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Washington Mutual NSA Stalls for Revisions

Washington Mutual Bank and the U.S. Postal Service suspended proceedings on their negotiated service agreement until May 25, according to a document filed with the Postal Rate Commission. The parties want to review two recent PRC filings regarding other NSAs and revise their own.

On May 25, counsel for Washington Mutual and the USPS either will seek to extend the temporary suspension or will submit revisions to their NSA.

The postal service had filed for an NSA with Washington Mutual Bank on March 29 based on encouraging the company to increase its use of First Class mail. The USPS sought a three-year deal covering First Class Mail for the bank’s credit card services.

An NSA is a contract between the USPS and a company, providing customized pricing incentives based on the company’s mail operations. Changes in rates and mail classifications needed to implement an NSA require review and recommendation by the PRC and approval by the USPS Board of Governors.

Washington Mutual would get declining block rates for mailing First Class volumes above certain thresholds relating to its credit card products and credit services, the filing said. The USPS estimates benefiting by $46.3 million over the life of the deal.

Since this request was filed, the PRC has issued two opinions involving other NSAs, and the parties want more time to review those opinions to determine their effect on Washington Mutual’s NSA.

In one opinion, issued April 21, the PRC said it favored leaving a “stop-loss cap” in the NSA with Bank One Corp., a decision that disappointed the postal service. The USPS board had approved the deal Feb. 16, 2005, despite returning it to the PRC for reconsideration. The NSA took effect in March 2005. At the time, the USPS said that with the cap, Bank One likely would stop receiving incentives in the second year of the contract, depending on how volume changed.

“In Washington Mutual’s testimony, [the company] points out that the deal won’t work if there is a cap,” said Mike Plunkett, USPS manager, pricing strategy. “But after the Bank One recommendation, it looks like there is a very high probability of a cap.”

In another opinion, issued May 10, the PRC voted in favor of the postal service’s request for an NSA with Bookspan but said its decision was made difficult by the agency’s lack of an attempt to comply with regulations requiring mailer-specific cost and revenue data. The PRC also called the agency’s lack of independent analysis of Bookspan’s before- and after-rates volume estimates a serious flaw.

The Bookspan NSA has less of an effect than the Bank One decision, Mr. Plunkett said, “but clearly there are some recommendations in there that are relevant to any incentive-based NSA, so we are taking a look at that, too.”

Last week’s PRC filing regarding Washington Mutual also said that the bank had identified corrections to be made involving its presentation of historical volumes and that revisions are required to incorporate these changes. Mr. Plunkett added that the USPS is to update the analysis to reflect the new cost numbers built into the recently filed postal rate case.

Washington Mutual, Seattle, provides financial services for consumers and small businesses. As of Dec. 31, the company and its subsidiaries had assets of $343.1 billion. It operates 2,600 retail banking, mortgage lending, commercial banking and financial services offices nationwide.

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