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Well that’s it. DFCU Financial’s board and management caved into member pressure and pulled the plug on their attempt to convert Michigan’s largest credit union into a bank. Hooray, hooray, hooray – high fives were probably happening all over the credit union industry. It was great to see the issues and story play out in the press so that more of DFCU’s members could hear both sides of the story. But there are still a lot of loose ends to tie up with this conversion and the conversion issue in general. Let’s start with DFCU. The problem I had from the beginning was I could not and still cannot see the benefits for members. The credit union cited the economically depressed Detroit area and problems with the region’s vital automobile industry for spurring the conversion. The credit union’s numbers somewhat reflect the downtrodden area with loan growth at 5%, below the 12% of its peers; and asset growth of 5.5%, below the 9% of its peers. But this is a healthy credit union with over 12% capital, 1.85% return on assets, and miniscule delinquencies and charge-offs. It is a $1.8 billion CU, not a small CU struggling to get to an asset size where it can ensure that it survives. This is not a CU that has to grow 20% a year. The CU has consistently said it is converting for the good of the members and to grow and expand, but how? What will the bank charter give it that it doesn’t have now? It hasn’t scratched the surface of business loans, so it can’t be concerned about running up against the member business loan cap. It can certainly broaden its field of membership with a community charter. It is in a state with one of the most liberal FOM regs in the country, but it’s yet to go that route. It has plenty of capital, so it’s not as if it needs to issue stock to build a branch or get into a new product line. Before we all get carried away with the implications of DFCU’s failure on future conversions, and I think there are many, no one should forget that the reasons for the conversion were never sound, or management did a terrible job articulating them. DFCU Financial CEO Mark Shobe was quoted very shortly after announcing the conversion was dead that the credit union could “survive and thrive” as a credit union. That speaks volumes about the flimsy reasons behind the conversion, unless of course the real reason was greed. Speaking of management, it also claims that the regulations would not let it adequately communicate its intent with members. That’s not true. The CEO and the board can say virtually whatever they want about reasons for converting, but they decided to stonewall the press and members. The credit union looked very arrogant during this entire process. It is never a good idea to shun the press and appear above reproach when trying to win the favor of the public, especially in the blue-collar Detroit area. Forget a conversion consultant, what DFCU needed was a PR consultant because they did just about everything wrong in the public forum. Think about some of the recent corporate credit union mergers where the corporates held town hall style meetings with affected CUs to address any concerns. There was nothing stopping DFCU from holding an informational meeting about the conversion, but instead of acting in the credit union spirit they took a CIA mentality and put up walls. Members were outraged that the first they heard of the conversion was when the ballot arrived. That arrogance continued throughout the process. DFCU also made another fatal mistake when it sued the Michigan CU League. Dumb move. They claim league employees using league e-mail were advocating against the conversion. What if they were? That doesn’t change the issues at hand, it just made the CU look even more arrogant and wasted more of members’ money. Shortly after the two billion dollar Texas CUs converted and the DFCU conversion was announced, I stated in a column that any conversion attempt could be shot down with good PR. I stand by that. This DFCU story got out there. It became a true “story” in Michigan papers. That’s what has to happen, otherwise converting credit unions dictate all the terms. But it was more than PR. There was also a spirited member group opposing the conversion and the Michigan CU League’s position against the conversion was clear from day one. Kudos to league CEO Dave Adams for his role. Adams was criticized from all sides. Even some of his own board members said it was not his position to get the league involved, but Adams stayed on course. Why shouldn’t a league get involved if they think the conversion is not in the best interest of members? If Adams started advocating for the removal of charter choice, then he’d be out of line, because all CUs should have options, but he didn’t. Ironically, it may have been a credit union vendor’s policy on CUs that convert to banks that broke DFCU’s back. The CO-OP Network, which runs the largest credit union-owned electronic funds transfer network, would not allow DFCU to participate in its shared branch network after conversion. DFCU told members in the disclosure packet that it was trying to seek the necessary approvals to stay in the network, something that Shobe, a CO-OP board member, had to have known was against CO-OP’s policy. That seemed to be a disingenuous move on the CU’s part. Members need to know if they are going to lose access to any branches post-conversion. Again, more arrogance. All these arrogant moves may lead to the ousting of the board and the firing of Shobe. The members are still pushing forward with a special meeting to remove the board. Now the members are dictating the action, not the CU. Lots of irony here. Unfortunately NCUA has become an easy target on this issue, and that is flat out wrong. NCUA acted with the utmost integrity during DFCU’s conversion attempt, and if anything, should have drawn praise from Congress. Do lawmakers want NCUA to just let converting CUs do whatever they want? NCUA did nothing but enforce the regs on the books and for that they were hammered, a shame. Readers will notice on page 17 a lengthy opinion piece by Marvin Umholtz, who is membership director of the Coalition for Credit Union Charter Options. Some readers have criticized me for giving Umholtz so much ink on the conversion issue. Come on folks, can’t you see the bigger picture? Marv (who I think is a very nice gentleman despite his whacky views) is a straight shooter and he speaks from the heart. He is giving credit unions a window into what the proconversion minds out there are thinking. So instead of fuming when you see Marv’s name, think of it as spying on the enemy- learn from it. You should have no problem reading Marv this week given he was on the losing end. Sorry Marv, but I think you chose the wrong team in the conversion game. The good that has come from this story is the credit union industry is wide-awake to the conversion threat. The industry is in a much better position to react to conversions wherever they crop up. Thanks to a few venerable credit union CEOs there’s also a new group in place, bringing in more money every day, to advocate for the CU charter. The National Center for Member Trust is just what the industry needs to counter the wild claims coming from the Coalition of CU Charter Options. But please credit unions, do not roll around in the muck with these people. They use inflammatory language and outrageous claims to get noticed, but the credit union industry needs to stick to the message. Credit unions exist to benefit all of their members, and those members are owners. Member ownership cannot be thrown away to benefit a few insiders. -

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