LMCU Faces Taxing Decision

February 13, 2004
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GRAND RAPIDS — Directors of Lake Michigan Credit Union should soon have a clearer idea of how their members feel about becoming a federal mutual savings bank.

The credit union’s 95,000 members have until Feb. 27 to get their thoughts to board members about making a charter change, one that would wipe out the organization’s tax-exempt status.

For years, LMCU has offered its members higher-than-average returns on money market accounts and certificates of deposits, lower-than-average interest rates on loans, and fewer fees than most banks. In fact, bankers have long complained that credit unions have been able to use their tax-exempt status to lure depositors with higher returns and lower rates.

So if LMCU makes the switch, will the change result in lower returns and higher rates for its members?

Not according to LMCU Marketing and Public Relations Director Richard Austin.

Austin told the Business Journal that LMCU has a highly successful automobile leasing business and that company has depreciation charges that it can’t write off because the credit union doesn’t file an income tax return.

“We have a depreciation factor every year, and we can do nothing with it as a nonprofit. That depreciation factor is going to … be a wash or we’re going to be ahead of the game,” said Austin of what the accountants have told management.

“We will probably pay very little tax,” he added. “We don’t plan on changing any of the ways we do business. We’re not going to reduce our staff and we have three new branches that we are going to open this year.”

Officials say LMCU is considering changing its charter because it has reached its pinnacle.

“Lake Michigan Credit Union has been successful to the point that the organization has developed up to the parameters of our current charter,” said Sandra Jelinski, CEO and president of LMCU.

“We have investigated the options available that will allow us to remain strong and have begun considering a conversion to a federal mutual savings bank,” she added.

LMCU was tops in earnings nationwide among 9,500 credit unions last year. The credit union had nearly a 42 percent gain in assets in 2003 and has grown nearly 300 percent since Jelinski took the reins a little over three years ago. Current assets top $950 million.

But members have to approve the switch for LMCU to become a mutual savings bank. If they do, the credit union would make up to 49 percent of the stock available to members first and then to the general public. A holding company would then be formed and would hang on to at least 51 percent of the stock.

With a change, a new LMCU would shed its territorial restrictions. It would be able to make loans to whoever qualifies, offer membership to any individual or business, and have branch offices throughout the state — and even across the country. Directors could also be compensated. The new entity would join the Federal Deposit Insurance Corp. after it withdrew from the National Credit Union Association.

Austin thought ballots on whether LMCU should become a bank would likely be sent to members in either late March or early April, depending on the number of comments that management receives this month. Members are then expected to have 90 days to return their ballots, which will be bar-coded and numbered.

“When these go to the CPA firm, they’re going to be hand-recorded and also scanned,” said Austin. “This way we can assure the integrity is there throughout the whole process.”    

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