A Bonus Article from Amy K!
by Amy Kleinschmit
Chief Compliance Officer

The National Credit Union Administration (NCUA) is seeking comment on an advanced notice of proposed rulemaking (ANPR) relating to regulations limiting a credit union officials’ and employee’s compensation in connection with loans to members and lines of credit to members. This ANPR can be found here and comments must be received by June 24, 2019.

This ANPR is in response to the Regulatory Reform Task Force’s recommendations. In the Task Force’s report, the recommendation noted ‘‘provide flexibility with respect to senior executive compensation plans that incorporate lending as part of a broad and balanced set of organizational goals and performance measures.’’ 84 FR 16796

Currently 12 CFR 701.21 (c)(8)(i) provides, “Except as otherwise provided herein, no official or employee of a Federal credit union, or immediate family member of an official or employee of a Federal credit union, may receive, directly or indirectly, any commission, fee, or other compensation in connection with any loan made by the credit union.” 12 CFR 701.21 (c)(8)(iii) continues “This section does not prohibit: (A) Payment, by a Federal credit union, of salary to employees; (B) Payment, by a Federal credit union, of an incentive or bonus to an employee based on the credit union's overall financial performance; (C) Payment, by a Federal credit union, of an incentive or bonus to an employee, other than a senior management employee, in connection with a loan or loans made by the credit union, provided that the board of directors of the credit union establishes written policies and internal controls in connection with such incentive or bonus and monitors compliance with such policies and controls at least annually. (D) Receipt of compensation from a person outside a Federal credit union by a volunteer official or non-senior-management employee of the credit union, or an immediate family member of a volunteer official or employee of the credit union, for a service or activity performed outside the credit union, provided that no referral has been made by the credit union or the official, employee, or family member.”

Through this ANPR the NCUA is seeking comment on how it should modernize these regulations, specifically with respect to defining “overall financial performance” found within 701.21 (c)(8)(iii)(B) above. Additionally, the ANPR specifically requests comment on the following:

“• Is there a single industry standard or methodology for developing executive compensation plans? Are there multiple standards or methodologies for credit unions of different asset sizes?

• Are the terms and conditions of executive compensation plans developed by credit unions themselves or are the plans crafted by third-party vendors?

• What do these plans look like? Are there specific formulas employed to determine terms and conditions? If so, what are the formulas?

• Is the current structure of § 701.21(c)(8), namely a broad prohibition with specific exceptions, the best format for regulating this area?

• Do commenters prefer a bright line test for permissible compensation to regulations that make a more holistic evaluation of individual compensation plans and the incentives they provide? Is a bright line test even possible in this highly fact determinative area? If so, where is that line?

• Are current credit union compensation plans similar to, and competitive with, those provided at other financial institutions? If not, how do they differ and what, if anything, in the NCUA’s regulations contributes to those differences?

• What limitations, if any, are necessary to prevent individuals from being incentivized to take inappropriate risks that endanger their credit unions? What authorities do credit unions need to enable them to compete for talented executives?

• To what extent should the NCUA permit loan metrics, such as loan volume, to be a part of compensation plans? How would those metrics be incorporated into the overall plan?

• Should the NCUA provide additional requirements for compensation related to a line of business that is new for the credit union or one in which the credit union lacks substantial experience or expertise?”


Submit your comments either directly to the NCUA (directions are in the proposed rule) or send to Amy Kleinschmit to be included with our association’s comment letter.



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