By Ray Birch
WASHINGTON—NCUA’s new incentive-based compensation proposal is another example of credit unions getting pulled into rulemaking that’s unnecessary for the movement, according to Carrie Hunt.
America’s Credit Unions’ chief advocacy officer spoke with CUToday.info about NCUA’s decision last month to put out for 60-day comment a proposal on incentive-based compensation arrangements for credit unions of $1 billion or more in assets, rules that have been in development since the financial crisis of nearly 15 years ago.
“We are getting comments from our members on this. However, this rule has been long in the making, as we know, for well over a decade,” Hunt said. “What was recently proposed by some of the regulators is substantially similar to the original (proposal).”
Hunt, as have others who have talked with CUToday.info on the rulemaking, pointed out the rule goes back a decade and a half.
“Many of the elements of Dodd-Frank were designed to address our ills coming out of the financial crisis, and most—if not all of those ills—were not caused by credit unions,” Hunt said. “This is yet another example of a rulemaking fueled by the statutes that we've been sucked into and don't necessarily need to be.”
Complicated Rulemaking
Hunt said the proposal is complicated and takes a great deal of reading to understand.
“You practically need a specialized degree to understand it,” joked Hunt. “At its core there's this rule that creates different tiers, with slightly different rules for different sizes of institutions. From our perspective this is an extremely complicated and burdensome rule that will be put in place to solve a problem that never existed in the first place for credit unions.”
Reasonable Comp Needed
Carrie Hunt
Hunt said appropriate and reasonable compensation must be available for senior executives at credit unions.
“Just because there were cases of great overcompensation during the financial crisis that led to certain ills…We certainly will be pointing out the specifics of in this rule that we think are problematic from a compliance standpoint,” Hunt said. “But we also will be reiterating that we don't think that this is an appropriate rule for credit unions—that we should not be sucked into to this to begin with.”
Observers have stated they believe NCUA has simply mirrored the FDIC and OCC proposals.
“I certainly cannot speak for NCUA. However, I will say this rulemaking is statutorily mandated, and it has to be issued by the six agencies,” Hunt said. “So, I suspect that in those discussions, as they were working through the rule, NCUA did not have a lot of flexibility in potentially making certain changes. That being said, I am not aware of the NCUA reaching back out to Congress and saying this doesn't apply. We will ask NCUA to be proactive in our comment letter.”
Changing Times
Meanwhile, in reflecting on the issues that contributed to the financial crisis that is now nearly 15 years old, Hunt said many of the problems that drove an angry Congress to put the rules in place—such as corporate greed—are not the concerns facing FIs today, which include cryptocurrency, liquidity and capital.
“When you look at the financial crisis, it was such a big event in the American economy and even in our history,” Hunt said. “When Dodd Frank was put into place, that was the legislative approach to cure issues at the time. But on top of that we also had restrictions to capital. You had the Consumer Financial Protection Bureau (created by Dodd Frank)…There were multiple layers of approaches to address the issues of that period.”
Creating Regulatory ‘Drag’
What resulted out of that period was greater regulatory “drag” that has impacted how financial institutions do business, according to Hunt.
“If you look at the number of financial institutions that existed at the time of the financial crisis and you look at them now, they have steadily declined because the cost of doing business has dramatically increased. A huge part of that is due to additional regulatory requirements,” Hunt said.