prevalent now, especially with the use of Laser Pro loan documents. In RBS Citizens v. RTG-Oak Lawn, LLC, RBS filed a complaint for mortgage foreclosure, which included claims seeking recovery of unpaid amounts under the loan, after the defendants defaulted on a loan. In response, the defendants asserted affirmative defenses and counterclaims based on RBS’s use of the 365/360 method, including alleged violations of the Interest Act (815 ILCS 205/1 et seq.), the duty of good faith and fair dealing, the Consumer Fraud Act (815 ILCS 505/1 et seq.), and common law fraud. Like many other circuit court judges presented with similar claims, Judge Delort of the Circuit Court of Cook County dismissed the defendant’s affirmative defenses and counterclaims with prejudice.
In a well-reasoned opinion, the Appellate Court affirmed the trial court’s dismissal as to all claims. With respect to the Interest Act, the court found that the language in the note explicitly provided that interest would be computed with the 365/360 method. The court rejected the defendant’s argument to the contrary -- that the note was ambiguous due to use of the term “per annum” in other provisions -- noting that the term “per annum” was not used in the paragraph discussing how interest would be charged or calculated. Because success of the remaining claims all required that the note’s interest provision be found improper, the court affirmed the circuit court’s dismissal of those claims as well.
The RBS court addressed one final issue. The defendants had signed forbearance agreements containing waiver of defense provisions. The court strongly suggested that by executing the forbearance agreements, the defendants waived any affirmative defense or counterclaim based upon the Interest Act and common law fraud. While the court did not actually rule on this issue, choosing instead to directly dispose of the Interest Act claim, the language in the opinion emphasizes the importance of including these types of waiver provisions in forbearance agreements.
This opinion, coupled with last year’s enactment of Senate Bill 1118, is obviously good news to lenders and should largely put to rest borrowers’ use of Interest Act claims as a defense to lenders’ actions on notes, although we expect to see some additional claims based on the particular language of different notes. SB 1118 amended the Interest Act to clarify that an annual interest rate for commercial loans may be lawfully computed on a 360-day year.
In a well-reasoned opinion, the Appellate Court affirmed the trial court’s dismissal as to all claims. With respect to the Interest Act, the court found that the language in the note explicitly provided that interest would be computed with the 365/360 method. The court rejected the defendant’s argument to the contrary -- that the note was ambiguous due to use of the term “per annum” in other provisions -- noting that the term “per annum” was not used in the paragraph discussing how interest would be charged or calculated. Because success of the remaining claims all required that the note’s interest provision be found improper, the court affirmed the circuit court’s dismissal of those claims as well.
The RBS court addressed one final issue. The defendants had signed forbearance agreements containing waiver of defense provisions. The court strongly suggested that by executing the forbearance agreements, the defendants waived any affirmative defense or counterclaim based upon the Interest Act and common law fraud. While the court did not actually rule on this issue, choosing instead to directly dispose of the Interest Act claim, the language in the opinion emphasizes the importance of including these types of waiver provisions in forbearance agreements.
This opinion, coupled with last year’s enactment of Senate Bill 1118, is obviously good news to lenders and should largely put to rest borrowers’ use of Interest Act claims as a defense to lenders’ actions on notes, although we expect to see some additional claims based on the particular language of different notes. SB 1118 amended the Interest Act to clarify that an annual interest rate for commercial loans may be lawfully computed on a 360-day year.
