Proposed Rule2026-03754
Compensation in Connection With Loans to Members and Lines of Credit to Members
Primary source
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Published
February 25, 2026
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board (Board) is issuing for public comment a proposal to amend the NCUA's regulation that limits a federally insured credit union (FICU) official and employee compensation in connection with loans to members and lines of credit to members. These regulations have generated confusion and are unduly restrictive. To provide clearer and more flexible standards, the proposed rule would expressly permit incentive and bonuses to employees, including senior management, to incorporate lending metrics as part of compensation based on a credit union's overall financial performance.
Full Text
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<title>Federal Register, Volume 91 Issue 37 (Wednesday, February 25, 2026)</title>
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[Federal Register Volume 91, Number 37 (Wednesday, February 25, 2026)]
[Proposed Rules]
[Pages 9182-9185]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-03754]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AF98
Compensation in Connection With Loans to Members and Lines of
Credit to Members
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
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SUMMARY: The NCUA Board (Board) is issuing for public comment a
proposal to amend the NCUA's regulation that limits a federally insured
credit union (FICU) official and employee compensation in connection
with loans to members and lines of credit to members. These regulations
have generated confusion and are unduly restrictive. To provide clearer
and more flexible standards, the proposed rule would expressly permit
incentive and bonuses to employees, including senior management, to
incorporate lending metrics as part of compensation based on a credit
union's overall financial performance.
DATES: Comments must be received by April 27, 2026.
[[Page 9183]]
ADDRESSES: Comments may be submitted in one of the following ways.
(Please send comments by one method only):
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
The docket number for this proposed rule is NCUA-2026-0431. Follow the
``Submit a comment'' instructions. If you are reading this document on
<a href="http://federalregister.gov">federalregister.gov</a>, you may use the green ``SUBMIT A PUBLIC COMMENT''
button beneath this rulemaking's title to submit a comment to the
<a href="http://regulations.gov">regulations.gov</a> docket. A plain language summary of the proposed rule
is also available on the docket website.
<bullet> Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
<bullet> Hand Delivery/Courier: Same as mailing address.
Mailed and hand-delivered comments must be received by the close of
the comment period.
Public inspection: Please follow the search instructions on <a href="https://www.regulations.gov">https://www.regulations.gov</a> to view the public comments. Do not include any
personally identifiable information (such as name, address, or other
contact information) or confidential business information that you do
not want publicly disclosed. All comments are public records; they are
publicly displayed exactly as received and will not be deleted,
modified, or redacted. Comments may be submitted anonymously. If you
are unable to access public comments on the internet, you may contact
the NCUA for alternative access by calling (703) 518-6540 or emailing
<a href="/cdn-cgi/l/email-protection#632c24202e020a0f230d0016024d040c15"><span class="__cf_email__" data-cfemail="a1eee6e2ecc0c8cde1cfc2d4c08fc6ced7">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: Ian Marenna, Associate General Counsel
Office of General Counsel, at (703) 518-6540 or at 1775 Duke Street,
Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Background
The Board recognizes that the NCUA's regulations in this area,
which were last updated over 30 years ago, are unduly restrictive,
especially as applied to senior executive compensation plans.\1\
Accordingly, in April 2019,\2\ the Board issued an advance notice of
proposed rulemaking (ANPR) seeking comment on how to update the
regulations so that FICUs can offer competitive compensation plans
without encouraging inappropriate risks, incentivizing bad loans, or
negatively affecting safety and soundness.
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\1\ 60 FR 51886 (Oct. 4, 1995).
\2\ 84 FR 16796 (Apr. 23, 2019).
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Now, as part of its deregulatory efforts under pre-existing
procedures and in accordance with Executive Order 14219, the Board is
proposing to update the regulation to reduce regulatory burden by
providing greater clarity and flexibility as to the compensation plans
FICUs can offer employees. These changes are intended to reduce
compliance burdens without diminishing statutory protections or the
NCUA's supervisory authority.
Currently, Sec. 701.21(c)(8)(i) of the NCUA's regulations
establishes a blanket prohibition on the direct or indirect receipt of
any commission, fee, or other compensation by any FICU official or
employee, or an immediate family member of either, in connection with
any loan made by their FICU.\3\ However, Sec. 701.21(c)(8)(iii) carves
out four exceptions to this blanket prohibition. Specifically, Sec.
701.21(c)(8)(iii) permits:
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\3\ 12 CFR 701.21(c)(8)(i).
