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:

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):

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

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

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

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.

* 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:

*  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:

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:

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:

* 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.

*   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)