KENSINGTON, Md. — In a surprising change of course the $320 million Lafayette Federal Credit Union has withdrawn its application to change its charter to that of a mutual bank.
The CU ended a week of intense speculation on Friday, Jan. 12 when it posted a press release that announced the charter change withdrawal and blamed its accounting firm, RSM McGladrey, for having to make the withdrawal. "We are deeply disappointed that the integrity of the balloting process has been irredeemably compromised due to errors by RSM McGladrey in the tabulation process," the credit union said in the press release. "In the opinion of the Board, these errors make it impossible to confidently ascertain the will of the membership." The board has terminated the services of RSM McGladrey.
"Due to the closeness of the vote and the errors that were made by the inspector of election, the Board is doubtful that a new third party inspector of election can provide unqualified certitude to the Board in order for the credit union and its membership to be confident of the final outcome. As a result, the Board has determined to terminate the Plan of Mutual Charter Conversion," the CU added.
Previously, McGladrey had certified voting results that showed only 18 votes, or less than one-half of 1%, separated the winning supporters of the conversion from the opponents. That certification was withdrawn after NCUA raised questions that members had sent to the agency about how the balloting had been conducted.
For its part, RSM McGladrey has remained quiet about the controversial tabulation. At first all the accounting firm said was that "in respect to our clients' privacy, our policy is to not discuss the details of our work, and we are unable to provide any specifics regarding this situation at this time," adding in a prepared statement, "We are committed to quality and integrity in everything we do. We will provide additional information as we are able."
Later the firm clarified its statement by adding details about the timeline of events, which suggested that the CU had never allowed the firm to complete the recount of the close vote.
The timeline of the accounting firm's last statement says that McGladrey withdrew its prior certification of the voting on Jan. 5 and notified both the credit union and NCUA, promising to complete a recertification by Jan. 12, but that it never got the chance to finish the recertification process.
"Lafayette Federal Credit Union's CEO and counsel subsequently instructed RSM McGladrey to cease activity on the recount until further notice," the accounting firm said.
"RSM McGladrey has been, and will continue to be, cooperative in responding to inquiries from the National Credit Union Administration. We are committed to quality and integrity in everything we do."
So far, the credit union has said nothing about the ballot recount other than its previous statement, which blamed RSM McGladrey for the errors that, the CU said, forced it to withdraw its charter change application.
Reaction to the announcement has been low key as the somewhat unresolved ending to the question of which side, ultimately, won the vote seems likely to go unanswered.
Predictably, The National Cooperative Business Association showed pleasure in Lafayette's decision to withdraw the application.
"[Members who opposed the conversion] deserve tremendous credit for rallying other members against the plan, for contacting regulators about problems with the vote, and for launching a petition drive to recall the board," said Paul Hazen, president/CEO of NCBA. "Without the loyalists, the board might have succeeded."
Hazen said the Lafayette experience should serve as a warning to other credit unions being wooed by conversion consultants. Boards may be tempted by talk of stock deals and windfall profits, Hazen noted, "But the members will have the final say. And conversion to a stock institution is never in their best interest."
The Maryland and D.C. Credit Union Association would only wish the CU well in its continuing work as a CU and noted that Lafayette had not officially responded to the questions NCUA asked about the voting.
As has happened in other credit unions, members who opposed the charter change vowed to keep up their petition drive for a special meeting at which some or all of the credit union's board could be recalled.
Such a petition would require at least 700 signatures and the members said they were steadily drawing closer to the goal even though tensions around the effort have reportedly risen. The Washington Post reported that Scott Steins, a member who works at USAID, was ejected from the CU's branch in the Small Business Administration headquarters for trying to collect signatures on the petitions.
Absent the petition, it's unclear what will happen next. John McKechnie, NCUA's Director of Public and Congressional Affairs, has said only that the agency has had no contact with Lafayette after the CU said it was withdrawing the application. Since the application has been withdrawn, it is unclear that the CU will ever have to answer members' questions about how it conducted the conversion balloting.
The CU said only at the end of the press release that it will continue to operate as an FCU and does not look for any change to its operations.
"Lafayette remains a strong, secure financial institution with a dedicated staff that has the ability to quickly adapt to the ever-changing operating landscape. We will work closely together to ensure that Lafayette continues to thrive," the CU said. –dmorrison@cutimes.com
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