The National Credit Union Administration (NCUA) Board convened its fifth open meeting of 2024, approving several significant regulatory measures. These include a proposed rule on incentive-based compensation and a revised proposal on succession planning. Additionally, the board decided to maintain the current interest rate ceiling for federal credit unions at 18 percent.
The proposed rule on incentive-based compensation was approved by a 2-1 vote and addresses arrangements as mandated under section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This section requires federal financial institutions regulators, including the NCUA, to issue regulations or guidelines for disclosure and reporting of compensation at institutions with over $1 billion in assets.
“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,” said NCUA Chairman Todd H. Harper. “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 re-proposed rule from 2016 creates a tiered system dividing financial institutions into three categories based on asset size:
- Level 1: Institutions with assets of $250 billion and above.
- Level 2: Institutions with assets between $50 billion and below $250 billion.
- Level 3: Institutions with assets between $1 billion and below $50 billion.
As of Q1 2024, there are no federally insured credit unions in Level 1, two in Level 2, and 441 in Level 3. The Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA), and Office of the Comptroller of the Currency (OCC) adopted this rule on May 6. The Board of Governors of the Federal Reserve System and U.S. Securities and Exchange Commission have yet to approve it.
In another decision, a revised proposal requiring boards at federally insured credit unions to establish succession planning processes was also approved by a vote of 2-1.
“Succession planning is vital to the long-term success of any institution, including credit unions,” Chairman Harper stated. “A credit union board’s failure to plan for transition could come with high costs... It’s better to maintain many small credit unions serving various purposes than consolidating them into larger institutions.”
The revised proposal mandates written succession plans addressing specified executive positions that must be reviewed annually or according to an established schedule.
Additionally, maintaining an interest rate ceiling at 18 percent for loans made by federal credit unions was unanimously approved for another term from September 11, 2024 through March 10, 2026. An analysis by NCUA staff concluded that this rate ceiling allows sufficient management capabilities while protecting member access to safe credit without additional workload or costs.
Follow @TheNCUA on X for updates on Board Action Memorandums and NCUA rule changes accessible at www.ncua.gov.
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