Word on the street (always wanted to say that) is that the NCUA is writing credit unions up in their exams for including bonus or incentive compensation for senior management that recognizes the credit union meeting loan growth targets. It's interesting because many credit unions have been measuring and recognizing the top-line loan growth for decades without comment from NCUA examiners.
Everyone would agree that no one within senior management should be paid directly for approving a specific loan. That places the individual in the position of rationalizing approval where it may be inappropriate because they can see the line of sight to their own personal financial benefit. Taking that logic, however, to the entire portfolio of loans and prohibiting recognition of reaching or exceeding those goals is short-sighted and removes the credit unions' ability to recognize a key element that improves member-owner lives.
Because of the mix of lenders in the market, including large banks, it is still common, after seven years of low rates, for a member to walk into a branch and leave with their monthly obligations lowered by a meaningful amount. With this greater scale of savings in finance costs, members are reliably reaching for long-term savings, home ownership, and retirement goals that they had once perceived as unattainable. Even should rates soon begin to rise, this comparative difference will persist as credit unions reprice members away from less consumer-friendly sources.
I'm sure the NCUA carries some not-totally-unwarranted concerns that there are credit unions who may, in reaching for yield in an extended low-rate environment, become involved in high-risk lending products for which they are not clearly covering future losses and representing a risk to our Share Insurance Fund. The NCUA should handle this on a case-by-case basis with those credit unions they clearly have the capability and the tools to do so.
We believe the NCUA, in addition to modifying the original regulation, has already taken steps to recognize that elements of regulation are out-of-date and that it will be modernized in the normal course of review during this year or early next year (see 12 CFR 701.21(c)(8)). They may also follow the same interpretation that most credit unions have under section (iii) of the regulation: that total loan portfolio measures represent broad financial performance goals and that "This section does not prohibit: (B) Payment, by a Federal credit union, of an incentive or bonus to an employee based on the credit union's overall financial performance."
The NCUA has done much in recent months to carefully consider and improve credit union regulation, reducing regulatory burden while retaining critical safety and soundness controls. Allowing the recognition of the value of loans in improving member lives as a high-level metric complements the beneficial work that credit unions are currently engaged in.
Todd Hall is chief operating officer of Truliant Federal Credit Union in Winston-Salem, N.C.
