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 performanceExplicitly extending this flexibility to senior management employees, not just rank-and-file staffDefining "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 ratesWhy 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financial performance"NCUA regions have applied the current rule inconsistentlyThe existing framework is viewed as outdated and unduly restrictive, especially for senior executive compensationThe change aligns with the Board's broader deregulatory efforts under Executive Order 14219 and was informed by 27 comments on a 2019 ANPRWhat is NOT changing:

The general prohibition on officials and employees receiving commissions, fees, or other compensation directly in connection with a specific loan remains intactThe four existing exceptions in 701.21(c)(8)(iii) remain in placeSafety 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 lawsThe 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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