Survey Number 2019-9

Background  

The Association wants to hear from you using the survey below on an advance notice of proposed rulemaking (“ANPR”) issued by the National Credit Union Administration Board at its April meeting on certain compensation in connection with lending. Please return the completed survey by June 3, 2019.

A copy of NCUA’s ANPR is here.

The agency is seeking comments on its current rule that prohibits, with some exceptions, federal credit union compensation to officials and employees regarding loans and lines of credit to members.  NCUA has acknowledged the rule has created confusion and is “likely outdated, burdensome, and at odds with industry standards.”

Confusion about the Current NCUA Rule

NCUA's regulation forbids direct or indirect receipt of a commission, fee, or other compensation by a federal credit union official or employee, or an immediate family member of either, in connection with a loan made by their credit union. There are four exceptions:  

(A)  Payment of salary to employees; 

(B) Payment of an incentive or bonus to an employee based on the credit union's overall financial performance; 

(C) Payment of an incentive or bonus to an employee or other senior management in connection with a loan made by the credit union, if the board of directors has written policies and internal controls and monitors compliance with such policies and controls at least annually; and 

(D) Receipt of compensation from parties outside the credit union by the credit union’s volunteer official or non-senior-management employee, or an immediate family member of a volunteer official or employee, for a service performed outside the credit union, as long as a referral has not been made by the credit union, the official, employee, or family member.

In particular, NCUA agrees that how interpretation of the term, “overall financial performance” in (B) above is confusing, and there has been uncertainty about the use of loan metrics such as aggregate loan growth to determine overall financial performance.

In light of the need to improve and update the rule, below are several questions taken from the ANPR or developed by CCUA to obtain your views so we can ensure our comment letter to NCUA reflects your concerns and suggestions for improvement.

PLEASE RETURN THE COMPLETED SURVEY BY JUNE 3, 2019. THE RULE APPLIES TO FEDERAL CREDIT UNIONS; HOWEVER, STATE CHARTERED CREDIT UNIONS ARE ENCOURAGED TO PROVIDE INPUT AND COMMENTS THROUGH THIS SURVEY AS WELL. THANK YOU.

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* 1. Do you agree that the current rule is confusing?

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* 2. Do you have examples of how this rule has limited your lending operations or otherwise affected your lending?

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* 3. What limitations, if any, are necessary to prevent credit unions from providing incentives to individuals to take inappropriate risks in the lending area?

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* 4. Is a NCUA regulation the best way to regulate in this area or would guidelines be preferable?

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* 5. Do you prefer a bright line test for permissible compensation over a regulaion which makes a more holistic evaluation of individual compensation plans and incentives?

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* 6. If a bright line test is preferred, how should it be structured?

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* 7. What authorities do credit unions need to compete for talented executives in the lending area?

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* 8. Should there be multiple standards for providing compensation in connection with lending, such as different standards for credit unions of different asset sizes?

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* 9. Have the terms and conditions of your credit union's compensation plans have been developed by the credit union itslef or by third-party vendors?

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* 10. Do you use a specific formula to determine terms and conditions of loan-related compensation and if yes, what is the general description of the formula’s approach?

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* 11. Do you know if your compensation plan is similar to, and competitive with, those provided at other financial institutions in your area? 

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* 12. Does NCUA's regulation contribute to differences between credit union compensation in connection with lending and that of other financial institutions?

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* 13. To what extent should NCUA permit loan metrics, such as loan volume, to be a part of compensation plans?

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* 14. How would you recommend that metrics be incorporated into overall compensation plans?

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* 15. Should 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?

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* 16. Please provide any additional comments on the NCUA's ANPR on employee compensation in connection with lending here:

THANK YOU FOR TAKING THE TIME TO COMPLETE THIS SURVEY BY JUNE 3, 2019. 
Please send any questions or comments to govaff-reg@ccua.org.

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