Opinion ID: 2095287
Heading Depth: 2
Heading Rank: 3

Heading: Implicit Repeal of Section 4.1a of the Interest Act

Text: The creditors contend in part that Illinois' preexisting limitation on points and charges in section 4.1a of the Act was implicitly repealed by legislative amendments to section 4 in 1981 and 1982. We note that this interlocutory appeal is from the appellate court's reversal of the trial court's dismissal of the homeowners' affirmative defenses and counterclaims pursuant to sections 2-615 and 2-619 of the Code of Civil Procedure (735 ILCS 5/2-615, 2-619 (West 2000)). The proper standard of review of the dismissal orders in this case is de novo. Feltmeier v. Feltmeier, 207 Ill.2d 263, 266, 278 Ill.Dec. 228, 798 N.E.2d 75 (2003). We begin our analysis by examining both the language of section 4.1a and the evolution of the language currently found in section 4. In relevant part, section 4.1a states:  Where there is a charge in addition to the stated rate of interest payable directly or indirectly by the borrower and imposed directly or indirectly by the lender as a consideration for the loan, or for or in connection with the loan of money,    whether denominated `points,' `service charge,' `discount,' `commission,' or otherwise,    the rate of interest shall be calculated in the following manner: The percentage of the principal amount of the loan represented by all of such charges shall first be computed, which in the case of a loan with an interest rate in excess of 8% per annum secured by residential real estate,    shall not exceed 3% of such principal amount. Said percentage shall then be divided by the number of years and fractions thereof of the period of the loan according to its stated maturity. The percentage thus obtained shall then be added to the percentage of the stated annual rate of interest. (Emphases added.) 815 ILCS 205/4.1a (West 2004). Thus, on its face section 4.1a limits the designated charges (cumulatively, points or charges) to 3% for residential mortgage loans with annual interest rates exceeding 8%. 815 ILCS 205/4.1a (West 2004). Until 1981, section 4 did not permit lenders to charge, contract for, and receive any rate or amount of interest or compensation with respect to mortgage loans. Ill.Rev.Stat.1979, ch. 74, ¶ 4 (now 815 ILCS 205/4 (West 2004)). In 1981, the legislature added subparagraph ( l ) to section 4, making the existing language applicable to  [l]oans secured by a mortgage on residential real estate.  (Emphasis in original.) Pub. Act 82-660, eff. September 25, 1981 (amending Ill.Rev.Stat.1979, ch. 74, ¶ 4). Section 4 was again amended in 1982, removing the word residential from subparagraph ( l ), thereby legalizing the receipt of any rate or amount of interest or compensation on any real estate mortgage. See Pub. Act 82-951, eff. August 19, 1982 (Ill.Rev.Stat.1981, ch. 17, ¶ 6404 (moved from Ill.Rev.Stat.1979, ch. 74, ¶ 4)). This portion of section 4 has not been changed since the 1982 amendment. See 815 ILCS 205/4(1)( l ) (West 2004). The creditors contend that by permitting any rate or amount of interest or compensation to be charged on any real estate mortgage, the legislature's 1981 and 1982 amendments implicitly repealed section 4.1a's 3% limitation on points chargeable in connection with mortgage loans bearing interest rates above 8%. Repeal by implication is generally disfavored, and we will presume legislation was intended to be consistent with existing law. Lily Lake Road Defenders v. County of McHenry, 156 Ill.2d 1, 9, 188 Ill.Dec. 773, 619 N.E.2d 137 (1993). Therefore, this court will apply that principle only when a subsequent statute's terms and operation cannot be reconciled with those of an earlier statute. When the two statutes cannot be harmonized, the subsequent statute will be deemed to have repealed the earlier by implication because we cannot presume the legislature intentionally enacted contradictory laws. Lily Lake, 156 Ill.2d at 9, 188 Ill.Dec. 773, 619 N.E.2d 137. Here, relying on the reasoning of the Seventh Circuit Court of Appeals in Currie v. Diamond Mortgage Corp. of Illinois, 859 F.2d 1538 (7th Cir. 1988), the creditors assert the language in section 4.1a and amended section 4 is irreconcilable, and thus section 4.1a was implicitly repealed by the amendments to section 4. In Currie, the plaintiff homeowner claimed in the Bankruptcy Court for the Northern District of Illinois that the defendant creditor violated section 4.1a of the Act by imposing charges of approximately 16% of the principal of the loan on a home mortgage with a yearly interest rate of 15.5%. The bankruptcy court granted the creditor's motion to dismiss for failure to state a claim, citing both the preemption of section 4.1a by section 501 of DIDMCA and the implicit repeal of section 4.1a by amendments to section 4 enacted in 1981. The district court affirmed solely on the basis of federal preemption. Currie, 859 F.2d at 1539. The court of appeals found that Illinois amended section 4 in 1981 to enhance the availability of money for home financing. The court determined that both this purpose and