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PLYMOUTH, Mich. – With $1.7 billion DFCU Financial FCU in the midst of converting to a bank, Michigan CU League CEO Dave Adams is at the epicenter of what has become one of the industry’s biggest challenges – bank conversions. You won’t find him giving cagey responses about where he stands on the conversion issue. In recent conversions, league leaders have often taken an “it’s up to the membership” approach, and have not said much more publicly about conversions. Adams believes very strongly that it’s up to the members, but he also thinks that the credit union charter is the best charter for consumers and that if they are provided all the information, members will ultimately vote against conversions. Overall, Adams has been more vocal about his views, something that could be politically dangerous. Adams is bolstered by a study the league did on its conversion policy that found 88% were in support of the policy. “I think the vast majority of credit union folks do agree that there is a role for associations to play – to tout the credit union charter at every opportunity, and to encourage people to make well-informed decisions. There is also a role for trade associations to play to work with lawmakers and regulators to make sure the process is right,” said Adams. DFCU Financial isn’t the first large CU to attempt conversion. Just a few years ago Lake Michigan, another billion dollar CU, sought the change. It ultimately failed and the league was particularly active in trying to educate members, even taking ads out in papers. “Looking back at Lake Michigan, if I had said `gee this is too controversial’ and didn’t say anything, I can guarantee you that I would have had a lot of my members saying the league isn’t doing anything. We took a strong position, we pushed maybe a bit further than we maybe should have by running ads in the Grand Rapids market to make members informed,” said Adams. Adams has come under fire from a few CEOs in Michigan who believe he needs to let CUs make their own decisions. His harshest critic is Unity One FCU CEO Dennis Moriarty, who said Adams is trying to be a “savior” and that just isn’t needed now. Moriarty wants the league and CUNA to work on improving the CU charter and let individual boards and CEOs make the decisions about the future of their institutions. “There are a few harsh critics out there. We are not going to buckle under. I am getting a lot more affirmation from the membership. They know how we handled Lake Michigan and they know how we’re handling DFCU. When I get a personal attack, that’s troubling to me, where I get my strength is in the 88% that support us. I feel like I’m representing my league properly,” said Adams. While Adams said he believes almost all Michigan CU League members support what he is doing, he noted he does get cautious e-mails from them. Adams said he would never disparage leaders of CUs that seek conversion – that would crossover into too much of a direct intervention. “Then you lose support from the association’s membership. We’re touting the credit union charter, promoting its benefits. We want members to make a well-informed decision because so much is at stake,” he said. Dennis Hanson, CEO of Dow Chemical Employees CU in Midland, Michigan said he agrees with Adams that the credit union charter is the best for consumers, and that most CU leaders would agree with that. Hanson doesn’t think the league should try to stop conversions in Michigan because CUs do have the right to convert. “I don’t think he’s against conversions. Credit unions ought to have the right to choose their own destiny. Likewise, I would hope that members are fully informed, and make the best decision. I think it’s good to the extent that he’s talking about full disclosure and full information,” said Hanson. Patrick McPharlin, CEO of Michigan State University FCU, supports Adams all the way. “I absolutely support his approach, it’s one of those times you need to be a truth teller and tell people what the motivation is, that certain self-interests are involved,” said McPharlin. Not everyone is as supportive of Adams. Armando Cavazos, CEO of Credit Union One, thinks there is some hypocrisy going on here. He said all of a sudden the league is trying to step in and save the day when “choice” isn’t in their favor. “Remember the 1151 grassroots campaign. Everything was about choice and when it doesn’t fit, they’re getting involved. I think leagues should stay out of the fray,” said Cavazos. He also thinks the credit union community should have done a better job branding credit unions. “Leagues should have been educating consumers all along. If we did that years ago, we wouldn’t be where we are now. I think this a wakeup call to all of us,” said Cavazos. “The cooperative campaigns should have been done 20 years ago, not just because two months ago DFCU says it’s going to convert. It’s hypocritical.” He also has some issues with the league’s branding campaign. He said the league has dropped the budget this year to approximately $300,000. That’s down from a multi-million budget last year. “We’re big advertisers. We know what that will get. That’s not a serious campaign. Where is the consistent effort we were told about. We were duped.” Cavazos thinks the whole industry has a lot of legwork to do to educate the country on credit unions – once credit unions are a known entity, members can make better decisions when a conversion like DFCU comes up. Adams admits he is a bit perplexed by the DFCU conversion. “One of the tragedies in this whole process is transparency. The fact is they haven’t said much. The only thing we know is in the very limited media coverage with their FDIC filing when they talked about needing to expand their market and possible new powers.” With capital over 12.5%, Adams said DFCU can’t play the capital angle. He said the CU has shown no interest in getting into business lending, so there are no cap issues. He also doesn’t think an expansion argument holds water. “Michigan has the most liberal laws in the country with regard to field of membership. In our state act two years ago we were able to get explicit authority for multi-county charters. We redefined `community’ getting away from `well-defined’. We have a credit union that has been approved for 28 counties. There’s no legal reason they (DFCU) couldn’t seek an expanded charter.” State charters also benefit from the wild card rule where the commissioner can appropriate any powers to state charters that other institutions have. A members group, DFCU Owners United, has been formed by DFCU Financial members to try and get the word out about the implications of the conversion. Member groups have formed in other CU-to-bank conversion attempts, and they are often key for getting media exposure that makes the issue more public. However there is no national group in existence to help these member groups. This exists on the other side of the argument with the Coalition for Credit Union Charter Options, a group that advocates conversions. Adams believes a national group that could assist these small member groups could be invaluable in ensuring members are making an informed decision. Member groups need legal assistance for things such as interpreting bylaws, and that means they need funding, said Adams. These small groups are going up against high-powered consultants and credit union attorneys, and without some backing they face a tough challenge, he said. He had no position on how such a group should be formed. GTE FCU CEO Bucky Sebastian believes that the credit union industry needs to form and fund a group that can help small member groups opposing conversions. “I believe in democracy. If members have access to good information and they choose to do it, great. I don’t think people are getting both sides of the issue. Unless a group of members gets together and gets support from the credit union community, that won’t happen,” said Sebastian. He offered up the example of credit union mailings. He said it could cost thousands of dollars just to do a mailing, and it would probably require the help of a lawyer to obtain the membership list from the credit union. Member groups need the backing of a credit union industry group who could provide that kind of funding, said Sebastian. “They spent $1.5 million down in Texas (Community CU) telling their side of the story. At a minimum there should be a mailer to members telling the other side,” he said.He too believes in charter choice. “I think there’s a line between information and awareness and advocacy for the charter, and then interference with the operations of a credit union,” said Sebastian, who said media coverage in the local area of a converting credit union is also something that takes expertise and funding. Sebastian’s personal take on the DFCU Financial conversion is that there is no clear reason for conversion. He said the members should consider calling a special meeting and getting officials removed. “That’s democracy. They could fashion a case that the board is not acting in the best interest of the membership.” [email protected]

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