Closed CU Memberships Dwindle

June 13, 2005
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KENTWOOD — In light of recent events, West Michigan offers no better argument for open membership than Community West Credit Union, formerly Steelcase Employees Credit Union.

"Frankly, if you live in this area, you're aware of the problems Steelcase has faced," said CEO Charles Rea. "Steelcase is still a very important part of our membership and it always will be. But we needed to open up our membership. If not, it would have become increasingly difficult to serve our members."

Although Community West completed its conversion and name change in January 2004, it still lost 1,500 members last year. Since 2001, it has lost nearly 12 percent of its membership.

Only recently has it started to turn that tide.

It has attracted new partners like X-Rite and Ramblewood Apartments. Although essentially landlocked in Kentwood, its community charter allows it to draw from the five-county metro area. Free of the Steelcase definer, Community West has aggressively marketed its new name through radio and other media.

A special emphasis on technology has aided those efforts, Rea said. By making more services available through the Internet, it has lowered geographical barriers for its technology savvy members.

Further spreading its penetration, the credit union for the first time has established finance partnerships with automobile dealerships.

Last year, the Credit Union Modernization Act provided Michigan chartered credit unions greater flexibility in broadening their fields of membership.

Under the old state credit union act, credit unions that wanted to adopt a community charter had to demonstrate a common bond between the members it currently served and the members in the new community it wanted to begin serving.

The old law did not permit the mixing of membership fields. In other words, if an employer-based credit union wished to serve a community, if approved, it could no longer serve new members from its previous field of membership unless they had a sufficient connection with the approved community.

Of Michigan's 425 credit unions, 260 are state chartered, the rest federally chartered. According to the Michigan Office of Financial and Insurance Services (OFIS), 92 currently carry community charters. The community charter allows any individual who lives, studies, works or worships in that community to become a member.

Twenty credit unions made the change after the new law took affect, including Meijer Credit Union, Bell Com Credit Union, and Multi Product Credit Union in Grand Rapids

A great many more predate the law, some by only a few days, including Community West, Family Financial (formerly Sealed Power, SPX), FEDCom (formerly Grand Rapids Federal Employees), Howmet and Kent County Employees.

Federally chartered credit unions have followed suit; Stampers Federal Credit Union recently became Rivertown Federal Credit Union.

Like Community West, Family Financial adopted a community charter months before the deployment of the new guidelines.

"We needed to grow," said CEO Christine Val Aelst. "In order to offer our members the products they expect and the rates they deserve, we had to expand our membership."

Previously defining its membership by a long list of employee groups, Family Financial now draws from the five Lakeshore counties.

"The opening of membership has been going on for quite some time," said Michigan Credit Union League President and CEO Dave Adams. "There are certain economies of scale that any financial institution can benefit from."

Adams notes that some of the state's largest credit unions are still defined by employee groups, such as the Dow Chemical Employees Credit Union, DFCU Financial (Ford Motor Co.), and the State Employees Credit Union.

"Of course, it's rare to have a sponsor of that size," Adams said. "As a whole, community charters are better for the community. Only about 40 percent of the state belongs to a credit union right now. The more barriers that are removed, the better."

The only state-chartered community credit union among such company is Grand Rapids' Lake Michigan Credit Union. The $1 billion, 100,000-member behemoth is the product of the 2001 merger of four originally employee-based credit unions: Grand Rapids Teachers Credit Union, Health Care Credit Union, Alliance Credit Union and Saint Mary's Hospital Credit Union.

The rewritten law has led to just as many mergers and consolidations as charter changes. LSI Credit Union merged with Capital Community Credit Union last year, taking advantage of the law's new permission to market under two separate brands but function as a single entity. The merger created a credit union with a territory spanning the Lower Peninsula

Earlier this year, one-branch Family Financial acquired neighboring Oceana School Employees Credit Union. Spartan Stores Credit Union acquired K-V Credit Union last month. Federally chartered Credit Union One has swallowed half a dozen small credit unions across the state in the past year.

In the past three months, the number of state-chartered credit unions has shrunk from 260 to 257, according to OFIS.

In the face of such a trend, Lake Michigan Credit Union presents an interesting case. Last year, its attempt to restructure itself as a bank failed. As credit unions begin acting more and more like banks, can they still function as credit unions?

"If by behaving like a bank, you mean providing competitive services and products to its members, I can't imagine how that would be a negative," Adams said. "There should be more nonprofit financial institutions out there to serve the community, even at the expense of for-profit competitors."

LSI CEO Kurt Thelen agreed with Adams to some degree.

"There is still a difference in the way decisions are made," he said. "Credit unions aren't burdened with having to keep stockholders happy every quarter. They can make decisions based on what is right for their members."

After the merger, LSI Financial now has well over $200 million in assets.

"As we grow, however, it takes a certain degree of discipline to keep that mentality," he said. "It's tempting to look at assets and the bottom line, but you have to make sure everything you do has a benefit to members."

Adams took that view a step further, noting that beyond all else, the organizational structure of credit unions will always separate them from banks.

"Banks are run by people with an equity stake in stock but not necessarily membership," he said. "You don't have to put your money in a bank to own stock in it."    

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