DFCU Financial Sues Michigan League, Alleging Interference in Conversion Process

DEARBORN, Mich. – The $1.8 billion DFCU Financial Credit Union has filed a lawsuit against the Michigan Credit Union League, charging the league with “tortuous interference” defamation and acting outside its authority in the matter of the credit union’s attempt to convert its charter to that of a mutual bank. The credit union has charged in a press release that the league “is attempting to use league employees, who also happen to be members of DFCU, and league assets to improperly interfere with the business affairs of DFCU and its members.” “It is clearly inappropriate for the Michigan Credit Union League, which is funded by member institutions, of which DFCU is the largest dues paying member, to interject itself between DFCU and its members and to interfere with the relationship between DFCU and its members,” said Mark Shobe, DFCU’s CEO. David Adams, CEO of the Michigan Credit Union League, said DFCU demeaned its members by suggesting the formation of DFCU Owners United, a membership group which opposes the CU’s conversion to a mutual bank, was the result of league activity. He noted that while he believed two league employees participated in the group, they did so only as participants and not as organizers. Furthermore, Adams said the league made clear to its employees that if any wanted to participate in the group they should feel free to do so, but on their own time and at their own expense. Adams said DFCU should listen to its members instead of spending their money suing the MCUL and pointed out the league played no role when DFCU members present at the CU’s Feb. 15 annual meeting voted to ask the CU’s board to withdraw its conversion application. “This was not an action of the MCUL. It was a bona fide action of the members at an official membership meeting,” Adams said. The credit union did not return calls for comment before press time. According to its press release, much of the credit union’s complaint appears to center on league criticism and questioning of why the credit union leadership has been very slow to speak to members about the conversion and has generally remained very quiet about it. “DFCU has not sent any written notices to its members regarding the charter conversion as a result of the NCUA’s recent opinion that any written communication with members must be accompanied by a full page of information that DFCU finds, and another federal regulator, The Office of Thrift Supervision, previously found potentially misleading,” said Shobe. “We are unwilling to send incomplete and misleading information to our members. So we will wait and communicate with our members when we can send them an entire package, including their voting ballot, with all the information they need to understand the issue. This is standard procedure and has been followed by every converting credit union.” But NCUA General Counsel Bob Fenner said DFCU made a “gross overstatement” by suggesting that the rule on the boxed statement prevented it from communicating with members about the conversion. “The credit union can still answer specific member questions about the conversion, can still advertise about it, can still send out press releases and talk to the press about it. None of those types of communication fall under the regulations,” Fenner said, “and it’s reasonable to ask why the CU hasn’t used any of them.” Fenner also noted that if the CU wanted to send something about the conversion to all its members and did not feel some of the boxed statement would be appropriate for its mailing, the credit union could always ask the agency’s regional director to approve a change – something he noted the CU has not done. Adams said that the league has been doing what its members asked that it do, work for increased disclosure to members in the process. “The credit unions that comprise the membership of the MCUL can be certain that the MCUL has operated within policy guidelines set by its board of directors based on member input,” Adam’s said. “These guidelines encourage fact-based statements that encourage process improvements and member education related to credit union-to-bank conversion attempts. These activities serve to protect the credit union charter and the rights of credit union members, a fundamental role of the MCUL. “The MCUL will take this lawsuit seriously and defend its lawful and rightful actions vigorously. However, it is disappointing that the credit union would now, in the face of concern and opposition from its members, file a lawsuit with member funds against an organization with such a pro-consumer position as the MCUL’s. Our organization will not lessen its interest or activities related to improving the conversion process and the need for improved communication with credit union members on such an important issue,” Adams said, adding: “We also hope that this intentionally publicized lawsuit will finally serve to inform the members that the credit union is contemplating this bank conversion. Hopefully then, the members will be better informed and more likely to carefully read the NCUA-approved disclosures prior to casting a vote.” The lawsuit may have the impact the MCUL hopes it will have. As of press time, both the Detroit Free Press and Crain’s Detroit Business have run stories on the filing of the lawsuit. [email protected]