DEARBORN, Mich. – More details have emerged about the reasons DFCU Financial wants to become a bank as well as the challenges the $1.8 billion credit union expects it may face meeting its CRA obligations as a bank. According to its plan of conversion, which the credit union's nine-member board adopted on Nov. 28 and which the CU included in its application for FDIC insurance, the board cited concern about the CU's "ability to meet the future needs of its members in the economically challenged and low growth Metropolitan Detroit market" as well as lower capital requirements for banks and the ability to serve the broader public as reasons to convert charters. The CU also cited the possibility that it, as a "large credit union", might be taxed. The credit union's law firm, Washington D.C.-based Silver, Freedman and Taff, has declined to comment on applications until the NCUA approves the CU's disclosure statements. The plan of conversion did not discuss any plan to sell stock and made it clear that the credit union would convert to a mutual bank. But that does not mean the credit union has decided not to go public. Neither FDIC nor the Office of Thrift Supervision require a credit union to declare its eventual intentions up front, though NCUA requires the credit union disclose whether going public is a part of its plan when it makes its disclosures to members. As with other credit union-to-bank conversions, the voting structure will change from one vote per member to one vote per $100 a member has on deposit with the bank, up to 1,000 votes. Special meetings will require a petition from enough members to represent an aggregate of 10% of the bank's deposited funds. As in other mutual banks, voting will be allowed by proxy as well. As part of its application for FDIC insurance, DFCU Financial also submitted its proposed Community Reinvestment Act plan. The plan discusses briefly the context for how the former credit union plans to meet its CRA obligations. It also proposes a geographic area in which the former credit union will be held responsible for its CRA obligations and outlines how it plans to meet the three-tiered lending, investment and service tests which are part of CRA. When it comes to the lending test, the CU said it expected to become more efficient in its mortgage offerings and gear itself to originating more mortgages and consumer loans in low-income areas. But the credit union appeared to hedge its plan with the observation that "many of those residing in these [low income] areas have a high rent cost in relationship to income earned, a factor which can hinder the Bank's ability to originate a significant number of loans to qualified applicants. In addition, the weakened economy and depressed job market have created conditions which cause personal incomes to stagnate or fall while housing prices increase, further limiting mortgage lending opportunities to low and moderate income individuals." When it comes to the service test, the area that the credit union has designated as its primary market is made up of Wayne and Oakland counties, an area which DFCU Financial says is roughly one-third low-income, one-third middle-income and one-third upper-income. But most of the branches the credit union proposes to serve this area are in the upper-income parts of the counties and the credit union didn't outline any plans to build any more. That would leave ATMs to service the lower-income parts of the counties, but the credit union said that its 27 non-branch ATMs are located where its current members work and not where its future customers live. This shouldn't matter, the credit union observed, because those ATM services still "find their way into almost all sections" of the area that it proposes to serve. "Once confusion about membership eligibility is eliminated," the credit union wrote in its plan, "advertising to potential customers is expected to generate a healthy flow of new business." The credit union did not discuss any plans to place additional ATMs closer to where presumably more of its banking customers would live. It also anticipated other possible problems meeting its CRA obligations as a bank, citing the areas' depressed economic conditions and "fierce competition" to offer loans in low- and moderate-income areas and noting that its auto lending and other consumer loan portfolio might provide some support for meeting its CRA requirements. "DFCU has a long history of serving members from throughout its field of membership with auto loans and other consumer loans," the CU said. "Should it be necessary, as a compensating factor, this portfolio may provide a positive contribution to the Bank's CRA lending obligation." According to its September call report, roughly 14% of DFCU Financial's just over $1 billion loan portfolio is made up of used and new car loans. This year, 22% of the credit union's $268 million in loans made as of the end of the third quarter were through an indirect lending relationship which usually represents some form of auto loan. -

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