Section 190.2  Definitions

 

For purposes of the Illinois Credit Union Act and this Part, the words and phrases defined in this Section shall have the meanings ascribed to them unless the context requires otherwise.

 

"Act" means the Illinois Credit Union Act [205 ILCS 305].

 

"Credit union" means a credit union chartered under the Illinois Credit Union Act, or, as the context permits, under the Federal Credit Union Act or the laws of any state.

 

"Department" means the Illinois Department of Financial and Professional Regulation.

 

"Director" means the Director of the Department of Financial and Professional Regulation-Division of Financial Institutions. As provided in Section 8(1) of the Act, the Director shall oversee the functions of the Division and report to the Secretary with respect to the Director's exercise of any of the rights, powers and duties vested by law in the Secretary under the Act or this Part.

 

"Division" means the Department of Financial and Professional Regulation-Division of Financial Institutions.

 

"GAAP" or "generally accepted accounting principles" means U.S. Generally Accepted Principles promulgated by the Financial Accounting Standards Board (see http://www.fasb.org).

 

"NCUA" means the National Credit Union Administration.

 

"Net worth" means retained earnings, as defined under GAAP, and secondary capital.  Net worth does not include the allowance for loan losses account.

 

"Retained earnings" includes undivided earnings, regular reserve, other reserves, and any other appropriations designated by management or regulatory authorities.

 

"Secondary capital" means a secondary capital account or other form of non-share account, including without limitation a debt instrument, subject to the following conditions:

 

The maturity or the account shall not be less than three years and the account shall not be redeemable prior to maturity or the expiration of a minimum withdrawal notice period of three years.

 

The account shall not be insured by the National Credit Union Share Insurance Fund or any governmental or private entity.

 

The account holder's claim against the credit union must be subordinate to all other claims, including shareholders, creditors and the National Credit Union Share Insurance Fund.

 

Funds in the account, including interest accrued and paid into the account, must be available to cover operating losses realized by the credit union that exceed its net available reserves and undivided earnings.  In lieu of being paid into the account, interest may be paid directly to the account holder or into a separate account from which the account holder may make withdrawals.  Losses shall be distributed pro-rata among all secondary capital accounts held by the credit union at the time losses are realized.

 

The account may not be  pledged or provided by the account holder as security on a loan or obligation with the credit union or any other party.

 

In the event of liquidation of the credit union, the accounts will, to the extent they are not needed to cover losses at the time of liquidation, be paid out to the account holder.

 

"Paid-in and unimpaired capital" or "unimpaired capital" means shares as defined in Section 1.1 of the Act.

 

"Person" or "persons" means individuals and bodies politic and corporate, including without limitation corporations, limited liability companies, general partnerships, limited partnerships and joint ventures; unless, from the context and facts, the intention is plain to apply only to individuals.  Persons who reside in or live in a geographical area include non-natural persons located within the geographical area.

 

"Secretary" means the Secretary of the Department of Financial and Professional Regulation or a person authorized by the Secretary, the Act or this Part to act in the Secretary's stead. As provided in Section 8(l) of the Act, all references in the Act or this Part to the Secretary shall be deemed to include the Director, as a person authorized by the Secretary or the Act to assume responsibility for the oversight of the functions of the Department relating to the regulatory supervision of credit unions under the Act and this Part.

 

"State" means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico and any of the several territories and possessions of the United States.  When capitalized, the term "State" generally means the State of Illinois.

 

"Surplus" means undivided earnings. 

 

"USPAP" means the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Standards Board pursuant to Title XI of the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989 (12 USC 3331 et seq.) published biennially by the Appraisal Standards Board of The Appraisal Foundation, 1155 15^th Street N.W., Suite 1111, Washington DC  20005 (effective January 1, 2016 through December 31, 2017; no later amendments or editions).

 

(Source:  Amended at 41 Ill. Reg. 4764, effective May 1, 2017)

 

Section 190.5  Credit Union Service Organizations

 

a)         The provisions of this Section apply to credit unions investing in or lending to a Credit Union Service Organization (CUSO), which is a credit union organization as defined in Section 1.1 of the Act.

 

b)         Prior to the initial investment in or loan to a CUSO, the records of the credit union shall contain the following information:

 

1)         The name and location of the CUSO.

 

2)         Services provided by the CUSO.

 

3)         The names of the officers, employees and agents of the CUSO and their relationship to the credit union and the credit union's directors, officers, staff and members.

 

4)         The form of organization under which the CUSO operates, including but not limited to corporation, limited partnership, general partnership, joint venture, limited liability company, or limited partnership.

 

5)         The most recent financial statements of the credit union and the CUSO.

 

6)         The customer base served by the CUSO.

 

7)         The credit union's investments in or loans to other CUSOs.

 

8)         The credit union's indebtedness to any other credit unions, corporations, financial institutions, credit union organizations, or other organizations.

 

c)         A credit union and a CUSO must be operated in a manner that demonstrates to the public the separate corporate existence of the credit union and the CUSO.

 

1)         Good business practices dictate that each must operate so that:

 

A)        Its respective business transactions, accounts and records are not intermingled;

 

B)        Each observes the formalities of its separate corporate procedures;

 

C)        Each is adequately financed as a separate unit in the light of normal obligations reasonably foreseeable in a business of its size and character;

 

D)        Each is held out to the public as a separate enterprise;

 

E)        The credit union does not dominate the CUSO to the extent that the CUSO is treated as a department of the credit union; and

 

F)         Unless the credit union has guaranteed a loan obtained by the CUSO, all borrowings by the CUSO indicate that the credit union is not liable.

 

2)         Prior to a credit union investing in or making a loan to a CUSO, the credit union must obtain a written legal opinion as to whether the CUSO is established in a manner that will limit potential exposure of the credit union to no more than the loss of funds invested in, or loaned to, the CUSO.  In addition, if a CUSO in which a credit union has made an investment or loan plans to change its form of organization under subsection (b)(4), the credit union must obtain a prior written legal opinion that the CUSO will remain established in a manner that will limit potential exposure of the credit union to no more than the loss of funds invested in, or loaned to, the CUSO.  The legal opinion must address factors that have led courts to "pierce the corporate veil", such as inadequate capitalization, lack of separate corporate identity, common boards of directors and employees, control of one entity over another, and lack of separate books and records.  The legal opinion may be provided by independent legal counsel of the credit union.

 

d)         Additional Requirements

 

1)         The CUSO must comply with the definition of a credit union organization as defined by Section 1.1 of the Act.

 

2)         The amount a credit union may invest in and/or loan to a CUSO is subject to Board of Director approval and the following limitations:

 

A)        Any loan to the CUSO does not cause aggregate loans to credit union organizations, per Section 51(4) of the Act, to exceed the greater of 6% of the paid-in and unimpaired capital and surplus of the credit union.

 

B)        Any investment in the CUSO does not cause the aggregate investment in CUSOs to exceed the greater of 6% of the paid-in and unimpaired capital and surplus of the credit union in accordance with the statutory limitation on investments in CUSOs.

 

C)        The limit on loans to CUSOs is independent and separate from the limit on investments in CUSOs.

 

D)        "Paid-in and unimpaired capital and surplus" means shares, as defined in Section 1.1 of the Act, and undivided earnings.

 

E)        If the investment limits described in this subsection (d)(2) are reached or exceeded because of the profitability of the CUSO and the related GAAP valuation of the investment under the equity method, without an additional cash outlay by the credit union, divestiture is not required.  A credit union may continue to invest up to the authorized amount without regard to the increase in the GAAP valuation resulting from a CUSO's profitability.

 

3)         Any CUSO in which a credit union invests or lends that directly or indirectly originates, purchases, facilitates, brokers, or services loans to consumers in Illinois shall not charge an interest rate that exceeds the applicable maximum rate established by the Predatory Loan Prevention Act [815 ILCS 123/15-5-5].

 

4)         All dealings between the credit union's directors, officers, employees, their family members or any corporation, partnership, proprietorship or association in which these individuals hold interest and the CUSO are disclosed.  Any agreements between these individuals, businesses or associations and the CUSO must be structured to project economic benefit, increased efficiencies and/or cost effective service to the credit union and must not project a detrimental effect on the earnings or sound operation of the credit union.  For purposes of this subsection (d)(4) "family member" means a spouse or a child, parent, grandchild, grandparent, brother or sister, or the spouse of that individual.

 

5)         All agreements between the credit union and the CUSO must be structured to project economic benefit, increased efficiencies and/or cost effective service to the credit union and must not project a detrimental effect on the earnings or sound operation of the credit union.

 

e)         Prior to investing in or lending to the CUSO, the credit union must enter into a written agreement with the CUSO.

 

1)         The written agreement must contain clauses that state the CUSO will:

 

A)        Provide the Department with complete access to any books and records of the CUSO, with the costs of examining these records borne by the credit union served in accordance with the per diem rate set out in Section 12 of the Act.

 

B)        Follow GAAP.

 

C)        Provide the credit union with the financial statements of the CUSO on at least a quarterly basis and Certified Public Accountant (CPA) audited financial statements on an annual basis.

 

2)         The agreement must also contain a clause reciting that the parties agree to terminate their contractual relationship:

 

A)        Upon 90 days written notice to the parties by the Secretary that the safety and soundness of the credit union is threatened pursuant to the Department's cease and desist and suspension authority as outlined in Sections 8(4), 8(5) and 61 of the Act.

 

B)        Immediately upon the parties' receipt of written notice from the Secretary when the Secretary reasonably concludes, based upon specific facts set forth in the notice to the parties, that the credit union will suffer immediate, substantial and irreparable injury or loss if it remains a party to the service contract.

 

3)         The termination of the underlying agreement between the CUSO and the credit union shall in no way operate to relieve the CUSO of repaying any investment, indebtedness or other obligation due and owing the credit union at the time of termination.

 

f)         In recording all transactions with the CUSO, GAAP shall be followed by the credit union.

 

(Source:  Amended at 46 Ill. Reg. 18508, effective November 1, 2022)

 

Section 190.10  Field of Membership Procedures

 

a)         All requests to amend the field of membership of a credit union must be in writing and provide sufficient detail to establish conformance with a definition of common bond as specified in Section 1.1 of the Illinois Credit Union Act (the Act) [205 ILCS 305].  At a minimum this detail must include a definition of the common bond, number of individuals and demographics of potential members, and a letter of support from a sponsor organization, association, or employer if applicable.

 

b)         To change field of membership a credit union must amend its by-laws and articles of incorporation on forms provided by the Division.  These amendments require the Director's approval prior to becoming effective.

 

c)         The Division, in administering the common bond requirement of the Act, will evaluate changes to existing or establishment of new fields of membership caused by new charters, conversion, or changes in existing by-laws in accordance with the following criteria:

 

1)         Each credit union must have a field of membership consisting of one or more of the following common bonds: association, occupation or community.  A central credit union or a corporate credit union may serve only those groups or persons specified in the Act and its by-laws and Statement of Incorporation.

 

2)         The common bond must conform to the Act and include some unifying factor which links and distinguishes a field of membership from the general public.  A generalized common belief, philosophy, or agreement, is not in itself a sufficient basis for a common bond.

 

3)         In determining whether a change in a field of membership is appropriate, the Division also shall consider:

 

A)        the specific circumstances which govern each request;

 

B)        the original assumptions and circumstances of the common bond when the charter was granted;

 

C)        the sponsoring organization's knowledge of and support for the request;

 

D)        the credit union's demonstrated ability to fully serve its existing field in a safe and sound manner.

 

(Source:  Amended at 30 Ill. Reg. 18919, effective December 4, 2006)

 

Section 190.15  Civil Penalty

 

As provided in Section 8(6) of the Act, the amount of time specified by the Department, at the Secretary's or his or her designee's discretion, within which the credit union must remediate the specific violations shall depend on the nature and extent of the remedial action to be taken.  All remedial actions must be performed to the satisfaction of the Secretary or his or her designee. Additional time for remediation may be granted at the Secretary's or his or her designee's discretion for good cause upon written request made in good faith by the credit union.

 

(Source:  Added at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.19  Service of Orders

 

a)         Unless otherwise provided for in the Act, the Department may serve orders, administrative actions, or regulatory decisions by personal delivery, certified mail or email.

 

b)         Proof of service by email, mail or personal delivery will be attached to the original of any document served. Proof of service by email shall be the email notice to which the document is attached. Service by email is deemed complete on the day of transmission. Proof of service may be verified by certification as provided for in Section 1-109 of the Code of Civil Procedure [735 ILCS 5].

 

c)         If service is by email, the Department shall maintain a copy of the sent email and shall verify within one business day that the transmission of the email has not failed or been rejected. In the event of rejection or failure, absent correction of an erroneous email address, service shall be made by certified mail or personal delivery.

 

d)         Each credit union shall designate and file an email address of record with the Department. A credit union shall notify the Department prior to updating its designated email address and shall annually verify the email address of record with the Department. A credit union may designate up to two secondary email addresses of record, and if so designated, the Department shall be required to email both the email address of record and the secondary email addresses of record.

 

e)         Documents containing information that could reasonably be deemed personal, proprietary, confidential, or trade secret information or containing other information listed under 5 ILCS 100/10-75(b) should be served by mail or personal delivery.

 

(Source:  Added at 46 Ill. Reg. 12537, effective July 8, 2022)

 

Section 190.20  Petition for Hearings

 

When a credit union or applicant has the right to request a hearing under the Act or other applicable law, a credit union shall have 90 days, unless otherwise specified in the Act or other applicable law, after service of any order, administrative action, or regulatory decision to file a Petition for Hearing pursuant to the requirements set forth in 38 Ill. Adm. Code 100.30. All administrative hearings shall be conducted in accordance with 38 Ill. Adm. Code 100.

 

(Source:  Amended at 46 Ill. Reg. 12537, effective July 8, 2022)

 

Section 190.25  Regulatory Examination Consistency and Due Process

 

To ensure consistency and due process, the Department shall make every reasonable effort to adhere to the following standards of performance in conducting its regulatory examinations of credit unions. To supplement this Part, the Department may establish guidelines that define the scope of the examination process and clarify the manner in which examination items shall be resolved. The scope of the guidelines shall include, but are not limited to:  protocol in identifying and addressing examination findings; preparation of examination reports; delivery of examination reports; and procedures for enforcement actions and determining compliance with enforcement actions.  The guidelines furnished to credit unions by the Department may be relied upon by the credit unions. The Department reserves the right to change these guidelines. The Department will provide reasonable notice when any change to the guidelines occurs.

