NCUA Vice Chairman Kyle S. Hauptman at a meeting of the NCUA Board.
As Prepared for Delivery on July 18, 2024
I’ll note that I offered to address this item via notation vote if my colleagues would support halting the publication of each credit union’s total income from overdraft and NSF fees. I suggested that NCUA examiners could still access that data, and we could publish various forms of aggregate data instead. My suggestion was rejected, all to maintain a policy that still lacks legitimate justification. I’m told law firms are already positioning themselves to extract more settlements from the institutions we insure, which is an odd stance for an insurer to promote. This could have been avoided if we had acted logically and apolitically.
I cannot support this rulemaking today because it exceeds what Congress mandated and does so in an intrusive and harmful manner. There was a better way to approach this. I want to quote FDIC Vice Chairman Travis Hill, who already voted against this same proposed rule, as his comments echo my own view:
In 2010, the banking agencies issued guidance that adopted a principles-based approach to ‘help ensure that incentive compensation policies … do not encourage imprudent risk-taking.’ Notably, the 2010 Guidance asserted that a principles-based approach ‘is the most effective way to address incentive compensation practices, given the differences in the size and complexity of banking organizations covered by the guidance and the complexity, diversity, and range of use of incentive compensation arrangements by those organizations.’ The guidance established expectations that incentive compensation would ‘balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risks’ and provided different options that banks can use to make compensation more sensitive to risk. ‘Overall, implementation of the 2010 Guidance, along with other supervisory engagements around that time, contributed to meaningful change in incentive compensation practices across the industry, and the incentive compensation arrangements that were cited by some as a factor in the 2008 financial crisis are far less common today.’
The agencies, including the NCUA, could have used that guidance as the foundation for a six-agency effort to satisfy Congress’s directive.
Furthermore, there is unnecessary language about extending these burdensome reporting requirements to credit union service organizations (CUSOs).
I asked staff to “eat our own cooking,” by putting themselves in the shoes of a large credit union that would have to comply with this regulation and actually write up what we expect them to report to us. Thank you for undertaking this exercise, but it is crucial for government to understand its demands on others. As I’ve said before, the only people who think compliance is easy are those who don’t have to do it.
Here’s what I’ve received after some time was spent on this exercise: “Altogether, this exercise took three E&I team members approximately 20 hours to complete – including drafting, revising, and clearing the materials for one employee. Creating the initial template for the annual incentive-based compensation plan review for the CEO took 3 hours and completing the annual review took 1 hour, which we believe is an accurate representation of the time it would take to prepare similar plans for other personnel.”
So that’s quite a bit of time and effort, and it didn’t even include the stress level associated with submitting to one’s regulator.
Finally, the incentives for regulators need examination. In the long run, an agency will act according to its incentives. Those incentives, in the absence of a profit motive, include power, publicity, prestige, and, at some agencies, post-regulator job opportunities – because the harder the regulations are to comply with, and the harsher the enforcement, the higher the market value is for former regulators.
Government agencies should examine their own incentives and ensure they align with those of the American public.