STANLEY RAGALEVSKY
No enormous precedent
Postal Community Credit Union will file an appeal with the state Supreme Judicial Court seeking a favorable ruling on its effort to convert to a federally chartered mutual savings bank.
The announcement comes after a Massachusetts Appeals Court judge reversed a Superior Court decision on July 27. The appellate court decision bans Postal from converting from a state-chartered credit union to a federally chartered savings bank.
In 2003, a Superior Court judge ruled that because of state credit union parity statutes, Postal had the right to convert its charter to a federal bank despite opposition from the Division of Banks and the commissioner of banks.
The Appeals Court battle was between Postal and the Massachusetts commissioner of banks, who had filed the appeal under the leadership of former Commissioner of Banks Thomas J. Curry. The DOB said the credit union was looking for a fast way to make money and was not taking the best interest of its customers into consideration. Curry has since taken a position as director of the Federal Deposit Insurance Corp.
The credit union has argued that becoming a federal thrift would not negatively affect its customers and stated that becoming a mutual savings bank would allow the institution to improve its array of products and services.
‘A Unique Opportunity’
Postal, a $125 million institution located at Fort Point Station in Boston and founded in 1924, is a state-chartered credit union and its membership is strictly employee-based, offered to postal service employees and families.
“The PCCU membership has voted overwhelmingly to approve the conversion,” said William French, president and chief executive officer, in a prepared statement. “As a federally chartered mutual savings bank, we will be able to offer our existing customers, as well as new ones, a broadened array of products, services and benefits. Right now we are limited in the products we can offer our members in relation to other financial institutions. It will allow us to enjoy equal footing and compete alongside the megabanks of New England. We have a unique opportunity to expand our deposit base in the vibrant and growing business communities where we already serve our membership”
Postal said it is looking to also broaden its customer base, which it tried to do by also filing an application in June 2001 to expand membership to residents of Essex, Middlesex, Norfolk, Plymouth and Suffolk counties. The application is still pending with the DOB.
Massachusetts law does not allow a state-chartered credit union to convert to a federally chartered savings bank. However, such an institution may convert to a federally chartered credit union and subsequently transform into a federally chartered savings bank.
Although the appellate court decision could cause credit unions to rethink making a similar request, Stanley Ragalevsky, a partner in banking and financial services at Boston-based Kirkpatrick & Lockhart who is not involved directly with the case, said he does not think the decision will set an enormous precedent. Ragalevsky pointed out that credit unions can still convert to a federally chartered savings bank simply by undergoing a slightly longer process.
French said the credit union’s legal advisors are currently considering a conversion from state-chartered credit union to federally chartered credit union and eventually to a federally chartered savings bank.
Ragalevsky said it was surprising that the Superior Court judge favored Postal in the first place.
French said becoming a publicly traded bank is the “second step,” once it is converted to a federal savings bank. However, he added, that step is subject to regulatory and membership approval.
French said the credit union’s intentions to possibly go public in the future were disclosed to the credit union’s membership.
‘Full Disclosure’
Disclosure has been a significant topic for both the National Credit Union Administration and the Division of Banks.
In November 2003, Curry sent a letter to the NCUA supporting its proposed rule governing the conversion disclosures and voting procedures of insured credit unions to mutual savings banks.
“The division strongly supports the concept of providing full disclosure to credit union members of the ramifications of a conversion to a mutual savings bank, particularly how such a conversion will impact their existing ownership and voting rights as credit union members,” the letter read. “Given that the NCUA’s regulation is applicable to state-chartered credit unions, the division views the NCUA’s oversight role as crucial, particularly in the potential absence of applicable state oversight.”
Ragalevsky added that Postal, which has spent approximately $400,000 in legal costs, was perhaps trying to avoid approvals from the state and the NCUA and was looking to go directly to the federal Office of Thrift Supervision.
Postal already has held a pre-conversion conference call with OTS.
The Division of Banks said it is satisfied with the July 27 Appeals Court decision.
“We’re pleased with the court’s decision,” said Steven Antonakes, commissioner of banks.
Antonakes declined further comment, saying the battle between the DOB and Postal is an open matter, a reference to Postal’s appeal filed with the Supreme Judicial Court.
French called the entire matter “interesting,” noting that the Superior Court and Appeals Court both reviewed the “exact” same circumstances, but drew conclusions that were “180 degrees” apart from each other.
“We are hoping the Supreme Court will [now] review the matter,” said French.
Robert Kimmett, senior vice president of marketing and public relations at the Massachusetts Credit Union League, said credit union members may be at a disadvantage with a charter change.
“We feel members of a credit union are served better by a credit union with a credit union charter,” said Kimmett.
If Postal is successful in its appeal, it will be the first such conversion of a Massachusetts credit union.
