NCUA Acts on Golden Parachutes, Interest Bearing Accounts and Announces Proposed Stabilization Fund Prepayment Program

May 20, 2011 - The National Credit Union Administration (NCUA) Board met for its monthly meeting on May 19 approving three final rules, one proposed rule and announcing a program for credit unions to prepay future corporate stabilization fund assessments.

NCUA is proposing developing a program by which credit unions could voluntarily pre-pay future assessments this year. The prepayments would be applied to the participant credit union’s assessments issued beginning in 2013. However, substantial credit union participation in the program would likely allow NCUA to reduce the overall basis point assessments this year and next, when substantial cash outlays are expected for the Temporary Corporate Credit Union Stabilization Fund.

At the request of credit unions, the NCUA released an outline of a program and is seeking public comment.  You can read more about the program here in a NASCUS News story.

Also, at the May meeting, the NCUA acted on the following items:

Final Rule: Part 750, Golden Parachutes and Indemnification Payments

This final rule prohibits a federally insured credit union (FICU) from making golden parachute and indemnification payments to an institution-affiliated party (IAP) if the FICU is insolvent, in conservatorship or rated a CAMEL 4 or 5. However, the final rule includes several exemptions including for instance a “bona fide” deferred compensation plan. Further, the rule does not prohibit a credit union from agreeing to a golden parachute for new management brought in to manage a troubled credit union back to financial health, with NCUA approval.  The final rule also makes an exemption for payments established by existing contracts; however, to the extent contracts in existence at the time of publication of the final rule are renewed or amended in the future, the payments would then be prohibited.

Regarding indemnification, the final rule directs federally insured, state-chartered credit unions to look to their state law, but it does prohibits FICUs, regardless of financial condition, from paying or reimbursing an IAP’s legal or other professional expenses if incurred in an administrative or civil action instituted by a state regulatory authority or the NCUA.

Final Rule: Part 740, Accuracy of Advertising and Notice of Insured Status

In this final rule, the NCUA makes several changes to its official advertising statement rule. It requires the official advertising notice in radio or television ads greater than 15 seconds and in annual reports and other statements required by law. With respect to print advertisements, the NCUA Board proposed to clarify the requirement that the official advertising statement must be in a size and print that is clearly legible. This means that the advertising sign cannot be any smaller than the smallest size font in the advertisement. Credit unions have three options to satisfy the official advertising requirement: long form: “This credit union is federally insured by the National Credit Union Administration;”short form: “Federally insured by NCUA;” or a reproduction of NCUA’s official sign.

Final Rule: Part 745, Non Interest Bearing Transaction Accounts

As included in the Dodd-Frank Act, non interest bearing accounts are fully insured until Dec. 31, 2012. While the provisions are self-implementing, this final rule clarifies that for a credit union, a non interest-bearing transaction account is a "non dividend-bearing" account and that coverage is separate from, and in addition to, other coverage provided for in NCUA's insurance rules. Disclosure and notice requirements are also included. The final rule can be viewed here.

Proposed Rule: Part 705, Community Development Revolving Loan Fund

This proposed rule would revise the process by which the NCUA solicits, receives, evaluates and acts on credit union applications seeking loans and technical assistance grants from the Community Development Revolving Loan Fund. This section of NCUA’s rules had not been updated since 1993 and NCUA staff noted that changes in the economy and other factors prompted this update intended to improve the organization, structure and ease of use by credit unions.

An insurance fund report was also given at the meeting and can be viewed at this link.