Illinois CU League, Banks Join To Sue State For Raiding Dedicated Funds

Register now

The Illinois CU League filed suit in state court here last week challenging the state's raiding of the previously dedicated CU Fund for general purposes.

"Our members are very interested in seeing that the funds we pay to the state stay for credit union supervisory purposes," said Keith Sias, chief lobbyist for the Illinois league, who lobbied against last year's legislation allowing the new funding measure.

The opening of the CU Fund, which now holds about $6 million, was enabled under last May's budget bill under which 300 different funds previously dedicated to single purposes and holding as much as $400 million were opened to help fund general operating expenses.

But in the credit union case, annual supervisory fees paid by 400 state-chartered credit unions were also hiked by 27.5% to add another $2 million to the fund. For the largest state-chartered credit unions, including Peoria-based CEFCU and Chicago-based Alliant CU (formerly United Airlines Employees CU), that has increased annual fees by 50%, or by $125,000. Small credit unions, those under $5 million, have not had an increase in fees.

The credit unions' suit, which was joined by the Illinois League of Financial Institutions and Community Bankers Association of Illinois, charges the action to commingle the dedicated funds violates the state's constitution, which requires that the funds raised from credit unions, banks, s&ls and the other businesses affected be used solely for their intended purposes. In the case of the credit union fees, that means the supervision costs of credit unions. The state CU Act also requires that any excess funds be returned to credit unions as a rebate.

According to Sias, the state's Department of Financial Institutions spends about $2.4 million a year to examine and supervise credit unions. That would leave an excess of as much as $6 million after the increased fees in the fund this year.

So far, the state has removed about $1.6 million from the credit union fund. The suit asks that the money be returned to the fund, and that any excess money be returned to credit unions, as required by the state law.

The credit unions hope a recent court decision in a similar case brought by the Illinois Chamber of Commerce over the state's raiding of the workers compensation insurance fund will help them in their suit. The court in that case ruled the state's taking of those dedicated funds was illegal.

Sias said the league is worried that the fee hike could prompt some Illinois credit unions to convert to federal charters because the state's fees are significantly higher than those charged by NCUA to federal credit unions.

For reprint and licensing requests for this article, click here.