Proposed regulations regulating incentive-based compensation punish credit unions and the NCUA has provided inadequate rationale for its rules.
Those are among the complaints by trade associations and credit unions sent in comment letters to the agency.
NAFCU President Fred Becker wrote that “there is virtually no justification for treating credit unions more strictly than other financial institutions.’’
He noted that it “simply does not make sense that the compensation arrangements at an $11 billion credit union should come under closer scrutiny than the compensation arrangement at a $49 billion bank or investment firm. Indeed, the recent evidence indicates that natural person credit unions generally require less regulatory oversight than larger, more complex institutions.”
NASCUS Senior Vice President Brian Knight and CUNA Assistant General Counsel Luke Martone echoed that sentiment in their letters.
Under the proposed regulations, large credit unions would have to file an annual report on incentive-based compensation programs and couldn't have any programs that encourage exposure to inappropriate risks.
Credit unions with $1 billion or more in assets couldn’t have programs that might lead to material loss, and have to document their compliance procedures.
Credit unions with assets of $10 billion or more would have to meet all those requirements and defer at least 50% of their incentive-based compensation for at least three years and adjust payments to reflect subsequent losses.
CUNA’s Martone noted that “no rationale has been provided by NCUA to justify a threshold for credit unions that is different from the one proposed for banks.’’
James Quinn, chairman of the $15 billion Pentagon Federal Credit Union, wrote that requiring only certain credit union executives to be subject to the withholding provisions is “to suggest that we are of less honesty and integrity than our banking brethren. There is no basis in fact for this.”
He also recommended the agency coordinate with the IRS to determine how a bonus subject to the deferral rule would be treated for purposes of individual income tax.
Pennsylvania Credit Union League President/CEO James McCormack said the rules are too sweeping and the NCUA already has “ample statutory authority to address safety and soundness concerns.’’
NASCUS’ Knight recommended that the agency change the rule to ensure that it addresses only “material incentive-based compensation,’’ not small bonuses provided to a wide range of employees.
The rules must be issued by all financial regulators as a result of the financial overhaul bill passed last year.