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(A) Payment, by a credit union, of salary to employees;
(B) Payment, by a credit union, of an incentive or bonus to an
employee based on the credit union's overall financial performance;
(C) Payment, by a credit union, of an incentive or bonus to an
employee, other than a senior management employee, in connection with a
loan or loans made by the credit union, provided that the board of
directors of the credit union establishes written policies and internal
controls in connection with such incentive or bonus and monitors
compliance with such policies and controls at least annually; and
(D) Receipt of compensation from a person outside a credit union by
a volunteer official or non-senior-management employee of the credit
union, or an immediate family member of a volunteer official or
employee of the credit union, for a service or activity performed
outside the credit union, provided that no referral has been made by
the credit union or the official, employee, or family member.
Section 701.21(c)(8) applies directly to federal credit unions
(FCUs) and is applied to federally insured, state-chartered credit
unions (FISCUs) by Sec. 741.203(a).\4\
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\4\ 12 CFR 741.203(a) (``Any credit union which is insured
pursuant to title II of the Act must: (a) Adhere to the requirements
stated in . . . Sec. 701.21(c)(8) of this chapter concerning
prohibited fees. . . . Federally insured state chartered credit
unions in a given state are exempt from these requirements if the
state supervisory authority for that state adopts substantially
equivalent regulations as determined by the NCUA Board or. . . . In
nonexempt states, all required NCUA reviews and approvals will be
handled in coordination with the state credit union supervisory
authority[.]'').
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FICUs have demonstrated confusion about how to interpret the term
``overall financial performance'' in Sec. 701.21(c)(8)(iii)(B). As
noted, Sec. 701.21(c)(8) contains a general prohibition against most
credit union employees and officials receiving compensation made ``in
connection with any loan'' a FICU makes, but provides exceptions,
including one that permits incentive compensation to employees based on
the FICU's overall financial performance. FICUs have expressed
uncertainly about whether the NCUA permits loan metrics such as
aggregate loan growth to be a factor in assessing overall financial
performance. They also have asserted that the regulation is subject to
varying interpretations and levels of enforcement across the NCUA's
regions.
The NCUA received 27 comments on the ANPR, representing a variety
of perspectives on how the NCUA should improve the current regulations.
Generally, commenters overwhelmingly supported changes, additional
clarity, or both in this area, describing the current regulation as
outdated and unclear. The commenters differed in their preferred
approaches, with some favoring changes to the current regulation and
others advocating flexible guidance. Under either approach, commenters
generally favored a principles-based approach. Several commenters were
concerned about the NCUA defining ``overall financial performance''
prescriptively and preferred guidance or commentary to clarify that
credit unions may consider lending as part of a broad and balanced set
of organizational goals and performance measures. Only one commenter
opposed modernizing the regulation, citing safety and soundness and
consumer protection concerns. This commenter stated that loan-related
incentives are risky and opined that loan incentives can easily overrun
any established guardrails.
Based on a review of the regulation and the comments and the NCUA's
own experience in implementing the regulation, the NCUA determined
limitations on compensation tied to lending are still necessary. Thus,
Sec. 701.21(c)(8) remains a general prohibition with defined
exceptions. However, to provide FICUs with further clarity and
increased flexibility to provide compensation plans in alignment with
modern practices, the proposed rule would clarify employees,
[[Page 9184]]
including senior management, can receive incentives or bonuses related
to lending metrics as part of compensation, provided they are based on
a FICU's overall financial performance. The proposal would achieve this
by adopting a regulatory definition of ``overall financial
performance'' that supersedes the NCUA's current understanding of the
term and simultaneously provides FICUs with more flexibility and a
clearer framework.
The proposed definition would provide broader standards that would
allow FICUs to consider lending as part of a broad and balanced set of
organizational goals and performance measures.
B. Legal Authority
The Board is issuing this proposal pursuant to its authority under
the Federal Credit Union Act (FCU Act). Under the FCU Act, the NCUA is
the chartering and supervisory authority for federal credit unions and
the federal supervisory authority for FICUs.\5\ The FCU Act grants the
NCUA a broad mandate to issue regulations governing both FCUs and all
FICUs. Section 120 of the FCU Act is a general grant of regulatory
authority and authorizes the Board to prescribe rules and regulations
for the administration of the FCU Act.\6\ Section 207 of the FCU Act is
a specific grant of authority over share insurance coverage,
conservatorships, and liquidations.\7\ Section 209 of the FCU Act is a
plenary grant of regulatory authority to issue rules and regulations
necessary or appropriate to carry out its role as share insurer for all
FICUs.\8\ Accordingly, the FCU Act grants the Board broad rulemaking
authority to ensure that the credit union industry and the National
Credit Union Share Insurance Fund remain safe and sound.