 

a)         Reasonable Notification

 

1)         Prior to commencement of the examination, the Department shall mail or email a pre-examination memorandum to management and the board of directors (Board) of the credit union giving notification of the commencement date of the examination and the information the Department deems necessary to conduct the examination. Prior notification is not required if the Department suspects criminal activity or unsafe and unsound activity for which advance notice may compromise or otherwise interfere with the examination. Prior to and during the exam, the credit union shall provide timely information in response to requests by the Department for information.

 

2)         During each stage of the examination, the Department shall make a reasonable effort to provide prior notification to management of the credit union of all joint conferences and the exit meeting. It shall be the responsibility of management to contact the Board and applicable committees of all joint conferences and the exit meeting.

 

b)         Communication Protocol in Identifying and Addressing Examination Findings – The Department shall take reasonable steps to work with the credit unions it supervises to proactively identify problems and solutions during the examination process.

 

c)         Delivery of Examination Reports

 

1)         Definitions

 

A)        An "exit meeting" is held when field work is completed and preliminary results are shared with management.

 

B)        The "examination report meeting" with the Board and management customarily takes place after the exit meeting and is held with the Board and/or senior management. At the examination report meeting, any draft Document of Resolution (DOR) and any draft examiner's findings shall be presented to the Board and/or senior management.

 

C)        The "final examination report" is delivered after the examination report meeting and is issued by the Department after the review examination process is finalized.  

 

2)         Examiners shall provide management and the Board with the examiner's draft findings and any draft DOR, with sufficient time to review these items before the examination report meeting with the credit union's senior management and/or Board.

 

3)         At the exit meeting and/or at the examination report meeting, each Board member shall be permitted to participate in the meeting to fulfill his or her fiduciary duties.

 

4)         The Department shall submit its final examination report to the credit union after the examination report meeting. 

 

d)         Examination Due Process:  Enforcement Action Procedures

 

1)         Background. The Department, acting through the Division of Financial Institutions, Credit Union Section, may determine it is prudent to take an enforcement action against a credit union. The enforcement action may either be specified by the Act or not.

 

A)        Enforcement actions not specified by the Act are DORs and Letters of Understanding and Agreement (LUAs).Violations of the terms of a DOR or LUA may be enforced through administrative actions specified by the Act.

 

i)          A DOR is set forth in the Examination Report and outlines an identified problem and corrective action plan to resolve the problem. A problem included in a DOR shall be significant enough that the Department may escalate the matter to the next level of elevated enforcement action for failure to correct the problem.  Problems requiring attention that may be addressed in a DOR include, without limitation, unsafe or unsound practices that reasonably threaten the stability of the credit union. 

 

ii)         An LUA is an enforcement action presented to a credit union by the Department to initiate corrective action of identified material deficiencies or weaknesses in the credit union's administration or operations. The LUA shall be structured as an agreement between the Department and the credit union, pursuant to which the credit union agrees to the terms specified in the LUA.

 

B)        Other enforcement actions are Cease and Desist Orders, Orders of Removal and Civil Penalty Orders. These enforcement actions are specified by the Act and may be unilaterally imposed on the credit union by the Department, provided that a credit union may appeal such actions to the extent provided by the Act and this Part. The Department may take enforcement actions for, among other things, significant and material violations of laws or rules, unsafe and unsound practices, breach of fiduciary duty, violations of orders and failure to implement or comply with previous regulatory actions.

 

2)         Progressive Steps of Review. In connection with any request for reconsideration of any examination finding and/or examination corrective action item, the following procedures shall apply:

 

A)        Examiner Level – Credit union management officials shall be encouraged to directly resolve disagreements, complaints or issues with the Examiners on-site during the regulatory examination, including the Examiner in Charge (EIC), or directly with any Examiner who otherwise identifies a deficiency or issue during any examination, visitation, investigation or review of the credit union.

 

B)        Supervisory Level – In the event the credit union and Examiner are unable to reach a mutually acceptable resolution of the issue, the credit union may discuss the issue with the Assistant Supervisor or Supervisor of the Credit Union Section.

 

C)        Director Level – If the credit union and Supervisor or Assistant Supervisor are unable to resolve the issue, either party may ask the Division Director to rule on the dispute. The Director may agree to do so or decline to do so.

 

D)        Department Internal Review Committee − Irrespective of whether the Director renders a decision on the issue, the Director may elect to request that an internal panel of Department personnel consider the issue and render a final regulatory recommendation to the credit union. The internal review committee shall consist of the Director or his or her designee, Supervisor, Assistant Supervisor, Problem Case Officer and an Examiner not involved in the examination. In cases in which there is a vacancy in a designated office, the committee comprised of the other designated incumbents shall proceed to review the matter.

 

E)        Nothing in this subsection (d)(2) shall be construed to impair or abrogate the right of a credit union to request a formal hearing under Section 190.20 to review the propriety of an administrative action or regulatory decision of the Department.

 

(Source:  Added at 38 Ill. Reg. 19910, effective October 17, 2014)

 

Section 190.30  Cease and Desist Procedures

 

a)         If the Secretary issues a Cease and Desist Order pursuant to Section 8(4) of the Act, that Cease and Desist Order will be served on the credit union in the manner set forth in Section 190.19, with a copy sent to each member of the board of directors.

 

b)         Within 90 days after service the Cease and Desist Order, the credit union may file a Petition for a Hearing pursuant to 38 Ill. Adm. Code 100.30. If no Petition for Hearing is filed, or the Cease and Desist Order is agreed to in writing, the credit union shall be deemed to have consented to the issuance of the Cease and Desist Order.

 

c)         A cease and desist order shall become effective upon service and shall remain effective until it is terminated by action of the Secretary or a reviewing court.

 

(Source:  Amended at 46 Ill. Reg. 12537, effective July 8, 2022)

 

Section 190.40  Removal or Suspension Procedures

 

a)         Under circumstances described in Section 8(5) of the Act, the Secretary or the Secretary's agent shall issue and serve upon a director, officer or committee member a written Order of Suspension to remove the named persons from office and/or to prohibit their further participation in any manner in the conduct of the affairs of the credit union.

 

b)         The Order, which shall contain a statement of the facts constituting the grounds for the Order, shall be served on the credit union in the manner set forth in Section 190.19 and on the named persons by personal delivery or certified mail, with a copy to each member of the affected credit union's board of directors and the President, if not a director.  The Order shall become effective upon service and, unless stayed by a court, shall remain in effect pending the completion of administrative proceedings as outlined in this Part.

 

c)         Within 90 days after the service of the Order, the named persons may file a Petition for a Hearing pursuant to 38 Ill. Adm. Code 100.30 to request an administrative review of the Order. If no response is received or the Order is agreed to in writing, the persons shall be deemed to have consented to the issuance of an Order of Suspension, thereby prohibiting the named individuals from further participation in any manner in the conduct of affairs of any credit union chartered under the Act. The Order shall remain effective until it is terminated by action of the Secretary or reviewing court.

 

d)         In the event that all of the directors of a credit union are suspended or removed, the Secretary, under authority of Section 61(4) of the Act, shall appoint a Manager-Trustee to manage the affairs of the credit union until the Secretary appoints interim successors to the directors to serve until the next annual members' meeting.

 

(Source:  Amended at 46 Ill. Reg. 12537, effective July 8, 2022)

 

Section 190.50  Fees

 

The schedule of annual regulatory fees is contained in Section 12 of the Act.  In addition, pursuant to Sections 8 and 9 of the Act, the Secretary prescribes the following fees:

 

a)         Service Fee Charges:

 

1)........ Investigation of application for permission to organize a new credit union.................................................................................... $250

 

2)........ Preparation and/or approval of an amendment to the Articles of Incorporation or to the By-Laws:

 

Other than to add or convert to a community common bond:

 

Credit unions with assets less
than $5 million...............................................................................................	$10
Credit unions with assets of $5 million
and less than $30 million...............................................................................	$15
Credit unions with assets of $30
million and greater.........................................................................................	$25

 

To add or convert to a community common bond (irrespective of credit union asset size) ........................................ $250

 

3)         Preparation and/or approval of standard revised set of By-Laws........... $50

 

4)         Preparation and/or approval of non-standard revised set of By-Laws (excluding individual or minor revisions)................................... $250

 

5)         Photocopy of any documents per page...................................................... $1

 

6)         Late filing of any report for each day late (excluding 5300 Reports):

 

Credit unions with assets less than $5 million...............................................................................	$15
Credit unions with assets of $5 million and less than $30 million...............................................................................
	$25
Credit unions with assets of $30 million and greater...................................................................	$50

 

7)         Late filing of any 5300 Report for any credit union for each day late:

 

Credit unions with assets less than $5 million........................	$25
Credit unions with assets of $5 million and greater.................	$50
Credit unions with assets of $50 million and greater...............	$100

 

8)........ Preparation of a list of credit unions by name and address................... $100

 

9)........ Credit Union Act, Rules & Regulations and standard By-Laws in hardback binder................................................................................. $200

 

Credit Union Act (no binder)..................................................................................................	$50
Rules & Regulations (no binder)..................................................................................................	$50
Standard By-Laws (no binder)..................................................................................................	$50
Hardback Binder..................................................................................................	$50

 

b)         Mergers, Conversions, Investigations, Hearings and Failure to Maintain Books:

 

1)

Supervision of merger or conversion, including completion of transfer of accounting records of merging credit union to surviving credit union's records (excluding involuntary or unsolicited mergers for which there shall be no fee)..................................................................................

$250

 

2)         Special investigation or examination of a credit union when, in the opinion of the Secretary, there is reasonable cause to believe the credit union is engaged or has engaged, or is about to engage in an unsafe or unsound practice, or is violating or has violated a law, rule or regulation or any condition imposed in writing by the Division, or to enable the Secretary to determine the safety of a credit union's operation or its solvency.

 

Charge per examiner per day or part thereof assessed pursuant to the following scale based on total assets of credit union:*
$5,000,000 or less..............................................................................		$190
Greater than $5,000,000 - $100,000,000...........................................		$245
Greater than $100,000,000.................................................................		$380

 

 

* Provided that the charges may not exceed the annual regulatory fee provided in Section 12 of the Act for an annual examination.

 

3)         The cost of any formal hearing requested by a credit union in accordance with Section 190.20 will be  assessed by the Secretary.

 

4)         A credit union failing to have its books and records available and currently posted* when contacted by the Division's examiner for examination, resulting in the Division's inability to conduct the examination, will be assessed a fee of:

 

Credit unions with assets of less than $1 million..	$65
Credit unions with assets of $1 million and less than $5 million...........................................	$130
Credit unions with assets of $5 million and less than $10 million....................................................	$325
Credit unions with assets of $10 million and less than $30 million....................................................	$650
Credit unions with assets of $30 million and less than $100 million..................................................	$1,300
Credit unions with assets of $100 million and less than $500 million..................................................	$3,250
Credit unions with assets of $500 million and greater....................................................................	$6,500

 

*  Currently posted means that the accounts are posted by the 15^th of the following month.

 

The fee authorized under this subsection (b)(4) shall not be assessed if an immaterial number of accounts is not posted by the 15^th day of the following month, as determined under GAAP, or more frequently than annually.

 

c)         Payment:

 

1)         A credit union shall pay any fee listed in subsections (a) and (b) of this Section no later than 20 days after receipt of an invoice from the Division.

 

2)         Individuals, partnerships or other corporations shall pay in advance any fee to be charged for the preparation of the work requested.  The Division, upon request, shall provide an estimated cost of the work requested.

 

3)         Fees shall be waived by the Secretary for forms and copies supplied to another agency of government or when the fee was not imposed according to the Act or this Part.  Fees listed in subsections (a) and (b) may be waived, in whole or in part, by the Secretary, upon a showing by the credit union satisfactory to the Secretary that the imposition of the fee in the particular case would be inequitable or create a hardship for the credit union.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.60  General Accounting Procedures

 

a)         All credit unions will maintain their books and records in accordance with GAAP, and in such a manner as to provide an accurate report of financial condition, with the exception of the selection of the accounting method to be used or when otherwise directed by statutory requirements.  In the event that a credit union is using the modified cash basis of accounting, and the Secretary determines that method causes a material misstatement of the financial condition of the credit union, the Secretary shall require that the credit union convert to the full accrual method of accounting, except when factors such as prohibitive cost or lack of expertise are evident.  The Division will notify in writing any credit union required to convert to the full accrual method and provide 60 days to review and respond.

 

b)         If the credit union does not concur with the Division's requirement, it may request a formal hearing under Section 190.20.  The order to change accounting procedures is stayed pending the final outcome of the hearing.

 

c)         Regardless of the method of accounting in use, the following items must be accrued or amortized:

 

1)         Dividends on Classes of Shares;

 

2)         Premiums and Discounts on purchased investments;

 

3)         Depreciation of Fixed Assets; and

 

4)         Interest on investments when paid less frequently than once a year.

 

d)         If a credit union uses the accrual method to recognize interest income on consumer loans, the accrual must be stopped and income recognized on a cash basis whenever the borrower is three months or more delinquent in contractual payments.

 

e)         All credit union charts of accounts must be kept in sufficient detail to allow accurate and full completion of all reports required by Section 9 of the Act.

 

f)         Pursuant to the authority granted to the Secretary by Section 60(B) of the Act to decrease the reserve requirement set forth in Section 60(A) of the Act, a credit union is exempt from the reserve requirement of Section 60(A) if:

 

1)         The credit union's net worth to asset ratio is 7% or greater; or

 

2)         If the credit union's net worth to asset ratio at the end of a calendar quarter is less than 7%, the credit union transfers an amount equal to .1% of the credit union's assets from undivided earnings to regular reserve at the end of the next calendar quarter and quarterly thereafter until the net worth to assets ratio is equal to or greater than 7%.

 

3)         Notwithstanding subsection (f)(2), a credit union with a net worth to asset ratio of greater than 6% is not required to make the earnings retention transfer of 0.1% from undivided earnings to regular reserve at the end of the next quarter until after the quarter ending 3/31/2023 unless the Secretary determines that a transfer is necessary to address safety and soundness concerns.

