Chartered in 1934, Bensenville Community Credit Union, one of longest-runningcooperatives in Illinois, recently became another small creditunion that succumbed to its financial challenges.

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But Bensenville Community CU's former president/CEO and boardclaimed the cooperative may have survived had it not been for thehard line taken by the state's regulator, the Illinois Department of Financial and ProfessionalRegulation.

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They also charged that a conflict of interest and cronyism amongCredit Union 1, American Share Insurance and IDFPR played a role inthe credit union's state-ordered dissolution and its acquisition byCredit Union 1 on Jul 31.

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Rantoul, Ill.-based Credit Union 1 and ASI in Columbus, Ohio,said these conflict of interest and cronyism claims are false,saying they worked to save the $13.9 million Bensenville CommunityCU with state regulators.

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IDFPR declined to comment.

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“They were a very unhappy board when I told them they needed toget this turned around,” ASI President/CEO Dennis Adams said. “Theyworked on it, but they failed and they blamed it on everyone else,yet I have to pay the bill. I didn't want to see it fail any morethan they did.”

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Talk of conflict of interest and cronyism among BensenvilleCommunity board members and employees surfaced when IDFPR told theboard it had to appoint Credit Union 1 internal auditor Jim McNeilas interim manager in February 2014 after BensenvillePresident/CEO Roger Peters abruptly resigned.

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Four months later, the IDFPR appointed Paul Simons, president/CEO of the $756 million Credit Union 1,as manager-trustee during Bensenville's state-ordered suspensionperiod that began June 16. In 2010, Simons served as chair of ASI,which insured Bensenville and insures Credit Union 1.

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Bensenville Community's financial troubles surfaced in 2012when its delinquent loan rate shot up to 6.63% or $792,492, up froma 0.71% delinquent loan rate in 2011. Its provision for loan lossestotaled more than $343,000 in 2012, up from $71,145 in 2011,according to financial statements filed with ASI.

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What's more, the credit union went from a net income gain of$42,389 in 2011 to a net income loss of $311,477 in 2012. Its networth dropped from 7.92% to 6.08% in the same years.

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In February 2013, IDFPR's issued its 41-point letter ofunderstanding and agreement to address Bensenville Community CU'sfinancial troubles.

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But instead of helping Bensenville, board members and Petersdescribed the LUA as crippling and said it contributed to thecredit union's demise.

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Read more: 'LUA was like a dictatorship'…

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“Under a letter of understanding, it was likea dictatorship,” Frank Bartolone, Bensenville's board chairrecalled. “You almost couldn't breathe without their permission andit gave them (IDFPR) unlimited power.”

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Specifically, the LUA led the credit union to raise fees,including monthly fees on checking accounts. But soon after thefees were initiated, Bensenville lost 500 checking accounts,according to Peters.

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The credit union also faced restrictions on the issuance of newloans, especially for members with credit scores of less than 640.The LUA also led the credit union to sell leased properties eventhough they were generating monthly positive cash flows, Peterssaid.

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The former CEO said he was making progress on addressingBensenville's critical financial issues, but it wasn't fast enoughto satisfy state regulators and ASI.

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“I know I worked hard for my credit union and I am very saddenedby the outcome. But I didn't believe it had to be this way,” hesaid. “I believe there were stronger powers that held all the cardslong before they were ever dealt.”

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Board members and Peters also questioned the state's aggressivewrite down of loans.

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“They came down rather hard on us,” Bensenville Director DonaldPrimdahl said. “The loans had some problems in the past but evenwhen they (returned) to performing they still considered them badloans. That just added up to driving us into a negative networth.”

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Although Bensenville's financial statements show that by the endof 2013 its delinquency rate fell to 1%, down from 6.63% in 2012,its loan loss provisions totaled $449,885 in 2013, up from $343,395in 2012.

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Disputes over the loan write downs and the restrictions of theLUA frayed the professional relationship between Peters and stateregulators.

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“They (state regulators) got into a dispute with the presidentover the credit union's policies and rules about the loan writedowns,” Bartolone said. “There was this constant battle that wenton last year. It just never let up. They were harassing us andconstantly forcing us to answer a list of questions. We wouldanswer them and then they would send back more questions when theywere not satisfied with the answers.”

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The pressures on Peters and the board continued to build during2013 as the credit union's financial challenges worsened.

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By the end of 2013, Bensenville lost an additional $623,519 andits net worth plunged to 2.18%. Though its total income fellslightly from $987,437 in 2012 to $963,953 in 2013, thecooperative's total operating expenses increased to more than $1.5million by the end of 2013 from $1.2 million in 2012.

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In February 2014, Peters, who served the credit union for 28years, surprised the board when he resigned.

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The board appointed Bensenville Executive Vice President TamaraGonzalez as interim president/CEO. Gonzalez declined tocomment.

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A week or two later, the IDFPR told the board it had to appointJim McNeil, a Credit Union 1 internal auditor, as interimmanager

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“That was an obvious conflict of interest,” Bartolone said. “Theway it was told to us is that Credit Union 1 was actually doing usa favor and the state was doing us a favor by sending this guy freeof charge. When you don't pay somebody, then you start to wonderwhy. Are they being magnanimous or are they seizing an opportunityto acquire assets at a bargain rate. What do you think it would be?I wasn't born yesterday.”

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Bartolone said it was the opinion of the entire board that thedecision for Credit Union 1 to acquire Bensenville had already beenmade.

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“I'm pretty sure CU 1 is a pretty straight-shooting company, butthat's not the point,” he observed. “I think the state was tryingto figure out an easy way out.”

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Simons said the state approached him about Bensenville, andnoted his credit union assisted the IDFPR in the past with othertroubled cooperatives.

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“I realize that the Bensenville Board felt Credit Union 1 waspreordained, but in fact that couldn't be further from the truth,”Simons said. “I had informed both ASI and the DFI at the time wehad no interest in acquiring Bensenville. We already had too muchon our plate and the fact that Bensenville was already in our fieldof membership (as) we had an office in the immediate vicinity andcouldn't support both offices, and the fact that the credit unionwould probably end up thinly capitalized, it was not our intentionto bid.”

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Additionally, executives are always willing to provide freeassistance to other credit unions that need help, he noted.

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“We were more than happy to help and it has always been ourposition to not charge for our services,” Simons said. “We arecurrently helping two other credit unions with their books andhelping with collections on another – we never charge anything forour services. At the time of our involvement, it was myunderstanding that the process should be complete in about 30 days.Unfortunately, it took much longer due to the difficulty in findinga suitable candidate to acquire the credit union.”

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Adam said ASI sent letters to area credit unions asking them toconsider a merger with Bensenville or a purchase and assumptiondeal. Five credit unions expressed interest and three performedon-site due diligence.

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Simons noted Credit Union 1 did not make an offer to acquireBensenville until the other credit unions passed on a deal.

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What's more, Adams said he had hoped another credit union wouldmake a bid.

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“I really wanted someone else to get in there. I didn't wantthis question (of cronyism) ever to come up,” he said. “But whennobody wants to offer, what are you supposed to do? They (CreditUnion 1) became the partner by default. They weren't anxious tohave it any more than the other two were.”

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Bensenville's sole branch is expected to close in November.

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