Crains Chicago Business
Gregory Meyer
April 27, 2006

State agencies and government pension funds are pondering their next moves after receiving letters from Illinois House Speaker Michael Madigan asking them to shun business with nationally chartered banks unless the banks swear off predatory lending in writing.

In about 600 letters sent earlier this year, Mr. Madigan, D-Chicago, asked public fund managers – from the $11.6 billion Illinois State Board of Investment to small police and firefighter pensions – to adopt the banking policy.

“Please send a strong message to the mortgage lending community that predatory lending practices will not be tolerated in the State of Illinois,” the Speaker wrote in one letter.

At issue is the 2003 High Risk Home Loan Act, which constrained lenders’ ability to give home equity loans to higher-risk borrowers.

As a state statute, the law regulates only state-chartered banks, not national banks regulated by the U.S. Office of the Comptroller of the Currency. Mr. Madigan seeks to use the economic clout of government agencies to persuade the national banks to sign promises they are not engaged in exploitive financing.

But the response has so far been muted. Despite a due date of April 30, about 50 replies to the 600 letters have trickled into Madigan’s office.

“If I had to get a letter from every bank I had a CD with, that’s going to be a lot of paper, a lot of time consumed, a lot of phone calls here,” said Eric Dubrowski, finance director of the village of Villa Park, which puts employee retirement contributions in police and firefighter’s pension funds as well the Illinois Municipal Retirement Fund. He said he’s waiting for guidance from his outside investment manager.

William Atwood, executive director of the Illinois State Board of Investment, which manages funds for most state employee pensions, said it has asked JPMorgan Chase & Co. and Citigroup Inc. whether they’re engaged in predatory lending as it’s defined in Illinois. But, “We didn’t ask them to sign the form,” he said. The board “will have to decide that for itself” when it next meets in June.

Mr. Atwood said the state board has about $180 million invested in a JPMorgan real-estate partnership.

A spokesman for Chase, the Chicago-based consumer banking brand of JPMorgan Chase, said the bank does not run afoul of the state lending laws. “We agree with Speaker Madigan that predatory lending is bad for the communities that we serve,” Thomas Kelly said.

But Chase opposes signing the certification, saying it sets a precedent for state regulation of national banks. “The O.C.C. is our regulator,” he said.

A spokeswoman for Chicago-based Harris N.A. said that to her knowledge, the bank hasn’t been asked to sign anything. “We do not engage in any practices that would be contrary to High Risk Home Loan Act,” she said.

Geoff Smith, of the Woodstock Institute, a Chicago consumer research and advocacy group, questioned why any bank would be reluctant to sign the form.

“Our position is that if they’re not making high-risk loans, why not sign the certification?” he said. “If they have nothing to fear, what’s the concern about certification?”

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