 

(Source:  Amended at 46 Ill. Reg. 16221, effective September 6, 2022)

 

Section 190.70  Loan Loss Accounting Procedures

 

a)         For the purpose of absorbing and reporting loan losses, all credit unions must establish, at a minimum, the following accounts in the general ledger:

 

1)         Allowance for Loan Losses (ALL) – A portion of the statutory Regular Reserve segregated and reported as a direct reduction of loans. The ALL shall fairly present the value of loans and probable losses for all categories of loans.  Adjustments to the ALL shall be made prior to the distribution or posting of any dividend to the accounts of members.

 

2)         Provision for Loan Losses (PLL) – An expense account, immediately preceding dividend expense, used to reflect the cost of losses on loans.  Replenishment of the allowance for loan losses must be expensed using the PLL account.

                                                 

b)         The ALL shall be established and maintained subject to the following requirements:

 

1)         The ALL shall be established based upon separate loss calculations reflecting loans secured by real estate and loans not secured by real estate. A credit union may further segment its loan portfolio, to recognize loss contingencies, by identifying risk characteristics that are common to groups of loans.  Portfolio segmentation and impairment measurement may be based upon many factors, including without limitation major loan types and product line segments with differing risk characteristics. 

 

2)         The ALL shall be maintained at a level equivalent to an amount computed using an historical loan loss experience ratio and an individual classification of probable losses for all consumer and real estate loans.  In determining the appropriate balance in the ALL, a credit union may determine its historical loss rate using a defined period of time of less than 5 years, provided that:

 

A)        The credit union employs a certified public accountant to perform its annual external independent audit;

 

B)        The methodology developed by the credit union to determine the defined period of time is formally documented in the credit union's policies and procedures or management memoranda, and is appropriate to the credit union's size, business strategy and loan portfolio characteristics, and the economic environment of the areas and employers served by the credit union;

 

C)        Supporting documentation is maintained by the credit union for a period of no less than three audit cycles for the technique used to develop the credit union loss rates, including the period of time used to accumulate historical loss data and the factors considered in establishing the time frames; and 

 

D)        The external auditor conducting the credit union's financial statement audit has analyzed the methodology employed by the credit union and concludes that the financial statements, including the allowance for loan losses, are fairly stated in all material respects in accordance with U.S. Generally Accepted Accounting Principles, as promulgated by the Financial Accounting Standards Board. [205 ILCS 305/34(4)]

 

3)         To the extent consistent with GAAP, the design and implementation of ALL methodologies and supporting documentation practices shall be in accordance with the National Credit Union Administration's Interpretive Ruling and Policy Statement (IRPS) 02-3 (NCUA, 1775 Duke Street, Alexandria VA 22314-3428, Allowance for Loan and Lease Losses Methodologies and Documentation for Federally-Insured Credit Unions, 67 Fed. Reg. 37445).

 

4)         A credit union that does not employ a certified public accountant to perform an annual external independent audit shall utilize the five-year period preceding the subject fiscal period to compute its historical loan loss experience ratio.  A credit union not employing a certified public accountant to perform its annual external independent audit may adjust the five-year historical time period to more accurately reflect its loan loss experience, upon application to and receipt of written approval from the Secretary.

 

5)         Historical Loss Experience Ratio

 

A)        The historical loss experience ratio is computed by dividing the total net loan losses for the appropriate period of time determined by the credit union under subsection (b)(2) or (b)(4), as applicable, by an amount representing the average loan balances for the defined period.  The resulting ratio is multiplied by the total loans outstanding, less:

 

i)          loans that have been classified individually; and

 

ii)         pools of homogenous loans for which an estimated loss percentage has been utilized.

 

B)        A new credit union will determine its historical loss experience ratio using available data.  As used in this subsection (b)(5), "net loan losses" means loan chargeoffs, less loan recoveries, for the defined period of time.

 

6)         If a pool consists of a large group of homogeneous loans, a credit union may utilize an estimated loss percentage on the pool to be determined by collectively evaluating the pool of loans for impairment in accordance with GAAP. The portion of the ALL attributable to the pool of loans may be determined by applying the estimated loss percentage to the total outstanding balance of the loans comprising the pool instead of individually classifying delinquent loans in the pool.

 

7)         Notwithstanding anything to the contrary in this subsection (b), a credit union that employs a certified public accountant to perform its annual external independent audit must formally document its methodology to support:

 

A)        Its utilization of any defined period of time in determining its historical loss rate; and

 

B)        Its decision to change its defined period of time in determining its historical loss rate.

 

c)         Delinquency is defined as the failure to make a required payment on or before the contractual due date.  Loans delinquent more than 60 days, bankruptcy and loans that exhibit deficiencies that impair their full collectability shall be classified as either substandard, doubtful or loss.

 

1)         Substandard Loans – A substandard loan is one that is inadequately protected by the current sound worth and paying capacity of the obligee or of the collateral pledged.  Loans classified as substandard have a well defined weakness or weaknesses that jeopardized the liquidation of the debt.  They are characterized by the distinct possibility that the credit union will sustain some loss if the deficiencies are not corrected.  Loans in this category shall generally be listed in a range from zero to under 50 percent potential loss.

 

2)         Doubtful Loans – A loan classified doubtful has all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.  The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until a more exact status may be determined.  Loans in this category shall be listed at a minimum 50 percent potential loss.

 

3)         Loss Loans – Loans classified as loss loans are considered uncollectible and shall be listed at 100 percent potential loss.  Loans considered loss loans include, but are not limited to:

 

A)        Any loan 180 days or more delinquent without a payment of at least 75% of the contractual payment within the last 90 days.  Involuntary transfers from shares and proceeds from the sale of collateral and insurance settlement shall not be considered as payments.

 

B)        Any loan that is 180 days or more delinquent and referred to an attorney or a collection agency.

 

C)        Any loan that was previously 180 days or more delinquent, has been refinanced or extended and has subsequently become 90 days or more delinquent. In instances in which a delinquent loan is refinanced or extended and does not fully and fairly disclose the delinquency as determined in a statutory examination of the credit union, the loan shall be immediately classified as a loss loan.

 

D)        Any loan with respect to which the borrower has filed a Chapter 7 bankruptcy petition and has been granted a discharge by the court.

 

E)        Any loan with respect to which the borrower has filed a Chapter 13 bankruptcy and the credit union has not received a payment within 180 days or more after the confirmation of the plan, unless the plan stipulates repayment of the loan in full and the credit union has determined from the Trustee that plan payments are being made on a timely basis to the Trustee but have not yet been disbursed to the credit union.

 

F)         Any loan with respect to which the borrower's whereabouts is unknown (a "skip"), unless there is a comaker whose whereabouts is known and the loan is less than 180 days delinquent.

 

G)        Any loan where a "deficiency balance" has resulted from the sale of collateral or an insurance settlement unless there is documented evidence of periodic payments on a consistent basis in an amount sufficient to retire the deficiency balance in a reasonable time.

 

4)         When there is evidence of collectability of loans meeting the loss loans criteria of subsection (c)(3), the credit union's records shall list the loans and classify them as substandard or doubtful and detail the evidence of collectability used to exclude each loan from the loss loan category.  Evidence of collectability shall be the following collection activities and remedies:

 

A)        Execution and filing of an enforceable reaffirmation agreement on the loan in a Chapter 7 bankruptcy proceeding prior to completion of the Division's loan analysis in any statutory examination of the credit union.

 

B)        Voluntary repayment of the loan pursuant to section 524(f) of the federal Bankruptcy Code (11 USC 524(f)).

 

C)        Collection of the loan pursuant to repossession of collateral without judicial process, or by replevin, detinue, forcible entry and detainer or mortgage foreclosure proceedings.

 

D)        Collection of the loan pursuant to post-judgment enforcement remedies including wage deduction, garnishment and turnover orders entered in citation to discover assets supplementary proceedings.

 

E)        The entry of a judgment pay plan order providing for repayment of the loan in a judicial proceeding.

 

F)         Documented evidence of repayment of that portion of the loan covered by collateral protection or other insurance policies.

 

G)        Documented evidence of periodic payments on a consistent basis in an amount sufficient to retire the loan balance in a reasonable time.

 

5)         Before every dividend declaration or every closing date, all delinquent and bankrupt loans shall be individually classified as either substandard, doubtful or loss.  All loans classified as losses must be charged off to the ALL.

           

d)         Nothing in this Section shall be applicable to the establishment of an Allowance for Loan Losses account for business loans.  Business loans shall be classified pursuant to Section 190.165.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.80  Use of Electronic Data Processing

 

a)         A credit union whose records or accounting system is maintained using electronic data processing (EDP) equipment must have such accounts and EDP programs to enable the credit union to complete in an accurate and timely manner all required reports and to maintain its books, records, all subsidiary accounts and management reports, as appropriate, in accordance with the Illinois Credit Union Act and Rules and Regulations promulgated thereunder.  Delinquency listings should be completed in accordance with 38 Ill. Adm. Code 190.70.

 

b)         A credit union must notify the Division in writing 45 days prior to implementation of data processing system or conversion to a different system.  This notification must include the name of the system and the date of conversion.

 

(Source:  Amended at 30 Ill. Reg. 18919, effective December 4, 2006)

 

Section 190.90  Fixed Asset Investments

 

a)         Definitions

 

"Fixed assets" means premises and furniture, fixtures and equipment, as those terms are defined in this Section:

 

"Premises" includes any office, branch office, suboffice, service center, parking lot, other facility, or real estate where the credit union transacts or will transact business.

 

"Furniture, fixtures and equipment" includes all office furnishings, office machines, computer hardware and software, automated terminals, and heating and cooling equipment.

 

"Investment in fixed assets"  means:

 

any investment in real property (improved or unimproved) that is being used or is intended to be used as premises, excluding premises leased for five years or less;

 

any leasehold improvement on premises;

 

the present value of the aggregate of all capital lease payments pursuant to lease agreements for fixed assets, excluding lease payments for premises leased for five years or less;

 

any investment in the bonds, stock, debentures, or other obligations of a partnership or corporation or limited liability entity, including a credit union service organization, holding any fixed assets used by the credit union and any loans to that partnership or corporation or limited liability entity; and

 

any investment in furniture, fixtures and equipment.

 

"Retained earnings" includes undivided earnings, regular reserve, other reserves, and any other appropriations designated by management or regulatory authorities.

 

b)         Investment in Fixed Assets

 

1)         Credit unions with assets of less than $1,000,000 that choose to invest in premises must apply to the Division for approval.

 

2)         Credit unions with assets of $1,000,000 or more may invest in fixed assets, without the prior approval of the Division.

 

c)         Credit unions with assets of less than $1,000,000 seeking to invest in premises must submit to the Division an application for approval.  The application for approval must contain the following minimum supporting documentation:

 

1)         why the purchase and/or lease is necessary to serve the credit union's members;

 

2)         details of the proposed transaction including:

 

A)        location and full description of the fixed asset;

 

B)        if a purchase of premises is involved, current valuation by an independent appraiser;

 

C)        purchase price or lease details;

 

D)        current owners and their relationship to the credit union or to any members of the credit union;

 

E)        how the project will be financed;

 

F)         if a purchase, lease or improvement of premises is involved, a summary of planned due diligence inspections to verify building, building line and use or occupancy restrictions; conditions and covenants on record; zoning laws and ordinances; easements for public utilities; and other matters pertinent to the transaction; and

 

G)        evidence that the increase in operating expenses caused by the project can be supported after accounting for the current level of expenses and dividend commitments;

 

3)         the credit union's latest balance sheet, income statement and loan delinquency report;

 

4)         a certified copy of Board minutes that contain approval for the project.

 

d)         The Division shall respond to applications for approval of fixed asset investments as follows:

 

1)         The Division shall inform the credit union applicant, in writing, of the date the letter of application was received.

 

2)         Approval of applications shall be given in writing once it is determined by the Division that the proposal will not adversely affect the credit union's financial position.  The determination will be based on the past history, current financial condition, projections of the credit union, and whether the increase of operating expenses caused by the project can be supported after accounting for the current level of expense, dividend and reserve commitments.

 

3)         An approval will state a dollar amount or percentage of retained earnings that may be invested in fixed assets by the credit union.

 

4)         The Division shall provide to credit union applicants written notification of action taken within 45 calendar days after receipt of the complete package of supporting documentation from the credit union.  If the credit union does not receive written notification of the action taken within 45 calendar days after the date the complete package of supporting documentation was received by the Division, the credit union may proceed with its proposed investment in fixed assets.

 

e)         A credit union that has received approval for a specific fixed asset transaction from the Division prior to the date of promulgation of amendments to this Section shall continue to be eligible to consummate the transaction after the date of promulgation, without further Division approval.

 

f)         In recording all transactions for fixed assets, GAAP shall be followed.

 

(Source:  Amended at 41 Ill. Reg. 4764, effective May 1, 2017)

 

Section 190.100  Classes of Share and Special Purpose Share Accounts

 

a)         Any account which is not a common share account shall be considered as a class of share or special purpose share account as applicable.  Section 38 of the Illinois Credit Union Act [205 ILCS 305/38] requires dividends to be declared and distributed ratably among holders of share accounts of the same class.  Variable rate dividends can be declared on common shares with the dividend rates determined by share balance during the dividend period.

 

b)         A credit union may offer class(es) of shares and special purpose share account programs to its members provided that:

 

1)         All specific offerings shall be approved by a resolution of the Board of Directors.

 

2)         Class of share and special purpose share accounts may be issued in the same forms of ownership as common share accounts.

 

3)         The par value of all such classes and special purpose accounts shall be the same as common shares.

 

4)         All such programs are described in writing and prominently displayed in the office(s) of the credit union.  Classes shall be designated as Class ONE, TWO etc.  All accounts must be made available to members on an equal basis.

 

5)         The terms and conditions of each class or special account must be fully described in writing to the member upon opening an account.  Such description shall include how ownership of the share(s) is evidenced, the basis for the calculation and payment of dividends, any applicable penalties, any renewal options and the alternatives for receipt of dividend payments.

 

6)         The credit union's accounting records shall give detailed information on each class, which shall include general ledger accounts for each share account balance, the dividend expense and accrued dividends payable thereon.  Consolidation of account detail on classes of shares for reporting on the financial statement is permitted.

