NCUA's proposed rule on Compensation in Connection With Loans to Members and Lines of Credit to Members.
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NCUA Proposes to Modernize Rules on Loan-Related Compensation
The NCUA Board has issued a proposed rule that would update a regulation last revised more than 30 years ago — the rules governing how credit union employees and officials can be compensated in connection with loans to members.
What NCUA is proposing:
- Adding a new regulatory definition of "overall financial performance" to Section 701.21(c)(8)
- Expressly allowing incentive and bonus payments tied to lending metrics, as long as they are based on the credit union's overall financial performance
- Explicitly extending this flexibility to senior management employees, not just rank-and-file staff
- Defining "overall financial performance" as a quantifiable metric or set of metrics set by the board of directors, which may include lending-related goals such as aggregate loan growth or loan performance measures like delinquency or loss rates
Why the change is happening:
- Credit unions have reported confusion about whether loan-related metrics can factor into "overall financial performance"
- NCUA regions have applied the current rule inconsistently
- The existing framework is viewed as outdated and unduly restrictive, especially for senior executive compensation
- The change aligns with the Board's broader deregulatory efforts under Executive Order 14219 and was informed by 27 comments on a 2019 ANPR
What is NOT changing:
- The general prohibition on officials and employees receiving commissions, fees, or other compensation directly in connection with a specific loan remains intact
- The four existing exceptions in 701.21(c)(8)(iii) remain in place
- Safety and soundness expectations are unchanged — no compensation plan may permit unsafe or unsound practices, unsafe reliance on individual metrics, or compensation that conflicts with other applicable laws
- The rule continues to apply to FISCUs through Section 741.203(a)
The 10,000-foot takeaway: NCUA is giving credit unions more room to design modern, competitive compensation plans — including for senior executives — that reflect a balanced mix of performance goals, while keeping guardrails against risky loan-driven incentive structures. Boards will need to document how their compensation metrics support the credit union's goals without encouraging unsafe practices.
Comments are due April 27, 2026.
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