[Federal Register Volume 84, Number 78 (Tuesday, April 23, 2019)]
[Proposed Rules]
[Pages 16796-16797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08166]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 84, No. 78 / Tuesday, April 23, 2019 /
Proposed Rules
[[Page 16796]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AE97
Compensation in Connection With Loans to Members and Lines of
Credit to Members
AGENCY: National Credit Union Administration (NCUA).
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The NCUA Board (Board) is issuing this advance notice of
proposed rulemaking (ANPR) to solicit comments on ways to improve the
agency's regulations limiting a credit union official's and employee's
compensation in connection with loans to members and lines of credit to
members. These regulations have generated confusion and are likely
outdated, burdensome, and at odds with industry standards. The Board is
particularly interested in obtaining commenter feedback on how it can
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.
DATES: Comments must be received on or before June 24, 2019.
ADDRESSES: You may submit written comments by any of the following
methods (Please send comments by one method only):
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
NCUA website: https://www.ncua.gov/regulation-supervision/rules-regulations/proposed-pending-and-recently-final-regulations.
Follow the instructions for submitting comments.
Email: Address to [email protected]. Include ``[Your
name]--Comments on Advance Notice of Proposed Rulemaking: Compensation
in Connection with Loans to Members and Lines of Credit to Members'' in
the email subject line.
Fax: (703) 518-6319. Use the subject line described above
for email.
Mail: Address to Gerard Poliquin, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
Public Inspection: You can view all public comments on the NCUA's
website at https://www.ncua.gov/regulation-supervision/rules-regulations/proposed-pending-and-recently-final-regulations as
submitted, except for those we cannot post for technical reasons. The
NCUA will not edit or remove any identifying or contact information
from the public comments submitted. You may inspect paper copies of
comments in the NCUA's law library at 1775 Duke Street, Alexandria,
Virginia 22314, by appointment weekdays between 9:00 a.m. and 3:00 p.m.
To make an appointment, call (703) 518-6546, or send an email to
[email protected].
FOR FURTHER INFORMATION CONTACT: Thomas I. Zells, Staff Attorney,
Office of General Counsel, at 1775 Duke Street, Alexandria, VA 22314 or
telephone: (703) 548-2478.
SUPPLEMENTARY INFORMATION:
I. Background
II. Current Standards and Request for Comment
III. Legal Authority
I. Background
In August 2017,\1\ the Board published and sought comment on the
NCUA Regulatory Reform Task Force's (Task Force) first report on
implementing the agency's regulatory reform agenda (Agenda). The Agenda
identifies those regulations the Board intends to amend or repeal
because they are outdated, ineffective, or excessively burdensome.\2\
The Board published the Task Force's second and final report in
December 2018.\3\ The final report contains the Task Force's updated
recommendations and a refined blueprint for implementing the Agenda.
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\1\ 82 FR 39702 (Aug. 22, 2017).
\2\ This is consistent with the spirit of the President's
regulatory reform agenda and Executive Order 13777. Although the
NCUA, as an independent agency, is not required to comply with
Executive Order 13777, the Board chose to comply with it in spirit
and reviewed all of the NCUA's regulations to that end.
\3\ 83 FR 65926 (Dec. 21, 2018).
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One of the Agenda's recommendations specifically suggested that the
Board modify its regulations to ``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.'' The Board recognizes that the NCUA's regulations in this
area, which were last updated over 20 years ago, are likely outdated,
burdensome, and at odds with industry standards for senior executive
compensation plans.\4\ As such, the Board is seeking comment on how to
update the regulations so that credit unions can offer competitive
compensation plans without encouraging inappropriate risks,
incentivizing bad loans, or negatively effecting safety and soundness.
While the Board is particularly interested in how the agency can update
its regulations to provide flexibility with respect to senior executive
compensation plans, it would also like comments on how the regulations
governing compensation associated with lending can be modernized
generally.
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\4\ 60 FR 51886 (Oct. 4, 1995).
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II. Current Standards and Request for Comment
Currently, Sec. 701.21(c)(8)(i) of the NCUA's regulations
establishes a blanket prohibition on the direct or indirect receipt of
any commission, fee, or other compensation by any credit union official
or employee, or an immediate family member of either, in connection
with any loan made by their credit union.\5\ However, Sec.
701.21(c)(8)(iii) carves out four exceptions to this blanket
prohibition. Specifically, Sec. 701.21(c)(8)(iii) permits:
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\5\ 12 CFR 701.21(c)(8)(i).
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(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
[[Page 16797]]
connection with such incentive or bonus and monitors compliance with
such policies and controls at least annually; and
(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.
In the past, credit unions have been confused about how to
interpret the term ``overall financial performance'' in Sec.
701.21(c)(8)(iii)(B). As noted, Sec. 701.21(c)(8) generally prohibits
most credit union employees and officials from receiving compensation
made ``in connection with any loan'' a credit union makes, but provides
exceptions, including one that permits incentive compensation to
employees based on the credit union's overall financial performance.
Credit unions have expressed uncertainly about whether the NCUA permits
loan metrics such as aggregate loan growth to be a factor in assessing
overall financial performance. They also have asserted that the
regulation is subject to varying interpretations and levels of
enforcement across the NCUA's regions.
Given the degree of confusion and uncertainty this regulation has
caused, the Board seeks comment as to how the NCUA should modernize its
regulations generally governing the compensation of credit union
officials and employees in connection with loans made by credit unions
and specifically with respect to defining ``overall financial
performance.'' In addition, the Board specifically requests feedback
addressing 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 Sec. 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?
III. Legal Authority
The Board has issued this ANPR pursuant to its authority under the
Federal Credit Union Act (FCU Act). Under the FCU Act, the NCUA is the
chartering and supervisory authority for federal credit unions and the
federal supervisory authority for federally insured credit unions
(FICUs).\6\ The FCU Act grants NCUA a broad mandate to issue
regulations governing both federal credit unions and all FICUs. Section
120 of the FCU Act is a general grant of regulatory authority and
authorizes the Board to prescribe rules and regulations for the
administration of the FCU Act.\7\ Section 207 of the FCU Act is a
specific grant of authority over share insurance coverage,
conservatorships, and liquidations.\8\ Section 209 of the FCU Act is a
plenary grant of regulatory authority to issue rules and regulations
necessary or appropriate to carry out its role as share insurer for all
FICUs.\9\ Accordingly, the FCU Act grants the Board broad rulemaking
authority to ensure that the credit union industry and the NCUSIF
remain safe and sound.
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\6\ 12 U.S.C. 1752-1775.
\7\ 12 U.S.C. 1766(a).
\8\ 12 U.S.C. 1787.
\9\ 12 U.S.C. 1789.
By the National Credit Union Administration Board on April 18,
2019.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2019-08166 Filed 4-22-19; 8:45 am]
BILLING CODE 7535-01-P