 

7)         If a credit union's financial condition prevents payment of dividends on common share accounts, dividends may not be credited or paid on classes or special purpose shares for the same period.  In this event, members with class of share accounts may withdraw shares without penalty or loss of dividends which have been paid or credited.

 

(Source:  Amended at 30 Ill. Reg. 18919, effective December 4, 2006)

 

Section 190.110  Share Drafts

 

a)         A credit union with total assets of $1 million or less may, upon resolution of the Board of Directors, request permission of the Division to offer share drafts to their members provided that:

 

1)         the total assets of the credit union are at a sufficient level to support the additional costs of the program;

 

2)         shares are insured by NCUA or other approved insurance programs;

 

3)         the credit union has full time management or is serviced by a center with full time management;

 

4)         has automated record keeping or is serviced by a center with such equipment; and

 

5)         the financial trends of the credit union, including, but not limited to, the loan delinquency, liquidity, reserves, expense and growth ratios, demonstrate the credit union's ability to manage safely a Share Draft Program.

 

b)         The Division will respond to all applications within 30 days after receipt.  If the application is not approved, the disapproval will identify the financial and/or operation characteristics which must be improved before re-application can be made.

 

c)         A credit union with total assets greater than $1 million may, upon resolution of the Board of Directors, offer share drafts to its members without permission of the Division.

 

d)         If dividends on the proposed share draft accounts are to be paid at a different rate or calculated on a basis different from existing common share accounts, then in accordance with Section 37 of the Illinois Credit Union Act [205 ILCS 305/37], the share drafts must be established as a class of share.

 

(Source:  Amended at 30 Ill. Reg. 18919, effective December 4, 2006)

 

Section 190.120  Bond and Insurance Requirements

 

a)         Bond:

 

1)         The board of directors or liquidating agent of each credit union shall provide a fidelity bond in a form determined by the Secretary to meet the requirements of this Section and issued by a corporate surety authorized to do business in this State. The bond must provide coverage for the fraud and dishonesty of all employees, directors, officers and committee members (see Sections 20(2), (3) and (4) and 30(13) of the Act) and for losses caused by persons outside of the credit union due to theft, holdup, vandalism and other criminal acts.  Coverage for the faithful performance of duty is an option the board of directors may provide for all or selected employees, directors, officers and committee members.

 

2)         Each bond shall require the surety to give a minimum of 30 days written notice to the Credit Union Division of the Division prior to cancellation of any or all coverages set out in the bond.

 

3)         Any form of rider or exclusion added to the bond must have prior approval from the Secretary, to insure that at least the minimum bond is in effect and not compromised.

 

4)         A copy of the Declaration Page describing the coverage of the bond and any riders or exclusions are to be forwarded 10 days prior to the anniversary date or a change in coverage to the Division by the surety.  The Declaration Page must show at least the following:  the form number of the bond, the number of the bond, the name of the credit union, the rating period, or anniversary date, the term of the bond and the maximum limits of liability under the insuring clauses.

 

b)         Bond Schedule:

 

1)         The minimum principal amount of the bond shall be based on the total assets of the credit union, according to the following schedule:

 

Total Assets	Minimum Coverage
$0 to $10,000	Coverage equal to the credit union's assets
$10,001 to $1,000,000	$10,000 for each $100,000 or fraction thereof
$1,000,001 to $50,000,000	$100,000 plus $50,000 for each million or fraction thereof over $1,000,000
$50,000,001 to $295,000,000	$2,550,000 plus $10,000 for each million or fraction thereof over $50,000,000
Over $295,000,000	$5,000,000

 

2)         Coverage in amounts in excess of the above minimum requirements may be purchased when the board of directors, in fulfilling its duty to provide adequate fidelity bond coverage, determines the additional coverage is needed.  Minimum coverage limits must be extended to cover the additional risk when, aside from events that cannot be expected to recur, the total of cash on premise or in transit exceeds the minimum coverage limits.  For purposes of this Section, the term cash shall include currency, coin, share drafts, checks, banknotes, Federal Reserve notes, revenue stamps, postage stamps and SNAP benefits.

 

3)         The board of directors shall review the bond coverage at least once each year to determine that the bond coverage is adequate and at a minimum, is in compliance with the above scheduled requirements.  The board of directors may, consistent with the requirements of this Section, elect to purchase bond coverage subject to a deductible.

 

4)         The maximum amount of deductibles allowed shall be based on the total assets of the credit union according to the following:

 

Assets	Maximum Deductibles
$0 to $100,000	No deductibles allowed
$100,001 to $250,000	$1,000
$250,001 to $1,000,000	$2,000
Over $1,000,000	$2,000 plus 1/1000 of total assets up to a maximum deductible of $200,000.

 

5)         No deductible shall exceed 10% of a credit union's Regular Reserve unless the credit union creates a segregated Contingency Reserve for the amount of the excess.  The Reserve for Loan Losses account may not be considered part of the Regular Reserve when determining the maximum deductible.  The deductible shall not exceed the maximum amounts listed in subsection (b)(4) unless approved by the Secretary in accordance with subsection (b)(6).

 

6)         A deductible may be applied separately to one or more insuring clauses in a blanket bond.  Deductibles in excess of those shown in this Section must have the written approval of the Secretary at least 20 days prior to the effective date of the deductibles.  For purposes of this Section, the Secretary shall allow an excess deductible if the credit union will not be harmed.  In making that determination, the Secretary shall consider, but is not limited to, the adequacy of reserves, the current financial condition of the credit union, financial trends and the credit union's lending record.

 

7)         The Secretary will require increased bond requirements for any credit union when the Secretary determines that current coverage is insufficient.  In making that determination, the Secretary shall consider the factors listed in subsection (b)(6).  The board of directors of the credit union must obtain additional coverage within 30 days after the date of written notice from the Secretary.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.130  Verification of Share and Loan Accounts

 

a)         The Supervisory Committee must make or cause to be made at least once each year a reasonable percentage verification of members' share and loan accounts.  Except when prior written permission is given by the Division, for good cause shown, the verification results are to be reported in the Supervisory Committee Report filed with the Division. The verification shall be conducted by the Committee, or by a registered public accountant, under the supervision of the Committee.

 

b)         Verifications Conducted by the Supervisory Committee

 

1)         The Committee must test 100% of the accounts at least once every two years; however, the Committee may submit a modified program using generally accepted auditing standards for approval by the Division.  When conducting the verification, the Committee must establish the following controls:

 

A)        The commencement of the verification must be on a surprise basis, including taking possession and control of books and records, or copies thereof, necessary for the audit.

 

B)        All work is to be done by the Supervisory Committee or its designated agents; all credit union staff, employees and other directors shall not be involved, other than to explain exceptions.

 

C)        General notice of the verification is to be publicized to the membership in the credit union offices and by other appropriate means.

 

D)        Separate records of members' share and loan account trial balances are to be maintained by the Committee; the Committee must also maintain a separate list of members that is to be updated from the Board minutes for new and terminated members.

 

E)        All responses and communications to the verifications by members must be to the Supervisory Committee or its agents.

 

F)         All records supporting the verification are to be retained by the Supervisory Committee.

 

2)         Verification requests may be of either the positive kind, which requires a direct reply or attestation by the member as to the correctness or the balances, or the negative kind, which require replies only if the information listed is, in the opinion of the member, incorrect.  Provided however, that the following accounts must be verified using the positive method:

 

A)        Inactive or dormant accounts – members' accounts that show no member initiated activity for at least 3 years.

 

B)        Accounts with recent activity following a period of at least 3 years of dormancy.

 

C)        Accounts that show unusually large share withdrawals.

 

D)        Accounts that have delinquent loans.

 

E)        Share and loan accounts closed or charged off since the last verification was conducted.

 

F)         Accounts where negative requests are returned due to an inaccurate address.

 

G)        Any other accounts with unusual or significant activity, or which, in the judgment of the Committee, should be done on a positive basis to verify the integrity of the negative verification requests.

 

3)         All discrepancies reported should be resolved and, if known, the reason for the error shall be reported to the board, along with the results of the audit.

 

c)         Verification Conducted by a CPA Firm or Individual Registered with the State of Illinois to Practice as a Public Accountant

 

1)         When the Supervisory Committee's audit is performed by a CPA or a Registered Public Accountant, either positive or negative verification requests may be used.  The extent and nature of all tests is to be decided jointly by the Committee and the CPA or Registered Public Accountant.

 

2)         At the conclusion of the audit, a statement must be given that reflects the work performed and the responsibilities accepted by the firm or individual.  This statement shall be signed by the person in charge of the audit, or by the person who accepts responsibility for the firm, and shall be attached to the audit report given to the board of directors.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.140   Real Estate Lending

 

a)         A credit union with total assets greater than $1 million may, following a resolution of its board, make loans secured by a lien on real estate, including an assignment of a beneficial interest in a land trust, subject to the following procedures:

 

Total Assets of a Credit Union		Maximum Amount of Loans Secured by Real Estate		Aggregate of All First Mortgage Loans Secured by Real Estate
Under $1 million		Lending Limits for Consumer Loans		0% of total assets
$1 - 2.5 million		$165,000*		25% of total assets
$2.5 - 5 million		$250,000*		30% of total assets
$5 - 10 million		$330,000		35% of total assets
$10 - 30 million		$580,000		40% of total assets
$30 - 100 million		$825,000		45% of total assets
Over $100 million		$1,000,000		50% of total assets

 

* The aggregate loans to one member may not exceed the aggregate limit referenced in subsection (e).

 

b)         Credit unions with assets under $1 million may make home equity and second mortgage loans subject to the lending limits for consumer loans set forth in Section 190.160.  Credit unions with assets under $1 million shall not make first mortgage real estate loans.

 

c)         Credit unions shall not make first mortgage real estate loans for more than the estimated market value or appraised value of the real estate securing the loans.  Real estate loans, other than first mortgage loans, shall be limited to the value of the member-borrower's equity in the real estate securing the loan, provided a credit union may consider as equity any outstanding loan amount secured by the real estate if the outstanding loan will be repaid with the proceeds of the credit union's loan.

 

d)         The maximum individual lending limit and the maximum ratio of first mortgage real estate loans may be increased by obtaining written approval from the Secretary.  Approval is to be based upon the need of the members and the credit union's real estate lending record.

 

e)         The maximum limit on an individual loan by credit unions with assets greater than $1 million is in addition to the secured and unsecured lending limits of Section 190.160; provided, however, in no event shall all loans to any member exceed in the aggregate 10% of the credit union's unimpaired capital and surplus as defined in Section 190.2.  Loans subject to the requirements for business loans shall be subject to the appraisal requirements set forth in subsection (h), but shall not be subject to the other provisions of this Section.

 

f)         The maximum maturity of a loan secured by a first mortgage shall not exceed 40 years.

 

g)         Procedures

 

1)         All loans secured by a lien on real estate shall be made based upon prudent written lending policies and sound lending practices as documented in each member's loan file.  Unless waived by the Secretary, lending policies shall include, without limitation, acceptable debt-to-income and loan-to-value ratios that will be considered the types of real estate security that will be accepted and any other prudent data considered necessary to determine the appropriateness of a loan request.  All applicable Illinois and federal statutes shall be observed.

 

2)         All accounting for real estate loan transactions shall be in accordance with GAAP.

 

h)         Documentation

 

1)         Any credit union granting loans secured by a lien in real estate must procure and retain the following documentation in its files:

 

A)        A loan application that specifies the purpose of the loan (equity, purchase, construction, refinance, etc.).  The application must contain sufficient information to support the approval of the loan.  The information shall include without limitation:  the amount of the loan requested; the purchase price (if applicable); a listing of the borrower's assets and liabilities; a statement of the borrower's income; a specific identification of the property; and an explanation of the source of the borrower's down payment.  If the loan proceeds will be used for the purchase of the property, a copy of the real estate sale contract shall be included as an attachment to the application.

 

B)        A legal opinion from the credit union's attorney, or a title insurance policy that identifies the credit union's lien position on the property used to secure the loan.  In the case of home equity lines of credit, second mortgages, and non-purchase money first mortgage transactions, a title search prepared by a service provider capable of conducting a search shall be acceptable.

 

C)        For transactions of $400,000 or less, a written estimate of market value of the property securing the loan, performed by an individual having no direct or indirect interest in the property and experienced to perform estimations of value for the type and amount of credit being considered.  For transactions over $400,000, an appraisal by a state certified or licensed appraiser that estimates the market value of the property used as security for the loan.

 

D)        A credit report prepared by the credit union or a credit reporting agency.  The report, in conjunction with the information contained in subsection (h)(1)(A), must demonstrate the applicant's past history of repayment and ability to repay the loan in question.

 

E)        A duly executed note and mortgage agreement that outline the borrower's agreement to repay the loan on the terms agreed, and the borrower's agreement to provide the credit union with a valid security interest in the subject property.  The mortgage agreement must contain an accurate legal description of the subject property and be duly recorded in the office of the appropriate county recorder of deeds.

 

F)         A settlement statement reflecting all costs of closing and all disbursements of funds at closing for real estate loans that require the use of a settlement statement under the federal Real Estate Settlement Procedures Act (RESPA) (12 USC 2601).

 

G)        On any loan for which the lesser of the loan-to-value ratio or loan-to-purchase price ratio exceeds 80%, the credit union may require the borrower to obtain private mortgage insurance insuring the excess of the loan above the 80% factor.

 

H)        In the event the subject loan is to be used for the construction of a residential dwelling that is or will be the principal residence of the member-borrower and the loan will be secured by a perfected first lien or first security interest in favor of the credit union, the credit union must obtain satisfactory evidence of the payment in full of the costs of furnishing labor and material in connection with the construction.  The evidence shall include receipt of an owner's statement, under oath, setting forth the names of all parties with whom the owner has contracted for the furnishing of labor and material; a general contractor's sworn statement from each of the parties named in the owner's statement; a subcontractor's sworn statement from each subcontractor named in the general contractor's statement; and partial and final unconditional lien waivers from the general contractor and all subcontractors and materialmen indicating that they have completed their respective portion of the work and been paid in full.  The credit union must inspect, or cause to be inspected by a third party, the completion of each phase of the work for which an advance of any portion of the loan proceeds is sought. Any such inspections must be clearly documented in the file as to the date of the inspection and a brief explanation of the work progression.  Additionally, the credit union must obtain a borrower payment authorization, in connection with each payment to the general contractor.  This subsection (h)(1)(H) shall not apply to a loan to finance the repair, alteration or improvement of a residential dwelling which is the residence of the member-borrower.

