As a result, DFCU Owners United embarked on a petition campaign and gathered more than the 500 signatures required under DFCU Financial’s bylaws to call for a special meeting to remove the board. DFCU Financial refused to call the meeting, which led to three credit union members to take the matter to court.
It’s taken the state court 18 months to hand down a ruling, and in that time most of the directors who had voted to convert to a bank are either no longer on the board or have been reelected by the membership to continue to serve.
One of the key questions the situation raised was who enforces credit union bylaws. The federal courts and NCUA said they didn’t have authority over bylaws, so the case went to state court, with Wayne County Circuit Court Judge Cynthia Stephens’ determining the issues come under the Michigan Business Corporation Act (see related story).
“This lawsuit sought to protect the rights of all DFCU members by holding their board of directors accountable for following and enforcing their own bylaws, specifically the by-law that requires DFCU to hold a special meeting when petitioned by its members,” DFCU Owners United said in its statement.
“DFCU Financial is disappointed by and disagrees with Judge Stephens’ decision, which fails to take into account events that have occurred since the lawsuit was filed in 2006,” the credit union said in its statement. “In particular, eight of the nine directors named in the recall petition have either resigned or been reelected by the membership since 2006.”
The DFCU Financial case has ramifications for credit unions beyond Dearborn, Mich., which is why it’s been the subject of much interest.
“A credit union must follow its bylaws,” said Jim Blaine, CEO of State Employees CU in Raleigh, N.C. “Members deserve reasonable access (to credit union records).” Blaine, who is also one of the founders of the National Center for Member Trust, said the hoopla over credit union conversions to bank charters all comes back to member ownership and member rights.
“The Center is not against conversions, as some have suggested–though I, personally, am against conversions,” Blaine explained. “But we need to establish a fair and reasonable process for credit unions that are looking into other charter options. The way it’s going right now, every one of these is a fight, and the combatants on both sides come out pretty well beaten up, and that’s not good for anyone. It’s embarrassing to all of us that credit unions end up in the press slugging it out with their own members
“Members should be able to convert their credit union if they want to, but we need to set up an appropriate process for charter review and define what information should be made available and when and how it should be made available. There just needs to be a safe harbor.”
While NCUA holds fast to the need for it to take bylaws enforcement in hand, NASCUS suggested that state courts are the most appropriate venue for this debate, NASCUS SVP-Regulatory Affairs Brian Knight told Credit Union Journal. But there is a bigger issue at stake. “I haven’t read the court ruling, but based on what has been reported, this sets the precedent that a credit union’s bylaws do form a contract between the institution and its members.”
