The $1.1-billion Lake Michigan Credit Union here will not convert to a mutual savings bank after it failed to gain the necessary two-thirds vote from members.
In the wake of the vote, one person was describing Michigan's laws on conversions as "unreasonable," while the Michigan league was promising it will seek tougher disclosures on future conversion attempts.
In any other state, Lake Michigan Credit Union's conversion attempt would have been considered a victory with 60% of its voting members in favor of the plan, said Alan D. Theriault, senior advisor of CU Financial of Portland, Maine, who has been involved in most of the cases where credit unions have converted to bank charters, including the attempt by LMCU.
"The will of the membership was to do this but... (Michigan) set the bar too high," said Theriault. "The law is more designed to discourage credit unions to make this move. The supermajority vote is unreasonable."
The results of the credit union's year-long campaign and month-long vote that culminated on Dec. 8 with a special member meeting showed that 60% of just over 35,000 members who cast ballots vote din favor of the proposal.
"That's a strong majority in favor," Theriault said. "All in all, they would have to be encouraged.
In any other state, he said, that simple majority would have been enough. "Unfortunately, Michigan law required it get a two-thirds majority or 66%."
Officials with Lake Michigan Credit Unions did not return phone calls from The Credit Union Journal. However, in a recorded message offered to members, an unidentified spokeswoman noted the count was 2,400 votes shy of conversion success. "We will look at ways to stay competitive in the existing business model," she stated.
The good news, the recording added, was that "Winners of the prize drawing will be announced after they have been contacted."
To lure votes, the CU offered cash prizes of $1,000 and a chance at a three-year lease on a Cadillac, a ploy that bothered Michigan Credit Union League President Dave Adams.
"It wouldn't be unfair to assume that the 60% threshold was attained in part by the use of the prize offerings and other promotional efforts to encourage voting," he said. "The membership almost lost something extremely valuable as a result of this flawed conversion process."
Adams said while 60% may sound impressive, the reality is that only 21,000 members or about 24% were in favor of the conversion. Lake Michigan CU with $1.1 billion in assets has about 105,000 members, 88,000 of whom were identified as eligible voters. The Michigan Credit Union League launched an awareness campaign during the voting period that included three full-size newspaper ads and a website to "help members make informed votes."
With the results in, Adams said, MCUL plans an aggressive push for regulatory changes that address "profound concerns" about the current conversion process that, in Lake Michigan Credit Union's case, included disclosures that only highlighted the positives of the conversion and its use of cash and prizes to lure favorable votes.
"We certainly recognize the right of credit unions to convert if they so wish, and the officials of Lake Michigan Credit Union apparently complied with every request of the regulators overseeing the conversion attempt," Adams said. "We do feel, however, that both the regulator and the regulated need to work together to ensure that members receive balanced disclosures and that the voting process is fair and proper in the future."
Theriault said he thinks the outcome will prompt more credit unions to seek legislative support for laws that support "free market principles."
"If their trade associations or some factions of their trade associations are against this, the credit unions out there need to be a little more vigilant when this gets discussed," he said.
Theriault said the total count "really ratified what we knew to be true-members would generally be in favor of a conversion."
Of course, he said, he would have much preferred a win, but from his standpoint as a conversion consultant, he doesn't expect the result to effect other credit unions considering similar paths.
Lake Michigan Credit Union officials earlier said the conversion was necessary to maintain its high service levels, high interest rates on deposits and low loan rates. "I certainly don't think this is going to discourage other credit unions from going down this path," Theriault said. "It's still a viable option."
While Theriault said he knows of two other credit unions that gained member support for conversions following a second attempt, he doesn't know whether Lake Michigan CU will continue to seek to convert.
"As far as I know, Lake Michigan Credit Union is planning to continue to operate as a credit union and make the best of what the charter permits them to do. Unfortunately, an institution should be governed more by its business plan than a limited charter."