 

2)         A loan secured by a lien on real estate is exempt from the requirements of subsections (h)(1)(B), (C) and (G) of this Section if the loan complies with the following criteria:

 

A)        The loan is not used for the purchase or refinancing of the real estate securing the loan.

 

B)        The lien on real estate is taken as collateral solely through an abundance of caution.

 

C)        The terms of the transaction are not more favorable than they would have been in the absence of the lien on real estate.

 

D)        The transaction complies with the lending limits and other requirements for consumer loans set forth in Section 190.160.

 

3)         The completion of appraisals or written estimates of market value required by subsection (h)(1)(C) may be deferred up to 120 days from the date of closing.  The deferrals authorized under this subsection (h)(3) apply to all residential and commercial real estate-secured transactions, excluding transactions for acquisition, development, and construction of real estate.  The deferrals of appraisals or written estimates of market value authorized by this subsection (h)(3) only applies to transactions that close on December 31, 2020.

 

i)          Sale of Real Estate Loans

 

1)         A credit union may sell, in whole or in part, any loan secured by real estate to:

 

A)        Federal National Mortgage Association (FNMA).

 

B)        Government National Mortgage Association.

 

C)        Federal Home Loan Mortgage Corporation.

 

D)        The Federal Home Loan Bank of the Federal Home Loan Bank System district in which the credit union is located.

 

E)        Federal, Illinois and Local Housing Authorities.

 

F)         Credit Unions, Banks, Savings Banks and Savings and Loan Associations chartered under the laws of the United States, the State of Illinois or any other state.

 

G)        Residential mortgage licensees properly registered with and licensed by the Department of Financial and Professional Regulation-Division of Banking.

 

H)        Other institutions approved by the Secretary.

 

2)         All such sales shall not be subject to recourse or repurchase that enables the credit union to retain control over the transferred assets.  The credit union shall have surrendered control over the transferred assets if:

 

A)        The transferred assets have been put presumptively beyond the reach of the credit union transferring the assets and its creditors;

 

B)         The purchaser has the right to pledge or exchange the assets; and

 

C)        The credit union does not maintain effective control over the transferred assets through an agreement that both entitles and obligates the credit union to repurchase the assets before their maturity.

 

3)         A limited recourse provision in a sale agreement that obligates the credit union transferring assets to purchase the assets because of breach of warranty or misrepresentation shall be considered a sale.

 

(Source:  Amended at 44 Ill. Reg. 18320, effective November 13, 2020)

 

Section 190.150  Reverse Mortgage (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 4764, effective May 1, 2017)

 

Section 190.160  Lending Limits – Consumer Loans

 

a)         The board of directors of a credit union shall, for loans other than loans secured by an interest in real estate, establish the maximum lending limits that shall not exceed the limits in the following schedule.  A credit union may request approval from the Secretary for an exception to these limits, which shall be in writing substantiating the need for higher limits, shall detail the credit union's record of lending activity, and shall include financial statements reflecting sound fiscal history.  In no event shall all loans to any member exceed, in the aggregate, 10% of the credit union's unimpaired capital and surplus as defined in Section 190.2.

 

Total Credit Union Assets				Maximum Unsecured Limit, Including Unsecured Credit Cards		Maximum Secured Limit
$0	-	500,000		$4,000*$		$30,000*
$500,000	-	1 million		$8,000		$38,000
$1	-	5 million		$15,000		$60,000
$5	-	10 million		$18,000		$75,000
10	-	30 million		$24,000		$98,000
$30	-	100 million		$30,000		$120,000
Over		$100 million		$48,000		$180,000

 

*   The aggregate loans to one member may not exceed the aggregate limit referenced in subsection (a).

 

b)         The unsecured loan limits, including unsecured credit cards, and secured loan limits are separate limits for each member.  Subject to the member aggregate loan limit referenced in subsection (a) and provided a member is credit worthy, the credit union may lend a total amount equal to the secured and unsecured loan limit in a single loan to any one member.

 

c)         The above limits may be extended by the amount of the member's unencumbered share accounts, which must be pledged and frozen for the loan amount in excess of the limits.

 

d)         All loans are to be granted based upon prudent lending practice and procedures and in accordance with written lending policies and procedures prescribed by the board of directors.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.165  Business Loans

 

a)         Purpose and Scope

 

1)         This Section is intended to accomplish two broad objectives. First, it sets out policy and program responsibilities that an Illinois chartered credit union must adopt and implement as part of a safe and sound commercial lending program. Second, it incorporates the statutory limit on the aggregate amount of member business loans that a federally insured credit union may make pursuant to Section 107A of the Federal Credit Union Act (12 USC 1757a). This Section distinguishes between these two distinct objectives.

 

2)         Credit Unions and Loans Covered by this Section

 

A)        This Section applies to Illinois chartered natural person credit unions.  However, an Illinois chartered natural person credit union is not subject to subsections (c) and (d) if it meets all of the following conditions:

 

i)          The credit union's total assets are less than $250 million.

 

ii)         The credit union's aggregate amount of outstanding commercial loan balances and unfunded commitments, plus any outstanding commercial loan balances and unfunded commitments of participations sold, plus any outstanding commercial loan balances and unfunded commitments sold and serviced by the credit union total less than 15% of the credit union's net worth.

 

iii)        In a given calendar year the amount of originated and sold commercial loans the credit union does not continue to service total less than 15% of the credit union's net worth.

 

B)        This Section does not apply to loans: 

 

i)          Made by a corporate credit union, as defined in Section 1.1 of the Act;

 

ii)         Made by a federally insured credit union to another federally insured credit union;

 

iii)        Made by a credit union to a credit union service organization, as defined in Section 190.5; or

 

iv)        Fully secured by a lien on a 1 to 4 family residential property that is a member's primary residence.

 

3)         Other Regulations that Apply

 

A)        As required by section 741.203 of the NCUA regulations (12 CFR 741.203), a federally insured, State chartered credit union must comply with sections 701.21(c)(8) (prohibited fees) and (d)(5) (non-preferential loans) (12 CFR 701.21(c)(8) and (d)(5)).

 

B)        When a credit union makes a commercial loan as part of a loan program in which a federal or state agency (or its political subdivision) insures repayment, guarantees repayment, or provides an advance commitment to purchase the loan in full and that program has requirements that are less restrictive than those required by this Section, the credit union may follow the loan requirements of the relevant guaranteed loan program. 

 

C)        The requirements of section 701.22 of the NCUA regulations (12 CFR 701.22) apply to a federally insured credit union's purchase of a participation interest in a commercial loan.

 

b)         Definitions − For purposes of this Section, the following definitions apply:

 

1)         "Associated borrower" means any other person or entity with a shared ownership, investment or other pecuniary interest in a business or commercial endeavor with the borrower. This means any person or entity named as a borrower or debtor in a loan or extension of credit, or any other person or entity, such as a drawer, endorser or guarantor, engaged in a common enterprise with the borrower, or deriving a direct benefit from the loan to the borrower. Exceptions to this definition for partnerships, joint ventures and associations are as follows:

 

A)        If the borrower is a partnership, joint venture or association, and the other person with a shared ownership, investment or other pecuniary interest in a business or commercial endeavor with the borrower is a member or partner of the borrower, and neither a direct benefit nor a common enterprise exists, this other person is not an associated borrower.

 

B)        If the borrower is a member or partner of a partnership, joint venture or association, the other entity is not an associated borrower if:

 

i)          the other entity with a shared ownership, investment or other pecuniary interest in a business or commercial endeavor with the borrower is the partnership, joint venture or association;

 

ii)         the borrower is a limited partner of that other entity; and

 

iii)        by the terms of a partnership or membership agreement valid under applicable law, the borrower is not held generally liable for the debts or actions of that other entity.

 

C)        If the borrower is a member or partner of a partnership, joint venture or association, the other person is not an associated borrower if:

 

i)          the other person with a shared ownership, investment or other pecuniary interest in a business or commercial endeavor with the borrower is another member or partner of the partnership, joint venture or association; and

 

ii)         neither a direct benefit nor a common enterprise exists.

 

2)         "Commercial loan" means any loan, line of credit or letter of credit (including any unfunded commitments), and any interest a credit union obtains in loans made by another lender, to individuals, sole proprietorships, partnerships, corporations or other business enterprises for commercial, industrial, agricultural or professional purposes, but not for personal expenditure purposes. Excluded from this definition are loans:

 

A)        made by a corporate credit union;

 

B)        made by a federally insured credit union to another federally insured credit union;

 

C)        made by a credit union to a credit union service organization;

 

D)        made by a credit union not subject to section 107A of the Federal Credit Union Act (12 USC 1757a) to another credit union;

 

E)        secured by a 1 to 4 family residential property (whether or not it is the borrower's primary residence);

 

F)         fully secured by shares in the credit union making the extension of credit or deposits in other financial institutions;

 

G)        secured by a vehicle manufactured for household use; and

 

H)        that would otherwise meet the definition of commercial loan, when the aggregate outstanding balances plus unfunded commitments less any portion secured by shares in the credit union to a borrower or an associated borrower are less than $50,000.

 

3)         "Common enterprise" means:

 

A)        The expected source of repayment for each loan or extension of credit is the same for each borrower and no individual borrower has another source of income from which the loan (together with the borrower's other obligations) may be fully repaid. An employer will not be treated as a source of repayment because of wages and salaries paid to an employee, unless the standards described in subsection (b)(3)(B) are met;

 

B)        Loans or extensions of credit are made:

 

i)          To borrowers who are related directly or indirectly through common control, including when one borrower is directly or indirectly controlled by another borrower; and

 

ii)         Substantial financial interdependence exists between or among the borrowers. Substantial financial interdependence means 50% or more of one borrower's gross receipts or gross expenditures (on an annual basis) are derived from transactions with another borrower. Gross receipts and expenditures include gross revenues or expenses, intercompany loans, dividends, capital contributions and similar receipts or payments; or

 

C)        Separate borrowers obtain loans or extensions of credit to acquire a business enterprise of which those borrowers will own more than 50% of the voting securities or voting interests.

 

4)         "Control" means a person or entity directly or indirectly, or acting through or together with one or more persons or entities:

 

A)        Owns, controls or has the power to vote 25% or more of any class of voting securities of another person or entity;

 

B)        Controls, in any manner, the election of a majority of the directors, trustees or other persons exercising similar functions of another person or entity; or

 

C)        Has the power to exercise a controlling influence over the management or policies of another person or entity.

 

5)         "Credit risk rating system" means a formal process that identifies and assigns a relative credit risk score to each commercial loan in a credit union's portfolio, using ordinal ratings to represent the degree of risk. The credit risk score is determined through an evaluation of quantitative factors based on financial performance and qualitative factors based on management, operational, market and business environmental factors. 

 

6)         "Direct benefit" means the proceeds of a loan or extension of credit to a borrower, or assets purchased with those proceeds, that are transferred to another person or entity, other than in a bona fide arm's-length transaction, when the proceeds are used to acquire property, goods or services.

 

7)         "Financial statement quality" is determined by:

 

A)        The level of assurance provided by the preparer and the required professional standards supporting the preparer's opinion. In many cases, tax returns and/or financial statements professionally prepared in accordance with generally accepted accounting principles (GAAP) will be sufficient for less complex borrowing relationships, such as those that are limited to a single operation of the borrower and principal with relatively low debt. For more complex and larger borrowing relationships, such as those involving borrowers or principals with significant loans outstanding or multiple or interrelated operations, the credit union should require borrowers and principals to provide either:

 

i)          An auditor's review of the financial statements prepared consistent with GAAP to obtain limited assurance (i.e., a "review quality" financial statement); or

 

ii)         an independent financial statement audit under generally accepted auditing standards (GAAS) for the expression of an opinion on the financial statements prepared in accordance with GAAP (i.e., an "audit quality" financial statement).

 

B)        Credit unions should address the criteria and thresholds for the required financial reporting in their policies. Credit unions should allow exceptions in their credit policies if they determine the relationship does not require the same level of assurance and they are satisfied that the lesser quality still provides them with accurate reporting of the borrower's financial performance. Credit unions will be expected to address the issue of exceptions in their loan policies. Any exception should be documented by credit union staff and approved by the appropriate designated internal authority.

 

8)         "Immediate family member" means a spouse or other family member living in the same household.

 

9)         "Loan secured by a 1 to 4 family residential property" means a loan that, at origination, is secured wholly or substantially by a lien on a 1 to 4 family residential property for which the lien is central to the extension of the credit; that is, the borrower would not have been extended credit in the same amount or on terms as favorable without the lien. A loan is wholly or substantially secured by a lien on a 1 to 4 family residential property if the estimated value of the real estate collateral at origination (after deducting any senior liens held by others) is greater than 50% of the principal amount of the loan.

 

10)         "Loan secured by a vehicle manufactured for household use" means a loan that, at origination, is secured wholly or substantially by a lien on a new or used passenger car or other vehicle such as a minivan, sport-utility vehicle, pickup truck or similar light truck or heavy-duty truck generally manufactured for personal, family or household use and not used as a fleet vehicle or to carry fare-paying passengers, for which the lien is central to the extension of credit. A lien is central to the extension of credit if the borrower would not have been extended credit in the same amount or on terms as favorable without the lien. A loan is wholly or substantially secured by a lien on a vehicle manufactured for household use if the estimated value of the collateral at origination (after deducting any senior liens held by others) is greater than 50% of the principal amount of the loan.

 

11)        "Loan-to-value ratio" means, with respect to any item of collateral, the aggregate amount of all sums borrowed and secured by that collateral, including outstanding balances plus any unfunded commitment or line of credit from another lender that is senior to the credit union's lien position, divided by the current collateral value. The current collateral value must be established by prudent and accepted commercial lending practices and comply with all regulatory requirements. For a construction and development loan, the collateral value is the lesser of cost to complete or prospective market value, as determined in accordance with subsection (f).

