Credit unions aren't subject to the federal Community Reinvestment Act, but Illinois is the latest in a small but growing number of states making them comply with a state-level version of the law.
The CRA, enacted in 1977, says financial institutions must meet the credit needs of low- and moderate-income communities in their service areas.
The Illinois legislature in January 2021 passed similar rules for state-chartered credit unions and banks. And the Illinois Department of Financial and Professional Regulation in December issued a
None of Illinois' 170 state-chartered credit unions have been examined for compliance yet as the rulemaking process is unfinished, and the effective date is still up in the air.
Ben Jackson, executive vice president of government relations for the Illinois Bankers Association, said the state regulator held hearings on the issue in March and that there could be more this summer.
"It's been an elongated process because there aren't very many states that have state-level CRAs like this in place," Jackson said. "I believe at some point they will propose revised rules to reflect all of the comments coming in."
Illinois is the first Midwestern state to enact its own CRA-like law. Connecticut, Massachusetts, New York and the District of Columbia have adopted similar laws in recent years. Connecticut's law initially applied only to banks but was amended in 2001 to cover state credit unions as well.
Banks for years have urged Congress to extend the CRA to include credit unions, but that has yet to happen.
"We certainly felt that it would be beneficial to have credit unions, which are rapidly expanding in Illinois, have at least some semblance of scrutiny on how they're performing in their community," Jackson said.
Since Illinois-chartered banks already must comply with the federal CRA, and because there are "few variations" between it and the new state law, the Illinois requirements won't be overly burdensome for the state's banks, Jackson said.
But one credit union trade group says the regulation is not only unnecessary for credit unions, it's unfair.
Greg Mesack, senior vice president of government relations for the National Association of Federally Insured Credit Unions, said most credit unions are already serving low-income communities where they are able but are now facing "massive regulatory burdens" in terms of compliance and record-keeping.
"The CRA was passed as a response to redlining back in the day when banks were out there trying to serve just basically rich white folks. And so they would not serve in minority communities. That's never been a problem with credit unions," Mesack said.
And field-of-membership rules limit groups that credit unions are permitted to serve. For example, a credit union that serves only a specific company or an affluent county may find it impossible to serve low-income areas.
"How are you supposed to serve low-income folks if your entire field of membership is still making six figures?" Mesack said. "It's literally a Catch-22. It's like we
But Jackson said that argument doesn't hold water. Credit unions are expanding rapidly, and the National Credit Union Administration and many states have relaxed field-of-membership rules almost to the point of eliminating them, he said.
"That's an argument that was OK maybe 15 years ago, but that just doesn't reflect the modern credit union industry," he said.
"The foundation of the
However, he believes that credit unions that hold community development financial institutions or low-income designations should be exempted.
"However, with any new regulatory requirement we will have to train staff and track the requirements for compliance, taking up staff time, and that comes with additional cost. It will also cost us money for systems to track compliance," Bugg said.
Jackson said if credit unions are already serving the underserved as they claim, then they have nothing to worry about with the new law.
"Maybe they're doing well, maybe they're not, but they certainly need to be communicating with their regulators whether or not they're serving their communities just like banks," Jackson said.
