2004 Legislative Update

The following is a summary of significant banking related legislation enacted by the Illinois General Assembly and subsequently approved by Governor Blagojevich. Complete copies of the legislation are available from the Division of Banking and Real Estate web site. This summary is provided for your general reference. For specific guidance concerning the applicability or effect of legislation on your institution, you should seek the advice of your legal counsel.

CREATION OF SUCESSOR TRUSTS

Public Act 93-695 (H.B. 4389) codifies a standard practice utilized by estate planners and amends Section 5 of the Trusts and Trustees Act, [760 ILCS 5/1] to allow a trustee of an existing trust to create a second trust for the benefit of an individual beneficiary determined to be unable to manage his or her affairs due to a legal disability, including being a minor. The second trust, which must be established prior to distribution of the initial trust assets, is authorized to accept accelerated distribution of income and principal from the initial trust and these shall be irrevocably vested in the named beneficiary of the successor trust. The new provisions of Section 5 became effective on July 9, 2004.

DEBIT AUTHORIZATION FOR CHILD SUPPORT PAYMENTS

Public Act 93-736 (H.B. 4310) amends Section 48.4 of the Illinois Banking Act, [205 ILCS 5/1]; Section 1-6(d) of the Illinois Savings and Loan Act, [205 ILCS 105/1]; and Section 7007 of the Savings Bank Act, [205 ILCS 205/7001]; Section 43.1 of the Illinois Credit Union Act, [205 ILCS 305/1]; and Section 20 of the Foreign Banking Office Act, [205 ILCS 645/1] and allows the Department of Public Aid to establish a procedure to provide for mandatory debits of child support payments from accounts held by Illinois financial institutions.
The new statutory provision requires Illinois state-chartered financial institutions to implement procedures to accept the use of a Department of Public Aid form (signed by an obligor account holder) to allow for the mandatory debit and transfer of child support payments.

Illinois financial institutions are provided protections from the mandatory debit if the subject account has insufficient funds in the account; to the extent that the account is pledged or held as security for a loan or other obligation; or if the account is subject to a valid offsetting claim due to the benefit of the financial institution. The new amendments also provide Illinois financial institutions civil liability protection in connection with accepting the debit form. The new child support payment procedures became effective on July 14, 2004.

PROHIBITION OF THE USE OR PUBLIC POSTING OF SOCIAL SECURITY NUMBERS

Public Act 93-739 (H.B. 4712) amends the Consumer Fraud and Deceptive Practices Act, [815 ILCS 505/1] by adding specific prohibitions against the use or public posting of Social Security numbers. New Section 2QQ makes it an unlawful practice to publicly post or display an individual’s social security number; to print an individual’s social security number on any card required to access products or services; to require a person to transmit a social security number over the internet, unless the number is either encrypted or the connection is secure; to require a person to use their social security number to access a web site, unless a password or other unique personal identification number or other individual authentication devise is also required; and, to print a social security number on materials mailed to an individual, unless specifically authorized or required by law.

The amendment does allow for an exception to the general prohibitions if a person previously and continuously used an individual’s social security number for a legitimate purpose prior to July 1, 2005, and the person makes an annual disclosure that informs the individual of the right to stop the use of the individual’s social security number. An individual who makes a written request to stop the use of their social security number may not be denied services because of making such a request. These new prohibitions on the use of social security numbers become effective on July 1, 2006.

DEPOSITS OF PUBLIC FUNDS

Public Act 93-756 (H.B. 4495) amends the Public Funds Investment Act, [30 ILCS 235/0.01] by adding a new Section 6.5. Under this new section, a public agency may elect to invest public funds in excess of $100,000 at one Illinois financial institution. The initial depository Illinois financial institution may then parcel out the portion of the deposit that exceeds $100,000 to other Illinois financial institutions, provided that the deposits are always federally insured. In addition, the decision by a public agency to utilize the new section 6.5 investment authority will relieve the Illinois financial institutions from the requirements that they provide sworn statements of resources and liabilities and the requirement that funds in excess of federal insurance be secured by pledged securities. It is important to note that the utilization of section 6.5 is left to the discretion of the public agency. They may still follow the investment procedures established under Section 6 of the Public Funds Investment Act. The new section 6.5 became effective on July 16, 2004.

PREVENTION OF ELDER FINANCIAL EXPLOITATION

Public Act 93-786 (S.B. 2702) is another effort to prevent financial exploitation and protect the public. The new statute requires the Secretary of the Department of Financial and Professional Regulation to cooperate with the Department On Aging in encouraging state regulated financial institutions to participate in State of Illinois sponsored financial exploitation prevention programs. The amendments to Section 6 of the Office of Banks and Real Estate Act, [20 ILCS 3205/1] became effective on July 21, 2004.

529 COLLEGE SAVINGS PLAN CHANGES

Public Act 93-812 (H.B. 4914) amends Section 16.5 of the State Treasurer Act, [15 ILCS 505/1] and limits the annual tax deduction for contributions to the Treasurer’s “Bright Start” plan to a maximum of $10,000. The new amendment also allows for an annual tax deduction of up to $10,000 for contributions made to the State’s other “529” pre-paid tuition plan. The amendment also deletes a provision that formerly allowed a “Bright Start” contribution to be excluded from state financial aid calculations. The changes are effective on January 1, 2005.

ADDITIONAL CONSUMER PROTECTIONS APPLY TO REVERSE MORTGAGE LOANS

Public Act 93-863 (H.B. 5197) provides additional consumer protection by requiring that a licensee under the Residential Mortgage License Act of 1987 [205 ILCS 635/1-1] must act in good faith in all relations with a reverse mortgage loan borrower. The additional protections became effective on August 5, 2004.