 

12)        "Net worth" means a credit union's net worth, as defined in Section 190.2.

 

13)        "Readily marketable collateral" means a financial instrument or bullion that is salable under ordinary market conditions with reasonable promptness at a fair market value determined by quotations based upon actual transactions on an auction or similarly available daily bid and ask price market.

 

14)        "Residential property" means a house, condominium unit, cooperative unit, manufactured home (whether completed or under construction) or unimproved land zoned for 1 to 4 family residential use. A boat or motor home, even if used as a primary residence, or timeshare property is not residential property.

 

c)         Board of Directors and Management Responsibilities

Prior to engaging in commercial lending, a credit union must address the following board responsibilities and operational requirements:

 

1)         Board of Directors.  A credit union's board of directors, at a minimum, must:

 

A)        Approve a commercial loan policy that complies with subsection (d). The board must review its policy on an annual basis, prior to any material change in the credit union's commercial lending program or related organizational structure, and in response to any material change in portfolio performance or economic conditions, and update it when warranted.

 

B)        Ensure the credit union appropriately staffs its commercial lending program in compliance with subsection (c)(2).

 

C)        Understand and remain informed, through periodic briefings from responsible staff and other methods, about the nature and level of risk in the credit union's commercial loan portfolio, including its potential impact on the credit union's earnings and net worth. 

 

2)         Required Expertise and Experience. A credit union making, purchasing or holding any commercial loan must internally possess the following experience and competencies:

 

A)        Senior Executive Officers. A credit union's senior executive officers overseeing the commercial lending function must understand the credit union's commercial lending activities.  At a minimum, senior executive officers must have a comprehensive understanding of the role of commercial lending in the credit union's overall business model and establish risk management processes and controls necessary to safely conduct commercial lending. 

 

B)        Qualified Lending Personnel. A credit union must employ qualified staff with experience in the following areas:

 

i)          Underwriting and processing for the type of commercial lending in which the  credit union is engaged;

 

ii)         Overseeing and evaluating the performance of a commercial loan portfolio, including rating and quantifying risk through a credit risk rating system; and

 

iii)        Conducting collection and loss mitigation activities for the type of commercial lending in which the credit union is engaged.

 

C)        Options to Meet the Required Experience. A credit union may meet the experience requirements in subsections (c)(2)(A) and (c)(2)(B) by conducting internal training and development, hiring qualified individuals or using a third-party, such as an independent contractor or a credit union service organization. However, with respect to the qualified lending personnel requirements in subsection (c)(2)(B), use of a third-party is permissible only if the following conditions are met:

 

i)          The third-party has no affiliation or contractual relationship with the borrower or any associated borrowers;

 

ii)         The actual decision to grant a loan must reside with the credit union;

 

iii)        Qualified credit union staff exercises ongoing oversight over the third party by regularly evaluating the quality of any work the third party performs for the credit union; and

 

iv)        The third-party arrangement must otherwise comply with subsection (g).

 

d)         Commercial Loan Policy

Prior to engaging in commercial lending, a credit union must adopt and implement a comprehensive written commercial loan policy and establish procedures for commercial lending. The board-approved policy must ensure the credit union's commercial lending activities are performed in a safe and sound manner by providing for ongoing control, measurement and management of the credit union's commercial lending activities. At a minimum, a credit union's commercial loan policy must address each of the following:

 

1)         Type of commercial loans permitted.

 

2)         Trade area.

 

3)         Maximum amount of assets, in relation to net worth, allowed: 

 

A)        in secured, unsecured and unguaranteed commercial loans;

 

B)        in any given category or type of commercial loan; and

 

C)        to any one borrower or group of associated borrowers, provided:

 

i)          the policy must specify that the aggregate dollar amount of commercial loans to any one borrower or group of associated borrowers may not exceed the greater of 15% of the credit union's net worth or $100,000, plus an additional 10% of the credit union's net worth if the amount that exceeds the credit union's 15% general limit is fully secured at all times with a perfected security interest by readily marketable collateral, as defined in subsection (b);

 

ii)         any insured or guaranteed portion of a commercial loan made through a program in which a federal or state agency (or its political subdivision) insures repayment, guarantees repayment or provides an advance commitment to purchase the loan in full, is excluded from this limit; and

 

iii)        the maximum limit on commercial loans is in addition to the secured and unsecured limits established in Sections 190.140 and 190.160; provided, however, in no event shall all loans to any borrower or group of associated borrowers exceed in the aggregate 10% of the credit union's unimpaired capital and surplus. 

 

4)         Qualifications and experience requirements for personnel involved in underwriting, processing, approving, administering and collecting commercial loans.

 

5)         Loan approval processes, including establishing levels of loan approval authority commensurate with the individual's or committee's proficiency in evaluating and understanding commercial loan risk, when considered in terms of the level of risk the borrowing relationship poses to the credit union.

 

6)         Underwriting standards commensurate with the size, scope and complexity of the commercial lending activities and borrowing relationships contemplated. The standards must, at a minimum, address the following:

 

A)        The level and depth of financial analysis necessary to evaluate the financial trends and condition of the borrower and the ability of the borrower to meet debt service requirements;

 

B)        Thorough due diligence of the principals to determine whether any related interests of the principals might have a negative impact or place an undue burden on the borrower and related interests with regard to meeting the debt obligations with the credit union;

 

C)        Requirements of a borrower-prepared projection when historic performance does not support projected debt payments. The projection must be supported by reasonable rationale and, at a minimum, must include a projected balance sheet and income and expense statement;

 

D)        The financial statement quality and the degree of verification sufficient to support an accurate financial analysis and risk assessment;

 

E)        The methods to be used in collateral evaluation, for all types of collateral authorized, including loan-to-value ratio limits. These methods must be appropriate for the particular type of collateral. The means to secure various types of collateral, and the measures taken for environmental due diligence, must also be appropriate for all authorized collateral; and

 

F)         Other appropriate risk assessment, including analysis of the impact of current market conditions on the borrower and associated borrowers.

 

7)         Risk management processes commensurate with the size, scope and complexity of the credit union's commercial lending activities and borrowing relationships. These processes must, at a minimum, address the following:

 

A)        Use of loan covenants, if appropriate, including frequency of borrower and guarantor financial reporting;

 

B)        Periodic loan review, consistent with loan covenants, sufficient to conduct portfolio risk management. This review must include a periodic reevaluation of the value and marketability of any collateral;

 

C)        A credit risk rating system. Credit risk ratings must be assigned to commercial loans at inception and reviewed as frequently as necessary to satisfy the credit union's risk monitoring and reporting policies and to ensure adequate reserves as required by GAAP; and

 

D)        A process to identify, report and monitor loans approved as exceptions to the credit union's loan policy.

 

e)         Collateral and Security

 

1)         A credit union must require collateral commensurate with the level of risk associated with the size and type of any commercial loan. Collateral must be sufficient to ensure adequate loan balance protection, along with appropriate risk sharing with the borrower and principals.  A credit union making an unsecured loan must determine and document in the loan file that mitigating factors sufficiently offset the relevant risk. 

 

2)         A credit union that does not require the full and unconditional personal guarantee from the principals of the borrower who has a controlling interest in the borrower must determine and document in the loan file that mitigating factors sufficiently offset the relevant risk.

 

f)         Construction and Development Loans

In addition to the requirements of subsections (a) through (e), the following requirements apply to a construction and development loan made by any credit union.

 

1)         For the purposes of this subsection (f), a construction or development loan means any financing arrangement enabling the borrower to acquire property or rights to property, including land or structures, with the intent to construct or renovate an income producing property, such as residential housing for rental or sale, or a commercial building, such as may be used for commercial, agricultural, industrial or other similar purposes. It also means a financing arrangement for the construction, major expansion or renovation of the property types referenced in this subsection (f). The collateral valuation for securing a construction or development loan depends on the satisfactory completion of the proposed construction or renovation when the loan proceeds are disbursed in increments as the work is completed. A loan to finance maintenance, repairs or improvements to an existing income producing property that does not change its use or materially impact the property is not a construction or development loan. 

 

2)         A credit union that elects to make a construction or development loan must ensure that its commercial loan policy includes adequate provisions by which the collateral value associated with the project is properly determined and established. For a construction or development loan, collateral value is the lesser of the project's cost to complete or its prospective market value.

 

A)        For the purposes of this subsection (f), "cost to complete" means the sum of all qualifying costs necessary to complete a construction project and documented in an approved construction budget. Qualifying costs generally include on-site or off-site improvements, building construction, other reasonable and customary costs paid to construct or improve a project, including general contractor's fees, and other expenses normally included in a construction contract, such as bonding and contractor insurance. Qualifying costs include the value of the land, determined as the lesser of appraised market value or purchase price plus the cost of any improvements. Qualifying costs also include interest, a contingency account to fund unanticipated overruns, and other development costs such as fees and related pre-development expenses. Interest expense is a qualifying cost only to the extent it is included in the construction budget and is calculated based on the projected changes in the loan balance up to the expected "as-complete" date for owner-occupied non-income producing commercial real estate or the "as-stabilized" date for income producing real estate. Project costs for related parties, such as developer fees, leasing expenses, brokerage commissions and management fees, are included in qualifying costs only if reasonable in comparison to the cost of similar services from a third party. Qualifying costs exclude interest or preferred returns payable to equity partners or subordinated debt holders, the developer's general corporate overhead, and selling costs to be funded out of sales proceeds, such as brokerage commissions and other closing costs.

 

B)        For the purposes of this subsection (f), "prospective market value" means the market value opinion determined by an independent appraiser in compliance with the relevant standards set forth in the USPAP. Prospective value opinions are intended to reflect the current expectations and perceptions of market participants, based on available data. Two prospective value opinions may be required to reflect the time frame during which development, construction and occupancy occur. The prospective market value "as-completed" reflects the property's market value as of the time that development is to be completed. The prospective market value "as-stabilized" reflects the property's market value as of the time the property is projected to achieve stabilized occupancy. For an income producing property, stabilized occupancy is the occupancy level that a property is expected to achieve after the property is exposed to the market for lease over a reasonable period of time and at comparable terms and conditions to other similar properties.

 

3)         A credit union that elects to make a construction and development loan must also assure its commercial loan policy meets the following conditions:

 

A)        Qualified personnel representing the interests of the credit union must conduct a review and approval of any line item construction budget prior to closing the loan;

 

B)        A credit union approved requisition and loan disbursement process is established;

 

C)        Release or disbursement of loan funds occurs only after on-site inspections, documented in a written report by qualified personnel representing the interests of the credit union, certifying that the work requisitioned for payment has been satisfactorily completed, and the remaining funds available to be disbursed from the construction and development loan are sufficient to complete the project; and

 

D)        Each loan disbursement is subject to confirmation that no intervening liens have been filed.

 

g)         Prohibited Activities

 

1)         Ineligible Borrowers. A credit union shall not grant a commercial loan to the following:

 

A)        Any senior management employee directly or indirectly involved in the credit union's commercial loan underwriting, servicing and collection process, and any of their immediate family members;

 

B)        Any person meeting the definition of an associated borrower with respect to persons identified in subsection (g)(1)(A); or

 

C)        Any compensated director, unless the credit union's board of directors approves granting the loan and the compensated director was recused from the board's decision making process.

 

2)         Equity Agreements/Joint Ventures. A credit union shall not grant a commercial loan if any additional income received by the credit union or its senior management employees is tied to the profit or sale of any business or commercial endeavor that benefits from the proceeds of the loan. 

 

3)         Conflicts of Interest. Any third party used by a credit union to meet the requirements of this Section must be independent from the commercial loan transaction and shall not have a participation interest in a loan or an interest in any collateral securing a loan that the third party is responsible for reviewing, or an expectation of receiving compensation of any sort that is contingent on the closing of the loan, with the following exceptions:

 

A)        A third party may provide a service to the credit union that is related to the transaction, such as loan servicing. 

 

B)        The third party may provide the requisite experience to a credit union and purchase a loan or a participation interest in a loan originated by the credit union that the third party reviewed.

 

C)        A credit union may use the services of a credit union service organization that otherwise meets the requirements of subsection (c)(2)(C) even if the credit union service organization is not independent from the transaction, provided the credit union has a controlling financial interest in the credit union service organization as determined under GAAP.

 

h)         Aggregate Member Business Loan Limit; Exclusions and Exceptions

This subsection (h) incorporates the statutory limits on the aggregate amount of member business loans that may be held by a federally insured credit union and establishes the method for calculating a federally insured credit union's net member business loan balance for purposes of the statutory limits and NCUA form 5300 reporting.

 

1)         Statutory Limits. The aggregate limit on a federally insured credit union's net member business loan balances is the lesser of 1.75 times the actual net worth of the credit union, or 1.75 times the minimum net worth required under section 1790d(c)(l)(A) of the Federal Credit Union Act (12 USC 1790d(c)(1)(A)).

 

2)         Definition. For the purposes of this subsection (h), "member business loan" means any commercial loan as defined in subsection (b), except that the following commercial loans are not member business loans and are not counted toward the aggregate limit on a federally insured credit union's member business loans:

 

A)        Any loan in which a federal or state agency (or its political subdivision) fully insures repayment, fully guarantees repayment, or provides an advance commitment to purchase the loan in full;

 

B)        Any non-member commercial loan or non-member participation interest in a commercial loan made by another lender, provided the federally insured credit union acquired the non-member loans and participation interests in compliance with all relevant laws and regulations and is not, in conjunction with one or more other credit unions, trading member business loans to circumvent the aggregate limit; and

C)        Any loan that is fully secured by a lien on a 1 to 4 family dwelling.

 

3)         Exceptions. Any loan secured by a vehicle manufactured for household use that will be used for a commercial, corporate or other business investment property or venture, or agricultural purpose, is not a commercial loan but is a member business loan (if the outstanding aggregate net member business loan balance is equal to or greater than $50,000) and must be counted toward the aggregate limit on a federally insured credit union's member business loans.

 

4)         Statutory Exemptions. A federally insured credit union that has a low-income designation, or participates in the U.S. Department of the Treasury's Community Development Financial Institutions Program, or was chartered for the purpose of making member business loans, or that as of the date of enactment of the Credit Union Membership Access Act of 1998 (P.L. 105-219), had a history of primarily making commercial loans, is exempt from compliance with the aggregate member business loan limits in this subsection (h).

