Court Battle Looms on Illinois CU Fund `Raid'; Switch to Fed Charter Possible Option

CHICAGO – With prospects of a court battle looming over funding of the Illinois agency regulating credit unions, state-chartered CUs were holding the line this month on making any move to apply for federal charters. Typical of CU sentiment was that of Illinois’ largest, the $4.3 billion Alliant Credit Union, which said it retains “a very positive and productive relationship” with the Division of Financial Institutions with no plans to convert though it still has “ongoing concerns regarding the Governor’s intentions for the Credit Union Fund.” That was a reference to a possible diversion of DFI revenue by Democratic Gov. Rod Blagojevich to a General Revenue Fund to relieve a budget crisis following a new July law protecting DFI funds for the interim but leaving open the door for a future “raid” on fees paid into the Division The governor has suggested the switch of CU Fund revenue would help ease an ongoing financial crisis, a step which also would entail an increase in examiner fees paid by CUs. Such a move is opposed by the Illinois Credit Union System. Credit unions are not alone in fighting the fund switch since banks, consumer loan firms, mortgage brokers and corporations – also impacted by “excessive” fees – have cried foul with the Illinois Chamber of Commerce filing an April 22 lawsuit in a Cook County Circuit Court to block the changes. “We are reviewing our options and will decide at a meeting of our Legislative Committee Oct. 14 what our next step might be,” said Keith Sias, director of state government affairs. Before joining the Chamber suit or filing one of its own, “we want to see what our chances of victory might be,” said Sias. The Chamber suit challenges the constitutionality of the action by the governor and the Illinois General Assembly in raising licensing fees “in more than 300 areas applicable to Illinois employers.” That suit charges the governor’s office has “inappropriately transferred millions of dollars” into general revenue spending. “The fundamental issue is when do fees become taxes?” asked the Illinois Chamber, a point that has been also raised by the Illinois League. In downstate Illinois, the $350 million Scott CU in Collinsville said the “uncertainty” over CU regulation has prompted a serious look at a federal charter from NCUA. “I’m not saying we will follow through, but there’s no reason why we shouldn’t be looking at conversion,” said James Bright, president/CEO. “The cure might be worse than the disease, however,” said Bright suggesting a federal switch might be counter productive if the state solves its budget problem. Still, Scott CU has made plans to talk to NCUA examiners about a federal charter, said Bright. Meanwhile, Alliant, the former United Airlines Employees CU, like other large Illinois CUs said it would entertain mergers of small institutions if there were a “fit” and a benefit to both partners. The topic of mergers was raised last month in published remarks by Michele Latz, the DFI director, who said a fifth of Illinois CUs were “less than profitable” or at break-even levels because of economic conditions and corporate downsizings. Asked for comment on the Latz comments, Alliant said it has “no specific knowledge of the condition of Illinois credit unions” adding that many banks and CUs are “experiencing margin pressure, primarily due to interest rate conditions and rising operating expenses.” Alliant’s business, said the statement, “is very healthy, as evidenced by our strong membership and loan growth, high share dividend, and high capital levels.” The $550 million Corporate America Family CU in Elgin acknowledged that it, too remains open to courting mergers having taken over the $3 million Consolidated CU in Burbank earlier this year with a current plan to acquire the $24 million Progress CU of Warrenville, the subject of a court challenge (see related story in this issue) “From time to time we get communication about directors or members at credit unions that might be looking at merger partners,” said Richard Wellner, president/CEO. -