Last week at a meeting of the NCUA Board of Directors, the members voted 2-1 in favor of two proposed rules: one on incentive-based compensation and another a revised proposal on succession planning.
The incentive-based compensation rule addresses requirements laid out in the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was originally proposed by the board in 2016.
Per the NCUA’s press release: “The rule was adopted by the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency on May 6. The Board of Governors of the Federal Reserve System and the U.S. Securities and Exchange Commission have not approved the joint rulemaking yet. Once the notice of proposed rulemaking is adopted by all six agencies, it will be published in the Federal Register with a comment period of 60 days following publication. Until then, each agency acting on the proposed rule will make it available on their respective websites and accept comments.”
In a statement from NCUA Chairman Todd Harper, he said: “In just three days, we will mark the fourteenth anniversary of the enactment into law of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This rulemaking effort is about providing transparency and accountability. This regulatory effort will better focus the leaders of financial firms on the long-term health of the company instead of just their short-term personal gain. That’s good for the credit union system, and it’s good for our financial markets.”
The rule’s stated goal is first to prohibit incentive-based compensation arrangements that encourage inappropriate risks by providing excessive compensation or that could lead to material financial loss; and secondly to require covered financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate Federal regulator.
The second rule voted on covered succession planning, and was a modification of the original proposed rule from 2022, which upon further reflection and public comment, NCUA felt warranted changes.
“Under the revised proposal, boards of directors at federally insured credit unions would be required to establish written succession plans that address specified executive and other positions,” writes the NCUA. Board of directors will also be required to review the plan no less than annually, and the plan should address the credit union’s strategy for recruiting candidates for key positions.
“Succession planning is vital to the long-term success of any institution, including credit unions,” Chairman Harper said. “A credit union board’s failure to plan for the transition of its management and key decision-makers could come with high costs, including the potential for an unanticipated merger of the credit union when key personnel depart. In my view, it’s better to maintain many small credit unions serving a wide variety of purposes and niche markets than continuing to consolidate credit unions into ever larger institutions.”
And lastly, the Board voted 3-0 in favor of maintaining the current 18 percent interest rate ceiling for loans made by federal credit unions. The rule will be in effect for an 18-month period ending March 10, 2026.
Although the Federal Credit Union Act caps the rate on loans at 15 percent, the NCUA Board can set higher limits for 18-month periods if “interest-rate levels could threaten the safety and soundness of individual credit unions.”
