DFCU Members Group Petitions to Remove Board; 200 CU Members Sign Ad Against Conversion

DEARBORN, Mich. – Like a volcano which only slowly builds toward eruption, the sentiment among members of the $1.8 billion DFCU Financial against the credit union’s proposed conversion to a mutual bank appears to be building steadily and may, eventually, explode all over the current board. The credit union, largest in Michigan, announced it had applied to convert in December 2005. The CU sent ballots and disclosure documents about the move to those of its 160,000 members that are eligible to vote on Mar. 23 of this year. The story’s temperature began to rise last week with the news that members opposed to the conversion began to picket at some of the credit union’s branches and ATMs in an effort to alert other members to the conversion attempt and to influence them to vote against it. The protest ranged from a couple of members standing with signs outside ATMs at one branch to small groups of members picketing with signs at other locations. Margaret Blohm, an organizer with the DFCU Owners United group, the group of DFCU members who are united against the charter change, said it was difficult to tell exactly how many members participated since members protested at three separate locations and people came and went over the protest period which lasted from 10:00 AM to 2:00 PM. In some cases people coming to do business at the CU joined the protest when they heard what is was about, Blohm said. One woman who didn’t know anything about the conversion attempt came back out after finishing her transaction and asked for a sign to join the picket line. “I have been a member since 1967,” Blohm recalled the woman saying; “they aren’t doing this to my credit union.” The signs read things like “Good For Who?” and “Say No To Becoming A Bank” as well as the group’s slogan, “Don’t Make Our Credit Union a Bank.” One member plastered his extra large Ford pickup truck with anti-conversion advertising and parked it in various DFCU parking lots during the protest time as occasional members of the CU’s staff came out to challenge the protestors, Blohm said. The group said this was merely the first in what it hopes will be a series of protests that will run, and grow larger, as the 90-day voting period continues. That prospect might have gained further momentum due to some remarks from DFCU CEO Mark Shobe that ran in the local press. In its coverage of the protest and the conversion attempt, the Dearborn Press &Guide, a local paper serving the Dearborn region where many of the CU’s members reside, quoted Shobe as saying that if CU members first vote to change the CU to a mutual bank and then participate in a subsequent stock offering, this would be the first time any had a chance to own the institution. “Existing members would be able to purchase initial stock in the company if they choose to,” the paper quotes Shobe as saying. “This would be the first time that any members have had the opportunity to have financial ownership in the company.” The CU has not yet replied as to whether the paper quoted Shobe accurately, but Blohm and other supports of the Owners United group said they believed he had been quoted correctly and that the quote fit into the leadership’s overall effort to confuse members about the conversion and make them forget that they are part of a credit union. “Why shouldn’t you vote to give up something that you don’t really understand the worth of owning?” Blohm questioned tartly. More advertising from the group is likely to stoke the fire. As of press time, 200 DFCU members signed an advertisement against the credit union’s proposed bank conversion that ran in local papers. Leading the signatories were six of the credit union’s former board members and executives, including Ron Unger, DFCU’s CEO prior to Shobe. Unlike previous advertising, which urged DFCU members to question the conversion, this notice came out fully against it. “We are member-owners of DFCU Financial who are AGAINST the proposed conversion to a mutual savings bank,” the ad read. “We see no benefit to members! It appears that it is only executive management, board directors and supervisory committee members who would benefit. Don’t let this happen to OUR credit union!” The Owners United group believes that most DFCU members were aware of what they were joining when they made the decision to join a credit union and that they want it to remain a credit union, Blohm explained. “The number of signatories represents merely the earliest wave of our support,” she added. Lost Branches And ATMs? The chance irate members will support the conversion move dropped still further after it became clear that, should the former CU issue stock, as the CU leadership has said it will, the former CU’s members, now customers, will lose their ability to use shared branches attached to the Service Centers Corporation. SCC is a subsidiary of the Ontario, California-based CO-OP Network and the bylaws of the CO-OP allow for credit unions, which convert to mutual banks to continue to participate as issuing institutions in shared branching and surcharge-free ATMs. But once the former credit unions issue stock, they can no longer continue participating, according to CO-OP CEO Stan Hollen. This fact appeared to cast doubt on DFCU’s statements in its disclosure documents where the CU told its members that it is “seeking the approvals