 

5)         Method of Calculation for Net Member Business Loan Balance. For the purposes of NCUA form 5300 reporting, a federally insured credit union's net member business loan balance is determined by calculating the outstanding loan balance plus any unfunded commitments, reduced by any portion of the loan that is:

 

A)        secured by shares in the credit union;

 

B)        secured by shares or deposits in other financial institutions;

 

C)        secured by a lien on a member's primary residence;

 

D)        insured or guaranteed by any agency of the federal government, a state or any political subdivision of that state;

 

E)        subject to an advance commitment to purchase by any agency of the federal government, a state or any political subdivision of that state; or

 

F)         sold as a participation interest without recourse and qualifying for true sales accounting under GAAP.

 

i)          Transitional Provisions

This subsection (i) governs circumstances in which, as of January 1, 2017, a credit union is operating in accordance with an approved waiver from the Division or NCUA or is subject to any enforcement constraint relative to its commercial lending activities.

 

1)         Waivers. As of January 1, 2017, any waiver approved by the Division or NCUA concerning a credit union's commercial lending activity is rendered moot, except that waivers granted prior to January 1, 2017, for borrowing relationships (loans made to one borrower or group of associated borrowers), will be grandfathered. However, the debt associated with those relationships may not be increased.

 

2)         Enforcement Constraints. Limitations or other conditions imposed on a credit union in any written directive from the Division or NCUA, including, but not limited to, items specified in any Document of Resolution, any published or unpublished Letter of Understanding and Agreement, Regional Director Letter, Preliminary Warning Letter, or formal enforcement action, are unaffected by the adoption of this Section.  Included within this subsection (i)(2) are any constraints or conditions embedded within any waiver issued by the Division or NCUA. As of January 1, 2017, all these limitations or other conditions remain in place until they are modified by the Division or NCUA.

 

j)          Allowance for Loan Losses for Business Loans

Allowance for loan losses for business loans will be determined in accordance with GAAP. The external auditor conducting the credit union's financial statement audit shall analyze the methodology employed by the credit union and conclude that the financial statements, including the allowance for loan losses, are fairly stated in all material respects in accordance with GAAP.

 

(Source:  Amended at 43 Ill. Reg. 303, effective January 1, 2019)

 

Section 190.170  Group Purchasing

 

A credit union may enter into cooperative marketing arrangements that are related to the promotion of thrift and to improve the economic and social conditions of its members under the following conditions:

 

a)         that participation whether directly or indirectly, such as supplying a list of members for mail soliciting, has been approved by a Board resolution and that the terms of the activity are in writing between the credit union and the suppliers.  Before approving any program to be available to the membership, the Board of Directors must satisfy itself as to the economic merits of the program and should make every effort to safeguard its membership against misrepresentation or deception by any program sponsor.

 

b)         the participation in the program must be strictly voluntary by the member.

 

c)         participation in the program shall not be directly or indirectly a condition of a loan, nor for the purchase of additional shares in the credit union.

 

d)        in operating a cooperative program, the credit union may not at any time carry as inventory or as any other asset, merchandise, services or other form of product except to the extent that such product or service has already been ordered or purchased by a member.

 

(Source:  Amended at 26 Ill. Reg. 17999, effective December 9, 2002)

 

Section 190.180  Investments

 

The board of directors of a credit union shall use the following procedures in managing and investing funds not being used for loans to members.

 

a)         The board must develop a written investment policy that includes, at a minimum:

 

1)         persons authorized to take investment actions and the kinds of investments permitted the designated person or committee;

 

2)         limits by amount and term of the investments;

 

3)         procedure for approval of all broker or advisor relationships;

 

4)         procedure for safekeeping of securities.

 

b)         All investments are to be recorded on the books and records in accordance with GAAP and so as to enable the Division to readily ascertain the financial condition of the credit union.

 

c)         Investments are limited to the direct purchase of securities listed in Section 59 of the Act, and common trust or mutual funds whose investment authority is limited solely to securities and investments listed in Section 59.

 

d)         Credit unions may invest in privately issued collateralized mortgage obligations (CMOs). A CMO is a corporate bond secured by mortgage pass-through certificates of the Government National Mortgage Association or the Federal National Mortgage Association (FNMA), provided the obligations receive the highest rating (either AAA or AA) by Standard and Poors or another comparable rating service.

 

e)         Credit unions are not authorized to engage in speculative investment activities or transactions, including but not limited to:

 

1)         short sales of securities;

 

2)         adjusted trades;

 

3)         standby commitments;

 

4)         cash forward agreements in excess of 120 days from the trade date;

 

5)         futures contracts;

 

6)         the buying and carrying of securities on margin through the use of borrowed funds; or

 

7)         investment in fixed and variable annuities, except as provided in Section 59(c) of the Act.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.185 Investment in "Other Financial Institutions"

 

For purposes of Section 59(a)(7) of the Act, the term "other financial institution" means a bank established under the laws of this or any other state or established under the laws of the United States, a savings and loan association or savings bank established under the laws of this or any other state or established under the laws of the United States, a credit union established under the laws of this or any other state or established under the laws of the United States, a licensee under the Sales Finance Agency Act [205 ILCS 660] or an insurance company.

 

(Source:  Added at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.190  Liquidation

 

A credit union may enter liquidation through actions initiated by its board of directors to voluntarily dissolve or by actions initiated by the Secretary of the Department to involuntarily dissolve and be liquidated by a Liquidating Agent of one person or a committee under the following procedures:

 

a)         Voluntary Liquidation:

 

1)         After completing the requirements in Section 62 of the Act, the Liquidating Agent must furnish a fidelity bond in compliance with section 190.120.

 

2)         Upon receipt and approval of the fidelity bond, the Secretary shall issue a Certificate of Voluntary Dissolution attesting to compliance with Section 62 of the Act, stating the names of the Liquidating Agent and authorizing the taking of possession and control of the books, records and assets of the credit union for the purpose of conserving and collecting the assets, paying all indebtedness and distributing the remaining assets to the membership. Certified copies of the Certificate of Voluntary Dissolution shall be furnished to the Liquidating Agent for use in securing access to the credit union's funds in depositories, withdrawal of investments or for any other purpose to carry out the liquidation.

 

b)         Involuntary Liquidation:

 

1)         Under the provisions of Sections 61 and 62 of the Act, the Secretary shall issue to the credit union by certified mail, with a copy to each director, an order for Possession and Control for purpose of liquidation.

 

2)         A Liquidating Agent (person or committee) shall be appointed by the Secretary to carry out liquidation under the direction and control of the Secretary.  Except when the Liquidating Agent is the NCUA or other insurer or agent under the share insurance interest, the procedures listed in subsection (c) shall be followed.

 

c)         The liquidation, whether voluntary or involuntary, shall be under the direction of the Secretary and shall proceed in the following manner:

 

1)         The Certificate shall be promptly filed at the County Recorder's office in the county in which the main office of the credit union is located and the recording information shall be forwarded to the Division.

 

2)         An itemized inventory, in duplicate, as of the date of the Certificate listing the following, shall be prepared to include:

 

A)        all assets;

 

B)        all known liabilities;

 

C)        a list of all members accounts' by name, address, account numbers, share and loan balances, notes payable on file, and security offered;

 

D)        a balance sheet as of the date of the Certificate;

 

E)        a Statement of Income and Expenses as of the date of the Certificate;

 

F)         the name and address of all depositories, including the credit union's account numbers and balance.

 

3)         A signed and dated copy of the items listed in subsections (c)(1) and (c)(2) shall be forwarded to the Division.  One copy of each of the items listed in subsections (c)(1) and (c)(2) is to be retained by the Liquidating Agent.

 

4)         The books and records are to be kept posted currently throughout the liquidation.

 

5)         All funds received shall be promptly deposited in the credit union's depositories.  The Secretary shall approve a change in depositories upon receipt of written request from the agent stating the reason for the change.

 

6)         All disbursement of funds shall have prior approval of the Division and be in accordance with the priority established in Section 62(7) of the Act. The Division shall approve in writing disbursement of funds during liquidation upon written request from the Liquidating Agent.  Each request must contain a current financial statement and a total dollar amount to be distributed pro rata to the shareholders.

 

7)         Monthly reports, consisting of a balance sheet, statement of income and expense, and an analysis of funds received and expended, shall be prepared on forms furnished by the Division as of each month's end and forwarded to the Division on or before the 15^th of the subsequent month.

 

8)         An initial report on all accounts turned over to an attorney and/or collection agency for collection is to be forwarded to the Division with subsequent periodic reports showing collection activity on these accounts.

 

9)         Subject to the prior approval of the Secretary, the Liquidating Agent may prosecute and defend all suits or intervene and execute all necessary deeds, releases or other instruments necessary to consummate any sale of real estate or personal property, or compromise any debt or claim to the same effect as if the instruments were executed by the officers of the credit union. The agent shall request approval, in writing, detailing the specific instances.  The Secretary shall base his or her approval on maximizing the return of funds and protecting the interests of the shareholders.

 

10)         Compensation paid for the Liquidating Agent's services shall be determined by the Secretary, so as to maximize the return of shareholders' funds and to provide reasonable compensation for the professional services required.

 

11)         All expenses incurred in the liquidation shall be paid out of the funds of the credit union.

 

12)         Completion of the liquidation shall be in compliance with provisions of Section 62 of the Act.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.200  Conversion of Charter

 

a)         Conversion from a State of Illinois chartered credit union to a credit union chartered by NCUA or by a state regulatory authority of credit unions of another state shall be authorized subject to the following requirements:

 

1)         The proposal for the conversion of charter is approved by resolution of the board of directors.

 

2)         Written notification is given of the intent to convert to the Secretary at least 30 days prior to the mailing to the members of the Notice of Meeting at which the question of conversion is to be voted.

 

3)         Evidence is furnished to the Secretary that NCUA or the state regulatory authority for credit unions in the other state is agreeable to the conversion proposal.

 

4)         The conversion proposal is approved by ⅔ of the members present or voting.  Notice of the meeting must be given in accordance with Section 19(1) of the Act and include:

 

A)        the time, place and purpose of the meeting;

 

B)        a brief and accurate statement of the reasons for or against the proposed conversion, including any effects it could have on the shareholdings of members and the policies and practices of the credit union;

 

C)        a ballot and details of how the ballot may be voted.

 

5)         Proxy voting is not permitted.  Ballots will be distributed or mailed to the members and the returned ballots shall be counted with those ballots of members present at the meeting.  Ballots must be distributed or mailed at least 7 days before the date of the meeting.  All ballots postmarked on or before the date of the meeting shall be included in the final vote computation.

 

6)         A notarized report attesting to the accuracy of the voting shall be forwarded to the Secretary within 10 days after the meeting and shall contain the following information:

 

A)        date of mailing and/or posting notice of the meeting;

 

B)        date of members' meeting or any adjourned meetings;

 

C)        number of members;

 

D)        number of members present at meeting;

 

E)        number of members voting for the proposal in person at the meeting and the number of members not at the meeting voting for the proposal by ballot.

 

7)         If ⅔ of the voting members approve the proposal, and the appropriate federal or other state regulatory agency approves the conversion, a request to convert the charter shall be sent to the Secretary within 10 days after the members' meeting.  If the credit union is not subject to any formal supervisory restraints or other supervisory proceedings and if the conversion is in the best interests of the members, the Secretary shall issue a Certificate of Conversion approving the change of chartering authority.

 

8)         The credit union shall return its Illinois charter and Articles of Incorporation to the Secretary and shall record the Certificate of Conversion in the County Recorder's Office in the Illinois county where the credit union's office is located and forward the recorded information to the Secretary.  The converted credit union shall be merely a continuation of the State of Illinois credit union under a new name and new jurisdiction and with revision of its corporate structure necessary for its proper operation under the new jurisdiction.  The effective date of the charter conversion will be the date that the Certificate of Conversion is recorded at the County Recorder's Office.

 

b)         Conversion from a federally chartered credit union or from a credit union chartered by another state to a State of Illinois chartered credit union shall be authorized subject to the following requirements:

 

1)         complying with all requirements of the Federal Credit Union Act or the applicable Act of the state under which it is organized;

 

2)         filing with the Secretary evidence of that compliance, which shall include a copy of the most recent examination by the regulatory agency, correspondence on exceptions noted, and a statement that the credit union is not subject to any formal supervisory restraint or proceeding that would be circumvented by the conversion;

 

3)         filing with the Secretary Articles of Incorporation and By-laws as required by Section 2 of the Act.

 

c)         The Secretary may require that an examination of the credit union be conducted by the Division to verify the financial and operating condition of the credit union.  The Secretary shall base his or her decision on the recency of the last examination, the nature of the exceptions noted, and the scope of the examination.  A fee may be assessed for the examination not to exceed the limits set forth either in Section 12 of the Act or Section 190.50, as appropriate.

 

d)         Upon receipt of the materials listed in subsections (b)(2) and (b)(3), the Secretary shall determine if all requirements for conversion of the credit union have been met and, if affirmative, the Secretary shall issue a Certificate of Approval that must be filed as provided under Section 2(4) of the Act.  The effective date of the conversion will be the date, after the Certificate of Approval is recorded, that the credit union ceases to be a federal credit union or a credit union chartered by another state.

 

e)         The converted credit union shall be vested with all of the assets and is responsible for all of the obligations of its predecessor.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.210  Reimbursement for Financial Records

 

a)         A credit union shall be reimbursed for costs that are reasonably necessary (including but not limited to personnel costs, reproduction costs and transportation costs) and that have been incurred in searching for, reproducing and transporting books, papers, records or other data of a member required or requested to be produced by a credit union pursuant to a lawful subpoena, summons, warrant or court order.

 

b)         Reimbursement shall be made in accordance with the following rates:

 

1)         Personnel costs incurred in locating, retrieving, reproducing and preparing financial records shall be reimbursed at the rate of $20 per hours per person.

 

2)         Reproduction costs incurred in making photocopies of documents shall be reimbursed at 30 cents per exposure.  Reproductions of microfilm, microfiche, photographs, films and other materials shall be reimbursed at actual cost.

 

3)         Transportation costs incurred in transporting credit union personnel to locate and retrieve material, and to convey the material to the place of examination, shall be reimbursed at the standard mileage rate allowed by the Internal Revenue Service for vehicle expense deductions or, if a mail or courier service is used, at the actual costs of the service.

