The Illinois Credit Union League is quite happy with a tough, new anti-predator measure that has been signed into law by Gov. Rod Blagojevich.
But, thanks to its definition of "high-risk" loans, the majority of its member credit unions need not worry about becoming targets of violating it.
"The vast majority of credit union loans won't fall under the triggers," said Keith Sias, ICUL director of state governmental affairs.
The law that takes effect Jan. 1, 2004 defines high risk loans as those with rates more than six percentage points over the yield of comparable Treasury securities, or with points or fees over $800 or 5% of the loan amount.
And, while the rates are at an "historical low," chances are slim that many of the state's CUs have loans that would fall into that category, Sias said. "This is an issue that has been around for a couple of years."
In fact, he added, league officials participated in crafting it so lenders in the state could avoid unscrupulous lending practices.
The law creates a number of restrictions on high-risk home loans and requires secondary market lenders and servicers to file loan-level information with state regulators and provide disclosures to consumers.
In The Wake of Georgia
States and cities across the nation have passed similar anti-predator measures in recent years. But Illinois is only the second to make servicers of high-risk loans accountable.
The other was the Georgia State Legislature, which included it in its 2002 Fair Lending Act. However, earlier this year, an amendment was passed to exempt high-risk loan services from assignee liability.
Opponents of the Illinois law argued that the requirements would create a financial burden on secondary market lenders and servicers-some of which have no involvement in the origination of the loan-and increase credit pricing that will ultimately be passed on to the consumers.
"That part of it is true," Sias said of the added cost that will be necessary to comply with the law. "But there wasn't enough concern (within the CU industry) to warrant opposition to the bill," he said, noting that its benefits outweigh any costs to the small number of credit unions that would be impacted.
From a compliance standpoint, Sias said, credit unions do need to understand the law and keep close watch of their own portfolios.
"If a credit union buys a pool of loans and some are high risk, they could be held accountable," he said.
The law allows victims of predatory lending to sue lenders and servicers for damages under the state's statute of unfair and deceptive trade practices.