Well-Funded Group Forms To Fight Bids To Convert; Mich. CU Suing State League

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The organized credit union movement began to mobilize last week against the growing threat of conversions to mutual savings bank, as the size of the credit unions undergoing the controversial charter change continues to escalate.

The formation of the group came at the same time DFCU Financial Credit Union was filing a lawsuit against the Michigan league, claiming it was interfering in matters between the credit union and its membership related to its bid to convert to a bank charter.

A group of credit union executives raised more than $260,000 in a matter of hours during CUNA's Government Affairs Conference last week to underwrite what is being called the National Center for Member Trust, which has pledged to support an education and media campaign to oppose the conversion of DFCU Financial, and other credit unions seeking the charter switch (see related story, right).

Among the education the group hopes to provide is to highlight the financial rewards being earned by management and directors of the credit unions after they convert to mutual savings banks, then to publicly owned institution, according to Jim Blaine, president of North Carolina State Employees CU, and another organizer of National Center for Member Trust. He noted the various forms of remuneration earned by insiders in previous conversions, including stock grants, stock options, directors fees, and cash bonuses, all detailed in proxy materials filed with the Securities and Exchange Commission for those credit unions that have made the switch to mutual-then-to-stock.

The bid by $1.8-billion DFCU to convert is the biggest ever and follows two Texas conversions last summer by the $1.7 billion Community CU (now Viewpoint Bank) and the $1.5-billion OmniAmerican CU, which are the largest credit union-to-bank switches to date. Several other billion-dollar credit unions are reportedly preparing to change to bank charters in the near future.

But potential perils in backing opposition to a credit union conversions emerged last week as DFCU filed suit against the Michigan CU League for allegedly interfering with the conversion of the Dearborn, Mich., credit union. In the suit, DFCU, the league's largest dues-payer, said it believes the league is attempting to use its employees, who also happen to be DFCU members, 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, president and CEO of DFCU.

Officials with the Michigan league denied the allegations in the suit. David Adams, president of the league, insisted the league's involvement has been aimed at ensuring that members of the credit union receive fair and full disclosure on the conversion. "We encourage the DFCU officials to listen to their membership and respond," said Adams (see related story, facing page).

But Shobe said it was premature for the members to be shown the details of the conversion proposal, which he insisted will be laid out in member mailings as part of the NCUA-mandated balloting. "Once DFCU has completed the NCUA's regulatory process, it will mail to members all the information they should have to make an informed decision on the charter change," he said.

The escalation in the political and legal confrontations came as NCUA was notifying DFCU last week that it was approving the mail disclosures and ballots to be sent to DFCU's 165,000 members in three separate mailings. NCUA was satisfied that amendments the giant credit union had made to the member disclosures satisfied its rules and regulations. Among them were the prominent mention of the word 'bank' and the disclosures, which the credit union had strategically left out of the earlier proposal, calling the proposed new mutual savings bank a "savings institution," instead.

But NCUA also recommended that DFCU delay the mailing and the onset of the voting, which could commence with the first mailing, until the credit union's supervisory committee has resolved a member complaint over the process of last month's annual members meeting, where a majority of attending members voted by voice against the conversion. That complaint, filed with NCUA, was lodged by Linda Malec, the former chairman of the board of the credit union. Malec, along with former DFCU manager Donald MacKinnon and several other former employees, are spearheading the members group, DFCU Owners United.

Meantime, NCUA is reviewing several proposals to amend its conversion process that would facilitate more member involvement in the charter switch. Among them are a requirement that boards issue the proposed conversion to a period of public comment by members before they vote on the conversions; and establish a process by which members can communicate with each other to discuss the charter switch. The proposals are being formulated and are expected to be issued for public comment later this spring.

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