Credit unions are criticizing the government's plan to restrict bonuses paid to loan officers.

A refrain in many of the 70 letters filed on the National Credit Union Adminstration proposal is that credit unions alone should design incentive programs.

The comment period for the proposal, issued in April, ended June 19.

"This regulation, as written, is overkill," said Donald C. Berra, president of First Community Credit Union, Ellisville, Mo. "Rather than granting wider latitude by which to offer incentives, by drafting this proposal in this manner, NCUA has succeeded in tightening the constraints a credit union has on incenting employees."

Ironically, the agency thought it was doing the industry a favor by issuing the proposal. Current regulations ban people involved with approving a loan from receiving incentive pay. Other programs are acceptable, such as those rewarding employees for the institution's overall performance.

Although a handful of credit unions praised all or some of the agency's restrictions, most told the NCUA to butt out.

Under the proposal, loan underwriters and collectors could receive incentive pay connected to loans as long as the supervisor with the final say receives no commission.

Many credit unions argued that all employees should be entitled to incentive pay, regardless of their management level. Proponents said universal incentives are necessary to retain employees, who might leave for higher salaries elsewhere, and to increase lending.

"It seems counterproductive to restrict motivation techniques for supervisory and management personnel," wrote Bradley W. Beal, president of Nevada Federal Credit Union, Las Vegas. "Properly motivating an organization's leadership and supervisory staff is vital to successfully achieving any business objective."

Another provision said incentives may not be based on the number or dollar amount of loans approved. This also drew fire.

"Prohibiting incentives based on dollars or numbers is very limiting and leaves few, if any, viable options on which to base loan incentives," wrote Robert W. Bream, president of Chicago-based United Airlines Employees' Credit Union.

The CUNA Mutual Group, joined by many credit unions, attacked a provision banning rewards for sales of credit insurance. The company's position is no surprise: It hopes to double its business in this area in five years.

"If an incentive for underwriting a loan does not create a risk for the (deposit insurance fund), CUNA Mutual fails to comprehend how an insurance incentive could create a risk," wrote Linda J. Lehnertz, the company's assistant general counsel.

A few credit unions did express fears that incentives might encourage the production of shoddy loans.

"We believe that the proposed rule will create the potential for individuals . . . to be inclined, whether consciously or unconsciously, to produce questionable loans," wrote Tom Hughes, president and chief executive of Navy Federal Credit Union in Merrifield, Va., the country's largest.

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