Chartered in 1934, Bensenville Community Credit Union, one of longest-running cooperatives in Illinois, recently became another small credit union that succumbed to its financial challenges.

But Bensenville Community CU's former president/CEO and board claimed the cooperative may have survived had it not been for the hard line taken by the state's regulator, the Illinois Department of Financial and Professional Regulation.

They also charged that a conflict of interest and cronyism among Credit Union 1, American Share Insurance and IDFPR played a role in the credit union's state-ordered dissolution and its acquisition by Credit Union 1 on Jul 31.  

Rantoul, Ill.-based Credit Union 1 and ASI in Columbus, Ohio, said these conflict of interest and cronyism claims are false, saying they worked to save the $13.9 million Bensenville Community CU with state regulators.

IDFPR declined to comment.

“They were a very unhappy board when I told them they needed to get this turned around,” ASI President/CEO Dennis Adams said. “They worked on it, but they failed and they blamed it on everyone else, yet I have to pay the bill. I didn't want to see it fail any more than they did.”

Talk of conflict of interest and cronyism among Bensenville Community board members and employees surfaced when IDFPR told the board it had to appoint Credit Union 1 internal auditor Jim McNeil as interim manager in February 2014 after Bensenville President/CEO Roger Peters abruptly resigned.

Four months later, the IDFPR appointed Paul Simons, president/CEO of the $756 million Credit Union 1, as manager-trustee during Bensenville's state-ordered suspension period that began June 16. In 2010, Simons served as chair of ASI, which insured Bensenville and insures Credit Union 1.

Bensenville Community's financial troubles surfaced in 2012 when its delinquent loan rate shot up to 6.63% or $792,492, up from a 0.71% delinquent loan rate in 2011. Its provision for loan losses totaled more than $343,000 in 2012, up from $71,145 in 2011, according to financial statements filed with ASI.

What's more, the credit union went from a net income gain of $42,389 in 2011 to a net income loss of $311,477 in 2012. Its net worth dropped from 7.92% to 6.08% in the same years.

In February 2013, IDFPR's issued its 41-point letter of understanding and agreement to address Bensenville Community CU's financial troubles.

But instead of helping Bensenville, board members and Peters described the LUA as crippling and said it contributed to the credit union's demise.   

Read more: 'LUA was like a dictatorship' …

“Under a letter of understanding, it was like a dictatorship,” Frank Bartolone, Bensenville's board chair recalled. “You almost couldn't breathe without their permission and it gave them (IDFPR) unlimited power.”

Specifically, the LUA led the credit union to raise fees, including monthly fees on checking accounts. But soon after the fees were initiated, Bensenville lost 500 checking accounts, according to Peters.

The credit union also faced restrictions on the issuance of new loans, especially for members with credit scores of less than 640. The LUA also led the credit union to sell leased properties even though they were generating monthly positive cash flows, Peters said.

The former CEO said he was making progress on addressing Bensenville's critical financial issues, but it wasn't fast enough to satisfy state regulators and ASI.

“I know I worked hard for my credit union and I am very saddened by the outcome. But I didn't believe it had to be this way,” he said. “I believe there were stronger powers that held all the cards long before they were ever dealt.”

Board members and Peters also questioned the state's aggressive write down of loans.

“They came down rather hard on us,” Bensenville Director Donald Primdahl said. “The loans had some problems in the past but even when they (returned) to performing they still considered them bad loans. That just added up to driving us into a negative net worth.”

Although Bensenville's financial statements show that by the end of 2013 its delinquency rate fell to 1%, down from 6.63% in 2012, its loan loss provisions totaled $449,885 in 2013, up from $343,395 in 2012.

Disputes over the loan write downs and the restrictions of the LUA frayed the professional relationship between Peters and state regulators.

“They (state regulators) got into a dispute with the president over the credit union's policies and rules about the loan write downs,” Bartolone said. “There was this constant battle that went on last year. It just never let up. They were harassing us and constantly forcing us to answer a list of questions. We would answer them and then they would send back more questions when they were not satisfied with the answers.”

The pressures on Peters and the board continued to build during 2013 as the credit union's financial challenges worsened.

By the end of 2013, Bensenville lost an additional $623,519 and its net worth plunged to 2.18%.  Though its total income fell slightly from $987,437 in 2012 to $963,953 in 2013, the cooperative's total operating expenses increased to more than $1.5 million by the end of 2013 from $1.2 million in 2012.

In February 2014, Peters, who served the credit union for 28 years, surprised the board when he resigned.

The board appointed Bensenville Executive Vice President Tamara Gonzalez as interim president/CEO. Gonzalez declined to comment.

A week or two later, the IDFPR told the board it had to appoint Jim McNeil, a Credit Union 1 internal auditor, as interim manager

“That was an obvious conflict of interest,” Bartolone said. “The way it was told to us is that Credit Union 1 was actually doing us a favor and the state was doing us a favor by sending this guy free of charge. When you don't pay somebody, then you start to wonder why. Are they being magnanimous or are they seizing an opportunity to acquire assets at a bargain rate. What do you think it would be? I wasn't born yesterday.”

Bartolone said it was the opinion of the entire board that the decision for Credit Union 1 to acquire Bensenville had already been made.

“I'm pretty sure CU 1 is a pretty straight-shooting company, but that's not the point,” he observed. “I think the state was trying to figure out an easy way out.”

Simons said the state approached him about Bensenville, and noted his credit union assisted the IDFPR in the past with other troubled cooperatives.

“I realize that the Bensenville Board felt Credit Union 1 was preordained, but in fact that couldn't be further from the truth,” Simons said. “I had informed both ASI and the DFI at the time we had no interest in acquiring Bensenville. We already had too much on our plate and the fact that Bensenville was already in our field of membership (as) we had an office in the immediate vicinity and couldn't support both offices, and the fact that the credit union would probably end up thinly capitalized, it was not our intention to bid.”

Additionally, executives are always willing to provide free assistance to other credit unions that need help, he noted.

“We were more than happy to help and it has always been our position to not charge for our services,” Simons said. “We are currently helping two other credit unions with their books and helping with collections on another – we never charge anything for our services.  At the time of our involvement, it was my understanding that the process should be complete in about 30 days. Unfortunately, it took much longer due to the difficulty in finding a suitable candidate to acquire the credit union.”

Adam said ASI sent letters to area credit unions asking them to consider a merger with Bensenville or a purchase and assumption deal. Five credit unions expressed interest and three performed on-site due diligence.

Simons noted Credit Union 1 did not make an offer to acquire Bensenville until the other credit unions passed on a deal.

What's more, Adams said he had hoped another credit union would make a bid.

“I really wanted someone else to get in there. I didn't want this question (of cronyism) ever to come up,” he said. “But when nobody wants to offer, what are you supposed to do? They (Credit Union 1) became the partner by default. They weren't anxious to have it any more than the other two were.”

Bensenville's sole branch is expected to close in November.