CHICAGO - The Illinois Credit Union League is rallying its membership to defend themselves from a traditional foe: bankers.

The trade association used its annual convention April 20-22 to kick off its "Unity Campaign," a lobbying effort geared to protect the industry's advantages. About 2,000 credit union officials attended the event.

"It's time to circle our wagons, our political wagons, to protect our status," said Donald R. Edwards, the league's senior vice president of governmental and public affairs.

Mr. Edwards encouraged credit unions to inform members of banker-credit union conflicts, to write and visit their lawmakers, and to contribute money to industry political action committees.

He also urged them to get their institutions' members involved.

"The best lobbyists we have are the ones back home - the members," he said.

The reason for the defensive posture seems to be letters the Illinois Bankers Association sent in December to state and federal lawmakers urging tougher regulation of credit unions.

So far lawmakers haven't seemed responsive to the letters, but the league is taking no chances.

For example, it sponsored billboards outside the state capital of Springfield declaring, "2.4 million Illinois voters have something in common: credit union membership."

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The bad blood between the federal government and the industry is worrying Daniel Plauda, president of the Illinois league.

He's afraid it will hurt the ability of the industry and the National Credit Union Administration to put up a united front against potential legislative threats, such as taxation and regulatory consolidation.

He also worries it will impair future cooperation for such strategic issues as implementing new technology and new products.

"I've never seen issues like this that should be so contentious," Mr. Plauda said during the Illinois league's annual meeting last week. "But we have got so many other issues we can't afford to fight amongst ourselves."

Mr. Plauda pointed to the NCUA's rule eliminating shared management between corporate credit unions and trade groups as the turning point in the relationship.

That regulation led the Credit Union National Association to sue the NCUA; in return, agency chairman Norman E. D'Amours has accused the trade group leaders of looking out for their own interests.

New regulations that clamp down on corporate investments and require corporates to beef up capital could provoke another firestorm, Mr. Plauda said.

But there are signs that both sides want to ease the tensions.

Earlier this month CUNA met with the NCUA to see if the trade group's lawsuit could be settled out of court - the association's third attempt to avoid taking the regulator to court, sources said.

Mr. D'Amours declined to settle, but both sides agreed to tone down the rhetoric, sources at the meeting said.

Still, Mr. Plauda and other league presidents are trying to create a nationwide private insurance system to counter the pervasive power of the NCUA as regulator and insurer.

"I continue to believe that private insurance is the key to a dual chartering system," Mr. Plauda said. "As long as the federal regulator holds the insurance charter, that's your regulator."

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With interest rate margins shrinking, credit unions must generate more revenue through fees.

That was the controversial message of Kenneth A. Williams, president of Moebs Services, a Lake Bluff, Ill., consulting firm.

"Fees have to be a source of income," he said during a convention seminar. "Fees have to pick up the slack. You can't say they're just to cover overhead."

Whether credit unions should be charging fees is a hot topic because the industry is based on member service. Critics say charging fees blurs the line between credit unions and profit-driven banks.

During the presentation, Mr. Williams advocated charging members who don't use electronic means for simple inquiries such as account balance information. He also suggested replacing high-priced fees - such as a late payment charge - with smaller penalties in special circumstances.

According to the Credit Union National Association, fees contributed more than ever to the industry's bottom line last year. Fee income for federally insured credit unions grew 5%, to $1.4 billion, in 1994. That represented 2% of total credit union income, up from 0.4% three years ago.

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