ALEXANDRIA, Va. — Federally insured credit unions that are insolvent, in conservatorship or have ratings of CAMEL 4 and 5 would be prohibited from offering golden parachutes to their executives under a proposed rule unveiled by the NCUA at last Thursday's meeting.

The agency defines golden parachutes as payments that are “contingent on the termination of that person's employment and received when the credit union making the payment is troubled, capitalized or insolvent.”

The proposed rule would also prohibit any federally insured credit union, regardless of its financial health, from paying legal or professional expenses incurred in federal or state administrative proceedings that result in a monetary punishment, cease and desist order or removal from office.

The proposed rule, which is subject to a 30-day comment period, is identical to the one the agency issued in 2009 for corporate credit unions.

NCUA Attorney Pamela Yu said there are exemptions to the golden parachute rules to allow for previously agreed to deferred compensation plans and legitimate “nondiscriminatory” severance pay plans. Troubled credit unions that hire new managers to improve their financial health would be allowed to offer golden parachute plans, Yu explained.

The NCUA Board would have final authority over whether a golden parachute is allowed and the criteria it uses will include what degree the employee had managerial or fiduciary responsibility; the length of time the employee was affiliated with the credit union and does the payment represent a reasonable payment; and any other factors that could be considered.

NCUA Chairman Debbie Matz said the proposed rules will reduce some of the risks to the NCUSIF posed by troubled credit unions.

At the meeting, NCUA CFO Mary Ann Woodson gave another bleak assessment of the state of the NCUSIF.?She told the NCUA Board that the fund lost $11.3 million in June. It's less than the $54.7 million that the fund was projected to lose. The fund's reserve balance at the end of June was $1 billion.

The fund's equity ratio was 1.21% at the end of May, down from 1.22% at the end of June. Matz said on July 22 that if current projections are correct, the equity ratio could drop below 1.2% by the fall.

Woodson said 23.14% of insured shares were in credit unions with a rating of CAMEL 3 or higher at the end of June, compared with 20.8% at the end of May.

At the end of June, 17.45% of insured shares were in CAMEL 3 credit unions, compared with 14.57% at the end of May. There were 1,739 CAMEL 3 credit unions at the end of June, compared with 1,724 at the end of May and 1,520 at the end of June 2009.

Woodson also reported that 5.69% of insured shares were in CAMEL 4 and 5 credit unions at the end of June, compared with 6.23% at the end of May. There were 366 Camel 4 and 5 credits at the end of June, compared with 351 at the end of May and 291 in June 2009.

There have been 18 failures of federally insured credit unions this year, including three in June compared with 28 in all of 2009.

The NCUA Board also approved changes to the regulations on overdraft fees to comply with the Federal Reserve's changes to the Truth in Savings Act.

Credit union members have until Aug. 15 to decide whether to opt in to overdraft protection programs, Credit unions have until Oct. 1 to begin spelling out total overdraft fee costs in their periodic statements. They must itemize costs and use the phrase “total overdraft fees” to specify the total.

The rules also require that if a member has an overdraft line of credit that can't be accessed when using a debit card, that information must be displayed on any automated system the member accesses.

The NCUA Board also approved a $2 million reduction in the agency's 2010 operating budget. The agency projects it will reduce expenditures by $9.2 million-$7.1 million of which will come from savings due to staff departures and vacancies-but it is using $7.2 million of that for new expenditures.

These include a $1.l7 million consumer education advertising campaign featuring personal finance specialist Suze Orman explaining that accounts at credit unions are federally insured; a $725,000 allocation to the chief financial officer's office to hire consultants to help strengthen the agency's internal controls and financial reporting; and $650,000 to the Office of Examination and Insurance to fund additional operational reviews.

The changes will result in a $198.9 million operating budget for 2010, compared with the $200.9 million that the board originally approved.

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