Today, the Seventh Circuit upheld a lender’s right to require a borrower to pay for the privilege of repaying the loan early.  The promissory note barred pre-payment unless the borrower also forked over a "yield maintenance" fee.  The borrower paid before the loan matured but balked at ponying up the fee.  It later relented but then filed suit to get the fee back and won after a bench trial.  On the lender’s appeal, the Seventh Circuit reversed, holding that the yield maintenance fee compensated the lender for interest it would have earned but-for the early payoff and that it didn’t cross the line into an unenforceable penalty under Illinois law.  River East Plaza, L.L.C. v. The Variable Annuity Life Ins. Co., No. 06-3856 (7th Cir. Aug. 22, 2007).

Barry Barnett

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