Illinois Law Tempers Civil Penalties
On Aug. 16, Illinois Gov. Pat Quinn signed into law H.B. 1572, which amends the state’s Credit Union Act to establish a fair and consistent civil penalty assessment process. Both chambers of the Illinois General Assembly had previously passed the bill, with the Senate voting unanimously in favor of it on May 22, after the House also produced a unanimous vote April 11. After it gained Quinn’s signature, the new rule went into effect immediately.
The Illinois’ Department of Financial and Professional Regulation already had the authority to impose civil penalties on credit unions. The new law adds the requirement that the DFPR secretary may only do so after he reasonably determines through objective facts and an accurate assessment of accurate legal standards that a credit union has violated the Credit Union Act or DFPR orders. Penalties may also be assessed if a credit union participates in any unsafe or unsound practices that have led to financial loss or created a reasonable probability that a substantial financial loss will result.
Credit union directors, officers and committee members also will be held responsible if the DFPR secretary determines through the newly established civil penalty assessment process that a violation was caused by their willful misconduct or material breach of fiduciary duty, according to the new amendment.
“In the short time since the civil penalty process has been in place, interpretive issues have arisen regarding key operative terms,” the Illinois Credit Union League said in a prepared statement. “HB 1572 addresses those issues by adding substantive due process criteria to provide objective standards of materiality and quality assurance and a cure opportunity before any assessment of a civil penalty.”
The new amendment also authorizes the DFPR secretary to assess civil penalties if the financial loss or probable financial loss is equal to or greater than either 1% of the credit union’s total assets or 1% of the credit union’s total gross income.
The DFPR may also post its civil penalty orders on its website, but only after the final administrative decision is made and adjudicated to finality.
The Illinois league said it worked with state Rep. Lou Lang (D-Skokie), who sponsored the bill in the Illinois House, DFPR Acting Secretary Manny Flores and Division of Financial Institutions Credit Union Supervisor Francisco Menchaca to address credit union concerns. “We are very pleased the Illinois General Assembly concurred with the sentiment expressed by Acting Secretary Manny Flores that the issuance of civil penalties should be handled on a consistent and fair basis by all divisions within the Department,” said Stephen Olson, ICUL general counsel.