Lake Michigan Charter Fight Heats up; Conversion Ballot Attracts Governor's Attention

GRAND RAPIDS, Mich. – The contest over whether the $1.1 billion Lake Michigan Credit Union changes its charter to that of a mutual bank appears to be getting hotter before it gets cooler. Here is where things stood. On November 8 the credit union ballots went to the credit union’s over 100,000 members. Members who wish to vote in the balloting must return their ballots before December 8 or vote at a special meeting to consider and vote upon the measure that will take place December 8. The credit union has chosen to use a contest in an attempt to hike voter turnout. “The board of directors and management are asking for your support and encourage you to vote for the plan of mutual charter conversion to allow us to better serve you for many years to come,” the credit union wrote in a September 9 disclosure letter to its members as well as in different other documents. “Members who vote on the Charter Change will be eligible to win valuable prizes. The grand prize is a 3 year lease on the winner’s choice of either a 2005 Cadillac CTS or SRX. Five additional $1,000 cash prizes will also be awarded. Stay tuned!” Lake Michigan appears to have removed information about the contest from its Web site (www.lmcu.org). Sixty-six percent of the voters who participate in the balloting must vote `yes’ for the charter change to proceed. On November 7, LMCU members who live in Grand Rapids and who read the Grand Rapids Press woke up to the first of a series of full-page advertisements that the league has taken out to urge credit union members to visit a Web site the league has set up to point out what it believes has been left out of the credit union’s disclosures on the charter change. The Web site (www.memberinform.org) takes issue with a number of different statements in the Lake Michigan Credit Union disclosure statement and lists facts which it said were left out of the statement. For example, the site notes that the disclosure statement suggested that product pricing and interest rates will improve after the conversion, but that very well might not be the case, the site argued. “Our position is that we are not opposed to any credit union’s members deciding to change their charters,” said David Adams, president of the Michigan Credit Union League, “but we believe that credit union members deserve to have all the information to make a fully informed decision.” The advertisement itself did not name Lake Michigan and appeared to be more of an effort to get readers to click through to the site with generic comparison statements comparing credit unions and stock issuing banks. LMCU has stated it will eventually issue stock through a mutual holding company structure, but this will be a follow-up step, requiring an additional majority vote among mutual bank members. The advertisement did not reflect that the initial vote facing Lake Michigan members will be only on whether to convert to a mutual bank that does not issue stock. No one from Lake Michigan would reply to repeated calls for comment on the advertisements, but in an interview with the Grand Rapids Press CEO Sandy Jelinksi decried the league’s becoming involved. “This conversion is between us and our members, and we think the League’s interference in this is very wrong,” she said. She also defended the change in the members’ voting structure that will follow a change in charter this way: “This is how it is structured in other financial institutions,” she said. `Those that have more at stake have a little more in voting power.” If the charter change is approved, LMCU will allow its member to have one vote for every $100 in deposit, up to a 1,000 votes instead of the one member, one vote it allows as a credit union. League Tries Out New Policy The league will run the ads throughout the first week in November as part of a Michigan Credit Union League policy that allowed the league to spend up to $35,000 on the ads and to work with legislators and regulators to improve the state’s charter conversion procedures. “The MCUL recognizes the importance of member votes on important governance matters pertaining to CUs,” said MCUL Chairman James Dahl. “It is the right and responsibility of CU members to determine whether their CU will be chartered as a CU or as an alternative charter, such as a mutual savings bank. “CU boards of directors and management can and should advise the membership on this important matter – but the membership should make the decision by casting a well-informed vote.” Laws regarding conversions should address fair and complete disclosures to members, prohibitions on undue enrichment to officers and directors, and guidelines for a fair voting process, Dahl said, and regulators should be encouraged to establish and enforce necessary rules and regulations pertaining to these laws. Currently Michigan has a procedure in statute to govern the conversion of state credit union to mutual bank charters, but it does not have any regulations on the books flowing from that law. One of the league’s goals is to help develop regulations flowing from the statute. Meanwhile, Michigan Governor Jennifer M. Granholm has become “very concerned” about some of the rules governing credit union to bank conversions in Michigan and may push for changes, according to her press officer Liz Boyd. “The governor is very concerned that the existing regulations allow a credit union to undertake a decision of this importance with the approval of only 66% of the members voting,” Boyd explained, “as opposed to requiring a majority of all members voting to approve the change. The governor is concerned enough about this that she is considered pushing for a change in the rules,” Boyd added. Such a change, were it to occur, would require a change in the state’s Credit Union Act since there are no regulations designed to implement the act in place. She added that the governor was “exhorting” the members of the $1.4 billion Lake Michigan Credit Union, who are voting on a charter change this month, to carefully consider the whole matter and to weigh the impact of their institution’s change carefully. -