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\5\ 12 U.S.C. 1752-1775.
\6\ 12 U.S.C. 1766(a).
\7\ 12 U.S.C. 1787.
\8\ 12 U.S.C. 1789.
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II. Proposed Rule
Section 701.21(c)(8) generally prohibits most credit union
employees and officials from receiving compensation made ``in
connection with any loan'' a FICU makes, but provides exceptions,
including one that permits incentive compensation to employees based on
the FICU's overall financial performance. The Board is proposing to
amend Sec. 701.21(c)(8) by adopting a broad definition of ``overall
financial performance'' that provides regulatory clarity and additional
flexibility for the types of bonus or incentive payments that can be
made to a FICU employee, including a senior management employee, based
on the FICU's overall financial performance. Specifically, the Board
proposes to adopt the following definition:
Overall financial performance means a quantifiable metric or set
of metrics, set by a credit union's board of directors, used to
measure a credit union's achievement of targeted performance goals.
No compensation plan may permit any unsafe or unsound practice or
any unsafe or unsound reliance on individual metrics which may
include, but not be limited to, lending-related goals and metrics.
No compensation plan may permit compensation in conflict with other
applicable laws.
In proposing this definition, the Board is aiming to clarify that
FICUs have the flexibility to provide compensation plans that
incorporate lending as part of a broad and balanced set of
organizational goals and performance measures that reflect the FICU's
overall financial performance. This could include, for example,
aggregate loan growth or loan performance metrics such as loan
delinquency or loss rates. The Board recognizes that FICUs need
flexibility to adapt compensation to reflect their organizational goals
and market demands. The proposed definition is intended to allow FICUs
to offer competitive compensation plans without encouraging
inappropriate risks, incentivizing bad loans, or negatively affecting
safety and soundness.
The Board considered whether to include examples of metrics in the
definition of overall financial performance but felt that a broad and
principles-based definition would provide FICUs the most latitude to
execute their business judgment as to their own financial performance
goals and the appropriate compensation for meeting them. While the
Board is proposing this principles-based definition, the Board does
stress that FICUs are always expected to operate in a safe and sound
manner and in compliance with all applicable laws. Accordingly, the
proposed definition explicitly states that no compensation plan may
permit any unsafe or unsound practice or any unsafe or unsound reliance
on individual metrics. In reviewing compensation plans based on a
FICU's overall financial performance, the NCUA would expect FICUs to
demonstrate that their boards have fully considered how the
compensation plans incentivize the goals of the FICU and that the
metrics do not incentivize any unsafe or unsound practices, either
individually or in the aggregate. The proposed definition also states
that no compensation plan may permit compensation in conflict with
other applicable laws.
The Board is also proposing to amend the exception provided in
Sec. 701.21(c)(8)(iii)(B) for providing an employee with compensation
based on the FICU's overall financial performance to explicitly include
senior management employees.
The Board solicits comments on all aspects of this proposal. The
Board is particularly interested in input as to whether reference to
lending-related metrics should be included in the definition of overall
financial performance.
III. Regulatory Procedures
A. Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023 (5
U.S.C. 553(b)(4)) requires that a notice of proposed rulemaking include
the internet address of a summary of not more than 100 words in length
of a proposed rule, in plain language, that shall be posted on the
internet website under section 206(d) of the E-Government Act of 2002
(44 U.S.C. 3501 note) (commonly known as <a href="http://regulations.gov">regulations.gov</a>).
In summary, to provide more flexible standards that are more in
line with modern practices while still prioritizing safety and
soundness, the proposed rule includes a definition of overall financial
performance that clarifies the metrics by which all credit union
employees may be compensated.
The proposal and the required summary can be found at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
B. Executive Orders 12866, 13563, and 14192
Pursuant to Executive Order 12866 (``Regulatory Planning and
Review''), as amended by Executive Order 14215, a determination must be
made whether a regulatory action is significant and therefore subject
to review by the Office of Management and Budget (OMB) in accordance
with the requirements of the Executive Order.\9\ Executive Order 13563
(``Improving Regulation and Regulatory Review'') supplements and
reaffirms the principles, structures, and definitions governing
contemporary regulatory review established in Executive Order
12866.\10\ This proposed rule was drafted and reviewed in accordance
with Executive Order 12866 and Executive Order 13563. OMB has
determined that this proposed rule is
[[Page 9185]]
not a ``significant regulatory action'' as defined in section 3(f)(1)
of Executive Order 12866.