 

4)         All other costs, including but not limited to telephone calls, telegrams and shipping costs, incurred in searching for, reproducing and transporting data pursuant to a request for financial records, shall be reimbursed at actual costs.

 

c)         The credit union shall provide to the person requesting records an itemized invoice indicating in specific detail the costs for:

 

1)         personnel;

 

2)         reproduction;

 

3)         transportation; and

 

4)         all other cots incurred in searching for, reproducing and transporting data pursuant to a request for financial records.

 

d)           At the credit union's option, it may prepare one or more reasonable estimates of the ultimate reimbursement of costs associated with a search for financial records in the form prescribed in subsection (c) and require one or more partial payments before proceeding with the work of locating and reproducing the requested documents.  Delivery of the requested documents may be delayed until final reimbursement of all costs is received.

 

(Source:  Added at 26 Ill. Reg. 17999, effective December 9, 2002)

 

Section 190.220  Registration of Out of State Credit Unions

 

A credit union organized and duly chartered as a credit union in another state shall:

 

a)         Register with the Secretary prior to operating in this State, on a form specified by the Secretary, which shall include or be accompanied by the following information:

 

1)         the name of the credit union and the county or state under which it is organized;

 

2)         the common bond or field of membership the credit union is authorized to serve;

 

3)         the proposed location of any branch or service center within this State; and

 

4)         the credit union's most recent examination report and audited financial statement.

 

b)         Update the information provided under subsection (a)(2) within 30 days after receiving approval of a change in common bond or field of membership from the credit union's chartering agency, on a form specified by the Secretary.

 

c)         Update the information provided under subsection (a)(3) as to any proposed change in location or additional location for any branch or service center within this State, on a form specified by the Secretary.

 

d)         Pay to the Director an annual registration fee of $1000, plus $250 for each branch facility located in Illinois.  The fee shall be payable to the Secretary by January 1 of each calendar year, for the current calendar year.

 

(Source:  Amended at 37 Ill. Reg. 12450, effective July 16, 2013)

 

Section 190.230  Remote Meetings

 

Unless expressly prohibited by the articles of incorporation or bylaws and subject to requirements of the Illinois Credit Union Act, the Board of Directors of a Credit Union may provide by resolution that members may attend, participate in, act, and vote at any annual meetings or special meetings through the use of a conference telephone or interactive technology, including but not limited to electronic transmission, internet usage, or remote communication, by means of which persons participating in the meeting can communicate with each other.  Participation through the use of a conference telephone or interactive technology shall constitute attendance, presence, and representation in person at the annual meeting or special meeting of the person or persons so participating and count towards quorum.

 

(Source:  Added at 45 Ill. Reg. 5829, effective April 23, 2021)

 

Section 190.500  Definitions (Repealed)  

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.505  Applicability of Rule (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.510  Good Faith Requirements (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.515  Fraudulent or Deceptive Practices (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.520  Prohibited Refinances (Repealed)

 

 (Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.525  Negative Amortization (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.530  Negative Equity (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.535  Balloon Payments (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.540  Financing of Certain Points and Fees (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.545  Financing of Single Premium Insurance Products (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.550  Lending Without Due Regard to Ability to Repay (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.555  Verification of Ability to Repay (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.560  Payments to Contractors (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.565  Counseling Prior to Perfecting Foreclosure (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.570  Mortgage Awareness Program (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.575  Offer of Mortgage Awareness Program (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.580  Third Party Review (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.600  Definitions

 

"Payday Loan" or "loan" means a loan with a finance charge exceeding an annual percentage rate of 36% and with a term that does not exceed 120 days, including any transaction conducted via any medium whatsoever, including, but not limited to, paper, facsimile, Internet or telephone, in which:

 

A lender accepts one or more checks dated on the date written and agrees to hold them for a period of days before deposit or presentment, or accepts one or more checks dated subsequent to the date written and agrees to hold them for deposit; or

 

A lender accepts one or more authorizations to debit a consumer's bank account; or

 

A lender accepts an interest in a consumer's wages, including, but not limited to, a wage assignment.

 

"PLRA" means the Payday Loan Reform Act [815 ILCS 122].  Credit Unions are expressly exempt from the provisions of the PLRA.

 

(Source:  Added at 30 Ill. Reg. 18919, effective December 4, 2006)

 

Section 190.601  Purpose and Scope

 

This Subpart applies to credit unions as defined in Section 190.2.

 

(Source:  Added at 30 Ill. Reg. 18919, effective December 4, 2006)

 

Section 190.605  Applicability of Rule

 

This Subpart shall apply only to Payday Loans made by a credit union.  Products and services offered by a credit union that are not offered by lenders governed by the PLRA shall not be subject to this Part.

 

(Source:  Added at 30 Ill. Reg. 18919, effective December 4, 2006)

 

Section 190.610  Issuance of Payday Loans by Credit Unions

 

a)         A credit union making a payday loan shall satisfactorily address all safety and soundness considerations identified by the Division in its examination and supervision of the credit union.  Safety and soundness considerations include, without limitation:

 

1)         Risk-management practices for payday loan activities, particularly with regard to concentrations of payday loans;

 

2)         Capital adequacy, depending on the level and volatility of risk;

 

3)         Allowance for loan losses to ensure the allowance is adequate to absorb estimated credit losses within the payday loan portfolio;

 

4)         Classification of payday loans, given the unsecured nature of the credit and weakness of repayment capacity inherent in payday loans; and

 

5)         The establishment and maintenance of extension, deferral, renewal and rewrite standards consistent with the PLRA.

 

b)         In the event the Division determines the credit union's management of safety and soundness risks relating to its payday loan portfolio is deficient, the Division may initiate informal or formal corrective enforcement action, pursuant to the applicable administrative enforcement provisions set forth in the Illinois Credit Union Act and this Part.

 

(Source:  Added at 30 Ill. Reg. 18919, effective December 4, 2006)

 

Section 190.700  Definitions

 

For purposes of this Subpart:

 

“Act” means the Illinois Credit Union Act [205 ILCS 305].

 

“Compelling need” means that no other non-confidential source is available to obtain information of equal relevance.

 

“Complete request” means a request that provides all of the information required in Section 190.710.

 

“Confidential supervisory information” shall have the same meaning ascribed to that term in Section 9.1 of the Act.

 

“Credit union” means a credit union chartered under the Illinois Credit Union Act, or, as the context permits, under the Federal Credit Union Act (12 U.S.C. 1751-1795k) or the laws of any state.

 

“Department" means the Illinois Department of Financial and Professional Regulation.

 

“Director” means the Director or Acting Director of the Division of Financial Institutions or their authorized representatives.

 

“Secretary” means the Secretary of the Department of Financial and Professional Regulation or a person authorized by the Secretary, the Act, or this Part to act in the Secretary’s stead.  As provided in Section 8(1) of the Act, all references in the Act or this Part to the Secretary shall be deemed to include the Director, as a person authorized by the Secretary or the Act to assume responsibility for the oversight of the functions of the Department relating to the regulatory supervision of credit unions under the Act and this Part.

 

“Person” or “persons” means individuals and bodies politic and corporate, including without limitation corporations, limited liability companies, general partnerships, limited partnerships and joint ventures; unless, from the context and facts, the intentions plainly apply only to individuals.  Persons who reside in or live in a geographical area include non-natural persons located within the geographical area.

 

“Relevant” means the requested confidential supervisory information could substantially contribute to the resolution of the issues identified in the pleadings contained within the request.

 

“Requester” means any person who makes a request for the discovery or disclosure of confidential supervisory information, whether by subpoena, order, or other judicial or administrative process.

 

(Source:  Added at 46 Ill. Reg. 18508, effective November 1, 2022)

 

Section 190.701  Purpose and Scope

 

a)         Purpose.  The purpose of this Subpart D is to establish the procedures and standard by which the Secretary shall determine whether to disclose confidential supervisory information in response to a request for discovery or disclosure of such information.

 

b)         Scope.  This Part applies to requests, whether by subpoena, order, or other judicial or administrative process, for discovery or disclosure of confidential supervisory information prepared or obtained by the Secretary under the Act.  This Subpart does not apply to:

 

1)         a request made pursuant to the Freedom of Information Act (FOIA) [5 ILCS 140], provided that, if the information requested constitutes confidential supervisory information, it shall nonetheless be exempt from disclosure; or

 

2)         a request made by a party to whom the Secretary may furnish confidential supervisory information as permitted in Section 9.1(3) of the Act.

 

(Source:  Added at 46 Ill. Reg. 18508, effective November 1, 2022)

 

Section 190.710  Requests for Confidential Supervisory Information

 

Pursuant to Section 9.1 of the Act, a request for confidential supervisory information whether by subpoena, order, or other judicial or administrative process, shall be made to the Secretary.  If the request is for a record, the requester must adequately describe the records sought by type and date.  The request shall be accompanied by:

 

a)         a copy of the formal complaint or pleading setting forth the assertions of the adversarial matter;

 

b)         the caption and docket number assigned to the proceeding, if any;

 

c)         the name, address, telephone number, and email of designated legal counsel to each party to the proceeding;

 

d)         a statement detailing the relevance of the requested confidential supervisory information;

 

e)         a statement detailing a compelling need for the requested confidential supervisory information;

 

f)         a statement describing any prior judicial decisions or pending motions in the case that may bear on the asserted relevance of the requested information; and

 

g)         a statement detailing why the requester believes that disclosure is required for the benefit of the credit union.

 

(Source:  Added at 46 Ill. Reg. 18508, effective November 1, 2022)

 

Section 190.720  Request Submission

 

A person requesting discovery or disclosure of confidential supervisory information under this Part shall mail or hand deliver the request to:

 

320 West Washington Street

Attn:  Credit Union Section

3^rd Floor

Springfield, IL  62786

 

and shall email the request to:

 

FPR.DFI.Director@Illinois.gov

 

FPR.CreditUnion@Illinois.gov

 

(Source:  Amended at 46 Ill. Reg. 18508, effective November 1, 2022; expedited correction at 47 Ill. Reg. 7025, effective November 1, 2022)

 

Section 190.730  Consideration of Requests

 

a)         Standards for the Disclosure of Confidential Supervisory Information.

 

1)         When making a determination with respect to the disclosure of confidential supervisory information, the Secretary will consider the following standards:

 

A)        the confidential supervisory information identified in the request is relevant;

 

B)        a compelling need exists;

 

C)        if the requested confidential supervisory information is to be used in connection with an adversarial matter (filed lawsuit or administrative action) has been filed;

 

D)        the production and disclosure of the confidential supervisory information is not unduly burdensome to the Department; and

 

E)        whether disclosure will benefit the credit union.

 

2)         In determining whether to disclose the requested confidential supervisory information, the Secretary may inquire into the circumstances of any case underlying the request and rely on sources of information other than the requester, including other parties.

 

b)         Time Required by the Secretary to Respond.  The Secretary, within 15 days after receipt of a complete request, will determine whether to disclose the requested confidential supervisory information.  If the request is not complete, the Secretary shall notify the requester of the required information that has not been previously provided.

 

c)         Notice to Other Parties.  Following receipt of a complete request for confidential supervisory information, the Secretary may notify the person that is the subject of the requested information, unless the Secretary determines that doing so would advantage or prejudice any of the parties in the matter at issue.

 

(Source:  Added at 46 Ill. Reg. 18508, effective November 1, 2022)

 

Section 190.740  Disclosure of Confidential Supervisory Information

 

a)         Conditions and Limitations.  The Secretary may impose any conditions and limitations on the disclosure of confidential supervisory information that are necessary to protect the confidentiality of such information.  Except as authorized by the Secretary, no person obtaining access, whether physically or electronically, to confidential supervisory information under this Subpart may further disseminate the confidential supervisory information.

 

b)         Restrictions on Dissemination of Confidential Supervisory Information.  The Secretary may condition a decision to disclose confidential supervisory information on entry of a protective order by the court or administrative tribunal presiding in the particular case or on a written agreement of confidentiality.  In a case in which a protective order or agreement has already been entered between parties other than the Secretary, the Secretary may nevertheless condition approval for release of confidential supervisory information upon the inclusion of additional or amended provisions in the protective order.  The Secretary may authorize a party who obtained the records for use in one case to provide them to another party in another case, subject to any conditions that the Secretary may impose on either or both parties.

 

c)         Notification of Parties and Procedures for Sharing and Using Confidential Supervisory Information in Litigation.  The requester shall promptly notify other parties to a case of the release of confidential supervisory information obtained pursuant to this Subpart and, upon entry of a protective order, shall provide copies of confidential supervisory information to the other parties.

 

(Source:  Added at 46 Ill. Reg. 18508, effective November 1, 2022)

 

Section 190.750  Retrieval and Destruction of Previously Disclosed Confidential Supervisory Information Used in Litigation

 

At the conclusion of an action:

 

a)         the requester, and each party who may have subsequently received confidential supervisory information pursuant to a protective order, shall destroy, permanently erase or otherwise make permanently inaccessible the disclosed confidential supervisory information covered by the protective order; and

 

b)         each party shall certify to the Secretary that the disclosed confidential supervisory information covered by the protective order has been destroyed, permanently erased or made permanently inaccessible.

 

(Source:  Added at 46 Ill. Reg. 18508, effective November 1, 2022)

 

Section 190.760  Fees for Services

 

a)         The Secretary, in their sole discretion, may charge the following fees for any record search or copying performed by the Secretary:

 

1)         Reproduction costs incurred in making copies of documents, including photocopies or converting physical documents into electronic or digital format, shall be reimbursed at $0.25 per page.

 

2)         All other costs incurred in searching for and transporting data pursuant to a request for confidential supervisory information shall be reimbursed at actual costs.

 

b)         The Secretary may require a requester to remit payment prior to providing the requested confidential supervisory information.

 

(Source:  Added at 46 Ill. Reg. 18508, effective November 1, 2022)

 

Section 190.APPENDIX A  Estimated Monthly Income and Expenses Worksheet (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)

 

Section 190.APPENDIX B  Mortgage Ratio Worksheet (Repealed)

 

(Source:  Repealed at 41 Ill. Reg. 11307, effective August 28, 2017)