Court Halts Massachusetts' First CU-To-Bank Conversion
The Bay State's first conversion of a credit union to a bank was stalled indefinitely by a state appeals court, even after members of Postal Community CU voted overwhelmingly for the unprecedented charter change.
The stay ordered by the appellate court will allow the state Department of Banking to argue its case later this month that the conversion of a state- chartered credit union to a mutual savings bank is prohibited under state statute.
The credit union conversion and member vote was facilitated by last February's ruling by the lower court, the Suffolk Superior Court, overturning a draconian administrative order issued by the banking department that prevented the board of directors of Postal Community CU from pursuing the disputed charter change, or even discussing it during board meetings.
The rare order barred the credit union from taking any action to change its corporate structure, or communicating to members or holding any meeting of the board or management without written approval of the state regulator.
The administrative order also would have required the $150-million credit union to report to the banking department very month on its compliance with the directive.
The lower court ruling overturning the administrative order freed up the credit union to pursue the conversion undertaken by a growing list of credit unions, now numbering almost 30.
But the state regulator appealed the lower court ruling, arguing that the state statute prohibited the conversion move, according to Joseph Leonard, general counsel for the Department of Banking.
While awaiting a court hearing on the appeal, Postal Community CU not only completed the application process with federal regulators, but also the member ballot, which was approved by almost two-thirds of voters, according to Leonard.
However, a stay issued by the state appeals court will stall certification of the conversion until a hearing scheduled for later this month.
Based on the court order, NCUA, in a Nov. 26 letter to credit union officials, refused to certify the vote because of the pending court hearing.
Officials with Postal Community CU could not be reached for comment.
The battle between the credit union and regulators stems back to a 2001 bid by the credit union, formerly known as Boston Post Office Employees Credit Union, to expand its field of membership to cover more than half of the Bay State.
The regulators dragged their feet on the request, which is still pending, more than two years later.
The inaction prompted the board to explore a conversion to a mutual savings bank.