necessary” to offer shared branching after the conversion. However, while Hollen declined to comment on what DFCU has said or what possible negotiations the credit union could open, he reaffirmed the organization’s bylaw rule against participation once stock has been issued. DFCU Financial has seven branches of its own and at least 10 shared branches within 10 miles of the credit union. According to the credit union service centers Web site, there are 58 shared branching outlets available statewide. CO-OP’s Web site shows that there are 100 CO-OP Network ATMs within 50 miles of DFCU. Fifty-two of these accept deposits, CO-OP said. Currently, the credit union offers members 36 of its own ATMs. “I think this is a significant material discrepancy in DFCU’s disclosures that helps highlight the continuing problem with the disclosure and balloting process in these conversion votes,” said David Adams, CEO of the Michigan Credit Union League and a leading critic of some things the CU has done as it proposed and supported the bank conversion. “Can you imagine the furor if, say, Bank of America wrote its customers about a pending legal change which the bank said won’t make any difference except that it will drastically reduce the number of surcharge free ATMs that would be available to them,” he asked. “Could the bank get away with that?” The CO-OP’s bylaws currently allow a former credit union, which becomes a mutual bank, to remain members in both the ATM and shared branching network as a participant as long as the former credit union does not issue stock. Throw The Board Out? Member dissatisfaction reached a high enough level by April 1 that the DFCU Owners United group decided to mount a petition drive to try to remove the credit union’s board. “We distributed the petition forms and anticipate starting to collect the signatures this week,” said Blohm. “We don’t anticipate having a lot of trouble reaching the 500 members we need for the special meeting.” If the members group is able to collect the signatures quickly enough it would be theoretically possible for the members to call for a special meeting to consider ousting the board before the special meeting on the charter conversion proposal, but the actual scheduling of the meeting would remain up to the CU, which could delay it. Blohm said requests among the group’s members and people that were becoming newly aware of the conversion issue led to the petition drive. “We had people asking at our meetings why we weren’t holding a special meeting and getting rid of the board,” Blohm said, “so we felt like we had to do it.” The root of the petition is member dissatisfaction with the amount of information the credit union has provided about the conversion, and the inability to get access to the minutes from a DFCU Financial board meeting where the merger was discussed. “Specifically, the members requested to inspect the portions of the minutes of the Board of Directors for those meetings in which the conversion was discussed,” the petition language noted. “Additionally, the members requested to inspect reports, studies, graphical presentations, and all other documents in which there was discussion and/or analysis concerning the proposed conversion . except for limited inspection of the minutes, the request was summarily denied.” The petition also quoted NCUA’s letter to the Supervisory Committee outlining the need to make information about the conversion available to members. The credit union leadership has not yet commented on the petition drive. Although the credit union has not been reaching out to unhappy members, the Coalition for Credit Union Charter Options, the banker led group formed to further credit unions converting to banks, has been making an effort. The group tried to address the April 4 DFCU Owners United meeting but was not given space on the agenda to speak. CCUCO sent its membership director and spokesman, Marvin Umholz, to attend the meeting to try to address some of what the CCUCO maintains are errors on the group’s Web site. But group organizers said that the meeting agenda was already full and that he was not free to come in to distribute literature in favor of bank conversions. Umholtz said that he talked to some group members outside and that most were cordial but that some were verbally abusive towards him. He contended that the 50-65 people he saw attend the meeting were looking “to turn the clock back to 1950″ and that “it hasn’t been 1950 in a long time.” Umholz also revealed that he has taken a personal stake in the credit union’s conversion effort by becoming a member of the institution. He said he had not joined the credit union in time to be a member of record for the credit union’s balloting but that, should the members approve the conversion, he should be a member of record in time to take part in whatever stock offering the former CU turned bank might want to hold. “I haven’t decided whether or not I will do that, but I might,” Umholtz said. He said he joined the credit union by joining a foundation but said he couldn’t recall what the name of it was. Members of the DFCU Owners United organization have contended that financial speculators have been joining the credit union by making donations to the Judson Center, an effort to help abused and neglected children in Southeastern Michigan. The credit union has not yet commented on whether that membership avenue exists or not. [email protected]