ROBERT KIMMETT
‘An overhead factor’
Five years after legislation paved the way for them to do so, credit unions are still filing for permission to expand their individual membership eligibility and have grown more knowledgeable on what the Division of Banks will allow for credit union membership expansion.
“The decision to file for an expanded [membership] charter is very much an individual decision from credit union to credit union, depending on the individual circumstances of that credit union,” said Robert Kimmett, senior vice president of public relations and marketing for the Massachusetts Credit Union League. “Simple matters of economic necessity and efficiency are taken into consideration. When you think about what it takes to run a modern financial institution and the solutions like online banking and credit cards, there is certainly an overhead factor involved that exceeds traditional spending limits.”
Kimmett said the need for additional revenue in order to provide credit union consumers the best products and services available is a top reason for filing an application for expansion. He stressed, however, that extending the limits of the credit union region does not mean the credit union is giving up its core principals.
“The people who operate the credit unions truly believe in the principles behind those credit unions. They are providers of high-quality, low-cost financial solutions. They see that it is a matter of benefit to be able to extend that,” said Kimmett. “Credit unions, being nonprofit cooperatives, when they need to generate capital have to take that from reserves – so when the credit union looks for additional investors or partners, they come in the form of adding additional members or owners. That is how credit unions are going to grow their business.”
Also, due in part to state and federal legislation, credit unions have been given the go-ahead to expand membership qualifications to members’ families in different regions of the state.
‘Radical Shifts’
In 1996, a federal injunction was filed to stop credit unions from signing on new member groups. Two years later, the Credit Union Parity Act was passed, easing the membership restrictions, and Massachusetts passed laws increasing the upper limits allowable for mortgage loans at credit unions.
Also in 1998, the Credit Union Membership Act was passed, giving credit unions the freedom to expand their memberships despite strong opposition from banks. In the past five years, credit unions have taken the opportunity to file for expansion – and recently, the line of how far credit unions can push their applications for membership expansions with the DOB, the regulatory body that oversees the operating functions of banks and credit unions, has become clearer.
The most recent applications were filed by Energy Credit Union in West Roxbury, which requested permission to expand its membership eligibility to include persons who live or work in Suffolk and Norfolk counties and the Middlesex County communities of Bedford, Belmont, Billerica, Burlington, Lexington, Lincoln, Newton, Waltham, Watertown, Weston and Woburn.
In a separate application, and for comparison purposes, Members Plus Credit Union in Dorchester and Postal Community Credit Union in Boston requested permission to expand its membership eligibility to include residents, employers, employees and members of fraternal, religious, civic or social organizations having their principal place of business, employment or assembly within Middlesex, Norfolk, Plymouth and Suffolk counties – a move one local attorney said is too bold for any credit union.
Stanley V. Ragalevsky, a partner at the Boston law firm of Kirkpatrick & Lockhart who represents banks and other financial institutions, said that the state is not necessarily hesitant to grant membership expansions, but in some cases, the envelope is pushed too far.
“Postal [Community Credit Union] is controversial because they want to expand to the five biggest counties in Massachusetts,” said Ragalevsky. “One of the reasons that credit unions like to add a geographic component is that it allows the credit unions to have family members and spouses as clients, and not just a person who works for a particular company. But most credit unions service in a particular area or town that they are based in, and they have the power to branch within 25 miles of their office under state law.”
When reviewing applications for credit union membership expansion, Senior Deputy Banking Commissioner Steven Antonakes said the DOB looks for “clarity of language, and the credit union’s ability to serve an extended or larger area and provide evidence of interest of others in the area to do business with the credit union.”
Credit unions have to be “realistic and look at what the policy is that is set by the DOB,” said Ragalevsky. “The DOB policy will allow multi-county geographic fields of membership, as long as there has been some showing of [customer] satisfaction … the credit union will make an effort to service those people in the geographical area.”
But since the initial days of credit unions wanting to expand their membership, there has been a competitive flair posed by banks in the area.
According to Ragalevsky, credit union membership expansion “doesn’t really hurt the banks.”
“Banks have issues with credit unions in the fact that credit unions don’t pay taxes, but the credit union that expands to its field of membership is not likely to have a monstrous negative effect on any surrounding bank,” said Ragalevsky.
“When it gets down to the competitive issues, credit unions are offering very attractive rates and fees to our consumers because all the revenue is generated back to the member. In a stock-owned corporation, [the goal] is to generate revenue for the stock owner,” said Kimmett. “The thing to keep in mind is that the financial services industry has been evolving and growing and changing – we’ve seen radical shifts go on and it’s to be expected that credit unions are going to change, and that is driven by the member needs and the consumers of Massachusetts.”
Melanie Nayer may be reached at mnayer@thewarrengroup.com.
