NCUA Approves Three New Items

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ALEXANDRIA, Va. -The NCUA Board has approved three new items, and is seeking comment on some of the proposals:

• An Amendment to NCUA's rules easing the burden on credit unions seeking a low-income designation that have lower-income members living in higher-income neighborhoods;

• An advance notice of proposed rulemaking to seek public comments about a potential rule that would permit consumer credit unions to engage in certain derivative activities that would hedge interest rate risk.

• A technical change to NCUA's final rule imposing limits on golden parachute and indemnification payments to block unwarranted payouts to individuals whose actions undermine a credit union's finances.

Goal Is To Ease Burden

According to the agency, in seeking to ease the burden on credit unions that seek to prove their low-income designation, the board voted to amend its final rule (Part 701) to allow the use of income data drawn from surveys or statistically valid samples of member loan files.

"This final rule permits federal credit unions to use statistically valid random samples of member income data either garnered through surveys or loan data to prove their low-income status to the agency," NCUA said. "This alternative approach helps credit unions that do not qualify as low-income according to the NCUA's automated geocoding software, which uses member addresses and census data to evaluate qualification for low-income status. Some credit unions have argued that they serve low-income members who generally live in higher-income neighborhoods and therefore the geocoding approach does not accurately capture their membership's income profile. These credit unions were previously burdened with an unduly difficult alternative to prove their low-income status."

Meanwhile, NCUA is seeking comment on using derivatives to manage interest rate risk. NCUA has issued an advanced notice of proposed rulemaking (Part 703) to seek comments on this concept.

"NCUA generally prohibits credit unions from making derivatives transactions. Today, NCUA limits the number of credit unions engaging in such transactions to those approved to participate in a 12-year-old investment pilot program. Most credit unions are unfamiliar with the risks derivatives present, and demand for such instruments has been low," the agency said in a statement. "However, given the Dodd-Frank Act's mandate related to clearing derivatives through clearinghouses, and after the experience of the pilot program, the NCUA board agreed that it is timely to reconsider this regulatory arrangement."

The comment period will run for 60 days.

Limits On Golden Parachutes

Finally, saying it needs to clarify its implementation, the board voted to make technical modifications to its recent rule (Part 750) covering golden parachutes and indemnification payments to institution-affiliated parties.

After publication in the Federal Register, NCUA said its staff discovered the board's intent regarding certain deferred compensation plans was not accurately reflected in the text of the rule. "The technical change clarifies the board's intent that plans permissible under §457(b) of the tax code be excluded outright from the definition of golden parachute payment in the same way the rule treats §401(k) plans," NCUA said. "To conform the rule text to the intent of the board, the reference in the rule to §457 was corrected to read §457(b)."

The rule prevents federally insured credit unions from providing lucrative rewards to departing execs in certain troubled situations. The "golden parachute" provisions apply to troubled CUs affected by insolvency, a conservatorship, or rated CAMEL 4 or 5.

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