DISCRETIONARY IMPLEMENTATION OF ATM REVERSE PIN TECHNOLOGY

Public Act 93-898 (H.B. 4652) adds new provisions to Section 50 of the Electronic Fund Transfer Act, [205 ILCS 616/1] emphasizing that the implementation of a Reverse PIN technology designed to alert local law enforcement in cases of emergency or a forced withdrawal of cash from an ATM terminal, is not mandatory or required by statute. This new statutory language became effective on August 10, 2004.

CERTIFICATE OF DEPOSIT NOT A SECURITY

Public Act 93-927 (S.B. 2559) amends Section 2.1 of the Illinois Securities Act, [815 ILCS 5/1] by deleting Certificates of Deposit from the statutory definition of the term “Security”. This statutory change now codifies the position taken by a majority of states that recognize certificates of deposit as a general banking product that is distinct from investment products commonly identified as a security. The statutory amendment became effective on August 12, 2004.

DE NOVO BANK BRANCHING ALLOWED

Public Act 93-965 (S.B. 2710) amends Sections 21.2 and 21.4 of the Illinois Banking Act [205 ILCS 5/1], Section 3.071 of the Illinois Bank Holding Company Act [205 ILCS 10/1], and Section 1006 of the Savings Bank Act [205 ILCS 205/1001]. These statutory changes remove long-standing barriers that previously prevented out-of-state financial institutions from de novo branching into the state of Illinois. More importantly, the statutory change allows Illinois financial institutions an opportunity to gain de novo branching access outside the state of Illinois.

Common to each of the de novo branching amendments is the requirement that the laws where the out-of-state institution has its main office permit inter-state branching and such laws permit Illinois financial institutions to branch into that state on terms and conditions that are deemed to be reciprocal to Illinois law. The statutory amendments require a finding by the Secretary of the Department of Financial and Professional Regulation that the laws of the other state allow an Illinois state bank to establish a branch under terms and conditions that are substantially similar to those now enacted in Illinois. Prior to making this determination, the Secretary must consider whether the laws of the other state discriminate or impose administrative or regulatory burdens that are substantially more restrictive than those imposed on an out-of state bank seeking to establish a branch in Illinois. The Division of Banking and Real Estate has researched the laws of other states and has created a chart to identify those states determined to allow for Illinois financial institutions to establish out of state de novo branches. This chart is available on the Illinois Department of Financial and Professional Regulation web site under the Division of Banking and Real Estate’s link to Interpretive Letters. The new statutory de novo branching authority became effective on August 20, 2004.

TRUSTS AND TRUSTEES ACT

REASONABLE CURRENT RETURN-TOTAL RETURN TRUST
REASONABLE CURRENT RETURN-UNITRUST
INTER VIVOS TRUST DISTRIBUTION

Public Act 93-991 (H.B. 1080) creates a new definition for the term “trust income” with respect to a trust vehicle that has converted to a total return trust. Section 5.3 of the Trusts and Trustees Act has been added to change the method of determining a reasonable current return by substituting the distribution amount for net trust accounting income. Section 5.3 now provides that a distribution amount that fairly apportions the total return shall be deemed a reasonable current return.

Section 5.3 makes a similar change to the method of determining a reasonable current return with respect to a Unitrust. These are trusts that by their terms require distribution of a designated Unitrust amount on an annual basis equal to a percentage of the trust’s assets. Section 5.3 now specifies that the definition of income with respect to a Unitrust is determined by substituting the Unitrust amount for the net trust account income as a method of determining current return. Section 5.3 also establishes that a Unitrust amount of between 3% and 5% of the trust’s assets is presumed to be a reasonable current return that fairly apportions the total return of the Unitrust.

The new provisions contained under Section 5.3 of the Trusts and Trustees Act became effective on August 23, 2004.

Section 5.5 of the Trusts and Trustees Act has been amended to clearly establish procedures for the ultimate distribution of inter vivos gifts, in the event that a named beneficiary dies prior to distribution. If a gift has been made to a settlor’s descendant who subsequently dies, the living descendant of the deceased beneficiary will take the gift per stirpes or as a pro rata share. If the inter vivos gift is made to a class of beneficiaries and one or more class members subsequently die, the remaining living class members will take the deceased class member’s share. However, if the deceased class member was a descendant of the settlor, the share will pass to the living descendants of the class member per stirpes. In additional, if the gift has been made to a beneficiary who is not a descendant of the settler and is not a member of a class, the gift will lapse and will return to the residue of the trust. The changes to the inter vivos distribution process will become effective and apply to distributions after January 1, 2005.

EXECUTIVE ORDER NUMBER 6 (2004) CREATION OF THE DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION

On April 1, 2004 Governor Blagojevich signed and issued Executive Order Number 6, consolidating the Office of Banks and Real Estate, the Department of Professional Regulation, the Department of Financial Institutions, and the Department of Insurance into the Illinois Department of Financial and Professional Regulation. The consolidation was effective on July 1, 2004 and Secretary Fernando E. Grillo assumed responsibility for each of the four consolidated agencies or departments.

P. A. 93-735 (H.B. 966) was subsequently approved by Governor Blagojevich and became effective on July 14, 2004, and provided the Governor with the authority to appoint four Directors of the divisions of the Department of Financial and Professional Regulation, subject to the advice and consent of the Senate. D. Lorenzo Padron has been named as the Director of the Division of Banking and Real Estate and will continue to oversee the supervision and regulation of state-chartered banks and state-chartered thrifts.