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\9\ 58 FR 51735 (Oct. 4, 1993).
\10\ 76 FR 3821 (Jan. 21, 2011).
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Executive Order 14192 (``Unleashing Prosperity Through
Deregulation'') requires that any new incremental costs associated with
new regulations shall, to the extent permitted by law, be offset by the
elimination of existing costs associated with at least 10 prior
regulations.\11\ This proposed rule is expected to be a deregulatory
action for purposes of Executive Order 14192.
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\11\ 90 FR 9065 (Feb. 6, 2025).
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C. Regulatory Flexibility Act
The Regulatory Flexibility Act \12\ generally requires an agency to
conduct a regulatory flexibility analysis of any rule subject to notice
and comment rulemaking requirements, unless the agency certifies that
the rule will not have a significant economic impact on a substantial
number of small entities. If the agency makes such a certification, it
shall publish the certification at the time of publication of either
the proposed rule or the final rule, along with a statement providing
the factual basis for such certification.\13\ For purposes of this
analysis, the NCUA considers small credit unions to be those having
under $100 million in assets.\14\ The Board fully considered the
potential economic impacts of the regulatory amendments on small credit
unions.
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\12\ 5 U.S.C. 601 et seq.
\13\ 5 U.S.C. 605(b).
\14\ 80 FR 57512 (Sept. 24, 2015).
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The proposed changes would reduce regulatory burdens and confusion
by providing a definition of overall financial performance that
clarifies the metrics by which all credit union employees may be
compensated.
Accordingly, the NCUA certifies the proposed rule would not have a
significant economic impact on a substantial number of small credit
unions.
D. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) generally provides that
an agency may not conduct or sponsor, and not withstanding any other
provision of law, a person is not required to respond to, a collection
of information, unless it displays a currently valid Office of
Management and Budget control number. The PRA applies to rulemakings in
which an agency creates a new or amends existing information collection
requirements. For purposes of the PRA, an information-collection
requirement may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement. The NCUA has determined that the
changes addressed in this notice do not create a new information
collection or revise an existing information collection as defined by
the PRA.
E. Executive Order 13132 on Federalism
Executive Order 13132 encourages certain agencies to consider the
impact of their actions on state and local interests. The NCUA, an
agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the
executive order to adhere to fundamental federalism principles. The
proposed clarification would provide regulatory clarity and simplify
administration of the NCUA's regulations and thus would not have a
direct effect on the states, the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government.
F. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this proposed rule would not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999.\15\ The proposed rule
would provide regulatory clarity by adding a definition of overall
financial performance. While the proposed definition is intended to
reduce regulatory burden by providing regulatory clarity to allow FCUs
greater flexibility to compensate employees, any potential positive
effect on family well-being, including financial well-being is, at
most, indirect.
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\15\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 701
Advertising, Aged, Civil rights, Credit, Credit unions, Fair
housing, Individuals with disabilities, Insurance, Marital status
discrimination, Mortgages, Religious discrimination, Reporting and
recordkeeping requirements, Sex discrimination, Signs and symbols,
Surety bonds.
By the National Credit Union Administration Board, this 20th day
of February, 2026.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons stated in the preamble, the NCUA Board proposes to
amend 12 CFR part 701 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789.
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.
0
2. Amend Sec. 701.21(c)(8)(ii) to add the definition of ``Overall
Financial Performance'' in alphabetical order to read as follows:
Sec. 701.21 Loans to members and lines of credit to members.
* * * * *
(c) * * *
(8) * * *
(ii) * * *
Overall Financial Performance means a quantifiable metric or set of
metrics, set by a credit union's board of directors, used to measure a
credit union's achievement of targeted performance goals which may
include, but not be limited to, lending-related goals and metrics. No
compensation plan may permit any unsafe or unsound practice or any
unsafe or unsound reliance on individual metrics. No compensation plan
may permit compensation in conflict with other applicable laws.
* * * * *
0
3. Revise Sec. 701.21(c)(8)(iii)(B) to read as follows:
Sec. 701.21 Loans to members and lines of credit to members.
* * * * *
(c) * * *
(8) * * *
(iii) * * *
(B) * * *
Payment by a Federal credit union of an incentive or bonus to an
employee, including a senior management employee, based on the credit
union's overall financial performance.
* * * * *
[FR Doc. 2026-03754 Filed 2-24-26; 8:45 am]
BILLING CODE 7535-01-P
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