the plain language of that section, permitting lenders to impose any interest rate and other compensation, were in conflict with section 4.1a's express ceiling on interest and points and could not be reconciled. Currie, 859 F.2d at 1542-43. The court noted that the inclusion of points in the calculation of the effective interest rate under section 4.1a demonstrated that points are a type of compensation and thus could not be restricted under amended section 4. Currie, 859 F.2d at 1543. After discussing the doctrine of repeal by implication and acknowledging that it is strongly disfavored, the court held that section 4.1a's limitation on charges was repealed by implication by the amendment of section 4. Currie, 859 F.2d at 1543. The court believed the legislature's failure to repeal expressly section 4.1a must have been an oversight. Currie, 859 F.2d at 1543. The Seventh Circuit reaffirmed the Currie court's finding of repeal by implication in Reiser v. Residential Funding Corp., 380 F.3d 1027, 1029 (7th Cir.2004). In its analysis, the Reiser court refrained from conducting an in-depth reexamination of Currie, believing it is best to stick with one assessment until the state's supreme court, which alone can end the guessing game, does so. (Emphasis in original.) Reiser, 380 F.3d at 1029. We are now availed of an opportunity to end the guessing game on the issue of implicit repeal. For their part, the homeowners dismiss the Currie rationale as faulty, maintaining that the appellate court in Fidelity Financial Services, Inc. v. Hicks, 214 Ill.App.3d 398, 158 Ill.Dec. 221, 574 N.E.2d 15 (1991), correctly held that section 4.1a was not implicitly repealed. We note that while Hicks addressed the issue of repeal by implication, it did not consider the effect of DIDMCA on section 4.1a because it involved a second mortgage and thus was outside the scope of the federal statute. The creditor in Hicks relied on the Currie decision. The Hicks court ultimately rejected Currie as federal dicta not binding on the courts of this state. Hicks, 214 Ill.App.3d at 401-02, 158 Ill.Dec. 221, 574 N.E.2d 15. Rather, the Hicks court presume[d] that section 4.1a was valid because it remained on the books 12 years after it was purportedly repealed. Hicks, 214 Ill.App.3d at 401-02, 158 Ill.Dec. 221, 574 N.E.2d 15. Notably, the court also believed section 4 could be reasonably reconciled with section 4.1a, precluding a finding of implicit repeal under our limited application of that doctrine. Hicks, 214 Ill.App.3d at 404, 158 Ill.Dec. 221, 574 N.E.2d 15. To reconcile the two provisions, the court read section 4, entitled `General Interest Rate' as removing restrictions only on lenders' ability to pass their actual cost of money along to borrowers. The court interpreted section 4.1a, addressing `charges for or in connection with the loan of money,' as applying only to ancillary charges not dictated by the cost of the commodity, but imposed by lenders in connection with loans. (Emphasis in original.) Hicks, 214 Ill.App.3d at 403, 158 Ill.Dec. 221, 574 N.E.2d 15, quoting Ill.Rev.Stat.1987, ch. 17, ¶ 6404. Thus, the court reasoned, the two statutes were not irreconcilable because they concerned different types of charges. Hicks, 214 Ill.App.3d at 403, 158 Ill.Dec. 221, 574 N.E.2d 15. In construing a statute, the most fundamental rule is to give effect to the legislature's intent, and the best evidence of that intent is the statutory language. That language must be given its plain and ordinary meaning. Courts may not properly construe a statute by altering its language in a way that constitutes a change in the plain meaning of the words actually adopted by the legislature. If the statutory language is clear, we must give effect to its plain and ordinary meaning without resorting to other construction aids. King v. First Capital Financial Services Corp., 215 Ill.2d 1, 26, 293 Ill.Dec. 657, 828 N.E.2d 1155 (2005), quoting In re Marriage of Beyer, 324 Ill.App.3d 305, 310, 257 Ill.Dec. 406, 753 N.E.2d 1032 (2001). Here, the language of amended section 4 is clear and unambiguous: It is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to    [l]oans secured by a mortgage on real estate. 815 ILCS 205/4(1)( l ) (West 2004). By refusing to restrict either the interest or compensation available to lenders with respect to mortgage loans, the legislature evinced its intent to permit a broad category of charges to be imposed in connection with secured real estate loans. Similarly, on its face the plain language of section 4.1a limits to 3% a broad category of noninterest charges that may be imposed by lenders in conjunction with high interest rate mortgage loans. The restrictions apply to all charges imposed as a consideration for the loan, or for or in connection with the loan of money. 