'Know What You're Giving Up'
The Michigan Credit Union League has launched an awareness campaign to ensure members of Lake Michigan Credit Union know what they will be "giving up" should they vote in favor of its conversion to a bank.
From Nov. 8 to Dec. 8, the CU's 105,000 members are being asked to vote on whether their $1-billion credit union will become a for-profit mutual savings bank, making it the largest conversion of its kind ever attempted.
Michigan's governor has also expressed concern over matters at LMCU.
"Because of this extraordinary conversion taking place, we decided to run some full page ads for the next few weeks so members will know what's in it for them," explained Dave Adams, president/CEO of the Michigan Credit Union League.
MCUL's first full-page advertisement titled, "Before You Let Them Turn Your Credit Union Into a Bank, Know What You're Giving Up," touts better rates, superior service and equal voting power for CU members. It also states "a stock-owned bank will focus more on maximizing shareholder profit and less on customer service."
The ad debuted in the Grand Rapids Press on Nov. 7, a day before the voting process was to commence, he said.
The MCUL has also created a website, www.memberinform.org, that includes specifics on how conversions in general effect voting power and interest rates, and provides a phone number for more information. It also includes a list of questions members should ask themselves before giving their CU permission to make the switch.
Lake Michigan CU's recorded telephone menu also includes an option for members who have questions about the conversion.
Adams said that while league officials "are not accusing LMCU of breaking the law," they have serious concerns about the process. Among them, he said, are Lake Michigan CU's disclosures that only highlight the positives of the conversion. Adams said the league is also troubled by the use of cash and prizes to lure favorable votes. The CU's website and newsletter show a sample ballot offering a chance at a three-year lease on a 2005 Cadillac CTS or SRX or one of five $1,000 prizes for votes received by Dec. 8. But conversion consultant Alan Theriault, who is working with LMCU, noted that door prizes and other drawings are a time-honored tradition at credit union annual meetings. Theriault told The Credit Union Journal that the idea behind the cash and prizes being offered is to generate greater participation in the voting process and pointed out that members who vote are eligible to win the prizes regardless of which they vote on the conversion.
Disclosures 'Not Fair And Balanced'
"The voting process is supposed to be fair," he said. "We think there should be a prohibition on the prizes that could buy the type of vote the CU wants."
Adams added he does not think the disclosures are "fair and balanced."
"They don't mention the loss of tax exemptions which will increase costs for the (institution) and put pressure on rates and fees," he said. "And rather than telling them what will happen to members unless they convert, we think they should be telling them that it could have some (adverse) effect on pricing of the services."
In addition, he said, the league has concerns about how the law is being interpreted in this case.
"Michigan law says conversion is not supposed to take place if there is economic benefit to officers or directors," he said. "But the disclosure states that six months after this conversion, the directors will be compensated."
Michigan's governor's office is also getting involved.
Liz Boyd, a spokesperson for the governor's office, said Gov. Jennifer Granholm has her own set of concerns about the process and is encouraging "credit union members to look very carefully at this issue before they vote."
"It is entirely possible that this is a process that the Governor will recommend changes to in the future," Boyd said. "We know the history of credit unions. We know their overriding concern is for their members and service to their members. We're hoping everyone will keep that in mind as they vote on this issue."
Officials with Lake Michigan Credit Union did not return calls for comment from The Credit Union Journal. But officials did speak with the Grand Rapids Press, stating they were not happy with the league's "interference" in this matter "between us and our members." President Sandy Jelinski told the newspaper she believes the league is trying to confuse people.
"I would assume that the credit union is not happy for what they perceive to be meddling on our part," said Adams. "But trade associations have a role to play. The fundamental role of our trade association is to see that the charter is protected."
Adams said he wanted to make it clear that this issue is not one of banks vs. credit unions.
"We're not suggesting that banks are bad," he said. "Anytime there is a conversion from a cooperative non-profit to a for-profit stock bank, there needs to be serious consideration by these members to fully understand the differences."
Topping the list is the fact that for-profit institutions focus on stockholder benefit thus price products and services higher.
Adams noted that Lake Michigan Credit Union has been saying it needs to convert to a bank in order to grow and add more services.
"They are telling their members that they are going to be able to grow faster and offer a lot of different services," he said. "Well, we don't feel the CU charter is limited at all in growth or consumer service offerings. We can offer just about any service and serve any market."
Adams said the trade group is not disputing the members' right to convert, but expects that they should have all the facts before casting their ballots.
"The MCUL recognizes the importance of member votes on important governance matters pertaining to credit unions," Adams said. "It is the right and responsibility of credit union members to determine whether their 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 members should make the decision by casting a well-informed vote."