Largest Credit Union In Michigan Files to Convert to a Mutual Bank Charter; League Will Employ Web Site Again

DEARBORN, Mich. – Michigan’s largest credit union, the $1.7 billion DFCU Financial Credit Union, filed applications Dec. 14 with the Office of Thrift Supervision and FDIC to convert its charter to that of a mutual bank. The 160,000-member credit union is 55 years old and has a capital ratio of 12.11% as of June 2005, a number which has risen significantly since June 2003 when it stood at 9.28%. The credit union’s board voted unanimously to approve the plan of conversion, according to Kim Gabbert, spokeswoman for the credit union. DFCU Financial CEO Mark Shobe called David Adams, CEO of the Michigan Credit Union League, to tell him of the move but did not reveal the credit union’s reasons for making the move. Adams agreed that DFCU was a well-run credit union so it was not making the change from a position of weakness. According to Callahan and Associates, DFCU has a return on assets of almost 2%, nearly a full point above its peer group. Adams said that the he was personally disappointed with DFCU’s move and disappointed from the point of view of the league as well. “The MCUL has a clear policy on conversions adopted by the MCUL Board, and we will adhere to it,” Adams said in a prepared statement. “Under this policy, the MCUL recognizes the importance of member votes on important governance matters pertaining to credit unions. It is the right and responsibility of credit union members to determine whether the credit union will be chartered as a credit union or as an alternative charter such as a mutual savings bank. Credit union 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. “The conversion process must address fair and complete disclosures to members, prohibitions on undue enrichment to officers and directors, and guidelines for a fair voting process,” he added. The last credit union in Michigan to make an attempt to convert was the $1 billion Lake Michigan Credit Union, headquartered in Grand Rapids. Almost exactly one year ago, a majority of members voted in favor of the conversion, but since the LMCU was a state-chartered credit union the measure had to win by more than two-thirds of the votes cast, a standard it could not meet. During the controversy leading up to the Lake Michigan vote, the MCUL started a Web site, www.memberinform.org, to help alert credit union members to the information which it believed Lake Michigan left out of its disclosure statements. The league promoted the site through paid advertisements in the Grand Rapids newspapers. Adams signaled that the league would continue to use the Web site but said that it had not decided yet whether to buy any advertisements to help direct members to the site. “I think that the NCUA’s regulations are much better now than they used to be,” said Adams. “So we will be watching the situation and what the credit union says to its members to make sure it’s balanced.” Adams said the league still questioned using raffles as a way of driving member participation in charter conversion votes, which Lake Michigan did, and will be looking out for that as well from DFCU. Meanwhile, in what appeared to be a remarkable coincidence, on the very day that DFCU filed to leave its credit union charter behind, America’s Community Bankers sent a letter to a Congressional credit union critic, Jeb Hensarling (R-Texas), seeking a Government Accountability Office study of NCUA’s policies. Also in a remarkable coincidence, the very same day that member’s office released a letter to the GAO seeking just such a study. “As you are well aware, Congress passed the Credit Membership Access Act of 1998, and that states credit unions have a right to convert to a bank charter if their members vote to do so,” Diane Casey-Landry wrote to Hensarling in a Dec. 14 letter. “Since it remains unclear how NCUA will treat credit union conversion applications in a consistent and fair basis, we urge you to formally request a GAO study on the NCUA’s treatment of these applications, both current and past, as well as going forward. After the study is finished you may want to consider a committee hearing to review the GAO’s findings,” she added. But Casey-Landry’s letter arrived a little late because Hensarling, in a letter dated Dec. 13, a full day before the ACB’s letter, had already made the request to the GAO. “In recent years, there have been a number of credit union conversions that have received considerable attention because of the actions of the NCUA,” Hensarling wrote. “Most recently, two credit unions in my home state of Texas were forced to seek redress in federal court in order to complete their conversion.” In his letter, Hensarling asked the GAO to examine whether the NCUA’s actions conform with, or exceed, the powers granted by the 1998 Credit Union Membership Authorization Act (CUMAA) which grants the NCUA the authority to oversee the methods and procedures of a conversion vote. He asked as well for the GAO to examine whether the NCUA’s rules and guidelines for conducting a conversion are “no more or less restrictive than that applicable to charter conversion by other financial institutions,” as required by law and whether the behavior of the NCUA in overseeing conversions acts as an undue hindrance on the ability of credit unions to convert. Robert Schmermund, spokesman for the ACB, confirmed that the group had been talking to Hensarling’s office prior to the 14th but claimed it was only a coincidence that its letter to Hensarling’s office went out on the same day DFCU filed its application to change its charter. Mike Walz, Hensarling’s press secretary, also downplayed the coincidence, saying that the Congressman has been concerned about the NCUA’s involvement in the credit union conversion process since the issue arose with the two Texas credit unions several months ago. “The idea of a GAO study has been floating since then,” he said. “Mr. Hensarling thinks the study will help all interested parties better understand the conversion process.” NCUA Board Chairman JoAnn Johnson said she welcomed the study and that NCUA believes unequivocally that the future direction and choice of charter is a credit union membership decision. “NCUA appreciates an open dialogue with Congress and GAO on issues affecting America’s credit union members,” she said. “We will continue to work with Congress to provide the needed transparency to protect consumers who are asked to consider such an important matter.” CUNA CEO Dan Mica said that CUNA welcomed the study and would ask Hensarling to ask that the scope be expanded. “We think that any review of NCUA’s actions will be, overall, favorable to the agency and credit unions, as we are confident that it will show the agency’s ultimate concern is that the owners of the credit unions, the members themselves, fully understand the consequences and realities of a charter change. Beyond that, CUNA intends to ask Rep. Hensarling to request that GAO also look into the impact of such charter changes on members, and their ability to be fully informed of the consequences of conversions.” Brad Thaler, NAFCU’s director of political affairs, noted that requesting the study merely reflected ACB’s negative attitude towards credit unions and their willingness to see the federal government spend scarce resources on attacking them. He also said that he hoped the study would look as well at the regulations which many states have on the books about banks converting to credit unions and which, he contended, were significantly more restrictive than those governing credit unions converting to banks. [email protected]