I emailed with someone in the IL DBRE for an opinion on this issue and he responded "unofficially" directing me to 205 ILCS 5/5e(b) which states The establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to be made by a bank according to prudent business judgment and safe and sound operating standards.
He also opined (unofficially, although not tested in court) that Section 3-806 appears to relate to the maximum non-litigated fee that may be imposed by a person or retailer in connection with an NSF collection effort. Obviously, he pointed me to consult my own bank's counsel if we were to consider exceeding this threshold.
Hopefully that helps. It works for me. I did include the full text of that email below:
Dear Mr. Mulkerin:
I have received and reviewed your e-mail message regarding application of Section 3-806 of the Uniform Commercial Code to Bank imposed NSF fees.
Initially, please note that the Illinois Department of Financial and Professional Regulation, Division of Banks and Real Estate is not qualified under law to interpret or provide legal analysis of the Uniform Commercial Code.
That said, however, one could make an argument that Section 3-806 does not relate to the maximum amount of NSF charges that may be imposed by a state-chartered bank.
I have taken the liberty of reviewing a very limited amount of Illinois case law regarding Section 3-806 and have identified one significant case that describes the legislative intent of this statutory provision. In the case of International Bureau of Fraud Control, LTD. v. Clayton 188 Ill . App. 3d 703, 544 N.E. 2d. 416, the Illinois Appellate Court considered the maximum fee allowed on the collection of a dishonored check by a non-bank third party. In part, the Appellate Court considered the legislative intent and cited legislative testimony. That testimony stated "...House Bill 2536 defines ten dollars as the maximum the retailer may charge without going to court....House Bill 2536 amends the Uniform Commercial Code and very simply establishes that on an NSF check that a retailer would have the fixed sum of ten dollars as his cost for attempting to redeem or make good the check that has been presented to him which has gone bad. He has that alternative or to go to court and get whatever costs the court may give, but it would set ten dollars as the fee".
(Please note that the referenced amount of ten dollars was increased to an amount of twenty-five dollars by a subsequent statutory amendment).
Clearly, the legislative intent of Section 3-806 appears to relate to the maximum non-litigated fee that may be imposed by a person or retailer in connection with an NSF collection effort.
The types of collection efforts envisioned under Section 3-806 of the Uniform Commercial Code may be distinctly different from the actions undertaken by a state-chartered bank in connection with a check drawn by its customer on insufficient funds. Generally, the bank would not be in a position of attempting to collect on a dishonored check drawn by one of its customers. Rather, the bank may have simply exercised the authority of Section 4-401 to charge against the account of a customer an item that is properly payable even if that payment creates an overdraft. In these instances, the account holder is placed in the position of being a creditor of the bank and will owe any fees agreed upon between the account holder and the Bank.
Specifically, Section 5e of the Illinois Banking Act provides that ..."(a) not withstanding any provision of any other law in connection with the extension of credit, a State Bank may elect to contract for and receive interest, fees and other charges for the extension of credit subject only to the provisions of subsection (1) of Section 4 of the Interest Act, except for extensions of credit secured by residential real estate....(b) the establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to be made by a bank....".
In summary, an argument could be made that Section 3-806 is not applicable to NSF charges imposed by a state-chartered bank. To date, however, there are no reported Illinois cases that have litigated this argument.
You may also wish to discuss this matter with your counsel.
David J Mulkerin, CRCM
All opinions expressed are mine and not those of my employer and are not to be taken as legal advice.