815 ILCS 205/4.1a (West 2004). We can find no functional distinction between the noninterest compensation in section 4 and the noninterest charges in section 4.1a. The plain meaning of compensation includes: payment for value received or service rendered: REMUNERATION. Webster's Third New International Dictionary 463 (1993). See also Black's Law Dictionary 301 (8th ed.2004) (defining compensation as [r]emuneration and other benefits received in return for services rendered; esp., salary or wages). The plain meaning of a charge is: the price demanded for a thing or service. Webster's Third New International Dictionary 377 (1993). See also Black's Law Dictionary 248 (8th ed.2004) (defining a charge as the [p]rice, cost, or expense). The two terms appear to be the same type of payment viewed from different perspectives. Compensation represents the payee/lender's perspective, while charges expresses the same money from the perspective of the payor/borrower. Thus, section 4 permits lenders to impose unlimited noninterest costs on all mortgage loans (815 ILCS 205/4(1)( l ) (West 2004)), while section 4.1a restricts the same broad category of costs to 3% when the loan's interest rate exceeds 8% (815 ILCS 205/4.1a (West 2004)). By the terms of their plain language, the two sections are irreconcilably inconsistent. The Hicks court's interpretation of the two sections requires us to read unsupported limitations into the statutory language and is overruled. The plain words of the provisions do not restrict section 4 compensation to lenders' actual cost of money or section 4.1a charges to ancillary charges not dictated by the cost of the commodity, as the Hicks court concluded. See Hicks, 214 Ill.App.3d at 403, 158 Ill. Dec. 221, 574 N.E.2d 15. The Hicks decision is also at odds with the legislature's 1981 intention to amend section 4 to remove the artificial limits on the interest and other compensation lenders may receive for mortgage loans, thereby allowing market forces to prevail. See 82d Ill. Gen. Assem., House Proceedings, May 6, 1981, at 135-37 (statements of Representative McBroom); 82d Ill. Gen. Assem., Senate Proceedings, June 22, 1981, at 11-12 (statements of Senator Rock); 1981 Ill. Laws 3436, Governor's Message, at 3436-37. The homeowners, however, argue the Hicks decision is consistent with applying market forces to the mortgage market. They contend Hicks ' interpretation of section 4 does not limit a lender's overall revenue potential because even though section 4.1a limits noninterest charges to 3% on high interest loans, it does not regulate interest rates themselves, allowing lenders to obtain any desired overall rate of return. This argument is specious because it ignores a vital difference between mandatory charges that are payable at the beginning of a loan and interest that is payable only until the loan is paid off. Under section 4.1a, lenders are only guaranteed up-front charges of a maximum of 3%, and their receipt of an additional unregulated return from interest payments is dependent on conditions outside their control, i.e., the refinancing or early payment of the loan balance. For this reason, there is a significant practical difference between section 4's bar on any lender interest and compensation restrictions and section 4.1a's ceiling on up-front charges despite its allowance for unlimited interest. The two sections represent vastly differing approaches to regulating lender revenue and are inherently inconsistent. Thus, we agree with the Seventh Circuit Court of Appeals in Currie and Reiser that the 1981 amendments to section 4 implicitly repealed section 4.1a's limitation on noninterest charges lenders may impose on residential mortgage loans. Nonetheless, the homeowners claim that our legislature recently affirmed the continuing viability of section 4.1a by passing the High Risk Home Loan Act, effective January 1, 2004 (Loan Act) (815 ILCS 137/1 et seq. (West 2004)). This act defines mortgage loans as high risk if their annual percentage rates or loan fees exceed certain triggers. If a loan is deemed high risk, financed fees are capped at 6%. 815 ILCS 137/55 (West 2004). The Loan Act also contains an Interest Act savings clause: To the extent this Act conflicts with any other Illinois State financial regulation laws, except the Interest Act, this Act is superior and supersedes those laws for the purposes of regulating high risk home loans in Illinois. (Emphasis added.) 815 ILCS 137/170 (West 2004). We are not persuaded by this argument. Both the Interest and the Loan Act concern other aspects of the home mortgage market, and the savings clause applies broadly to all provisions of the Loan Act, whether they concern fee caps or not. The homeowners cite no evidence that the savings clause was specifically intended to permit the Interest Act's ceiling on charges for high interest loans to continue in effect. Indeed, if that portion of the Interest Act is implicitly repealed, there is no conflict with any Loan Act provision, and that act will apply to all home loans falling within its scope. In short, the adoption of the Loan Act does not demonstrate the continued viability of the Interest Act provision at issue here as the homeowners' claim. Thus, we hold the portion of section 4.1a of the Interest Act restricting applicable charges to 3% when the mortgage loan rate exceeded 8% was implicitly repealed by the amendment of section 4 in 1981.