Credit union boards get the go ahead on delegating dividend setting authority

ALEXANDRIA, Va.- Federal credit union boards received some good news in this rapidly changing rate environment. In a recent legal opinion letter, NCUA Associate General Counsel Sheila Albin amended an earlier opinion letter from NCUA to allow federal credit union boards of directors to delegate their authority to set the institution’s dividend rate. The earlier letter was from August 1993. In the new opinion, Albin said a federal credit union may delegate its authority to declare dividends or set dividend rates. “[W]e recognize that a quickly changing interest rate environment may require an FCU to adjust its dividend rates quickly to remain competitive and operate in a safe and sound manner,” she wrote. “We also recognize that an FCU’s board may not be able to react quickly enough in these circumstances.” Albin wrote that a federal credit union board may delegate its authority to set dividend rates to a committee of senior management officials, similar to the procedures for delegating its authority to set loan interest rates. Specifically, the letter read, the board must set a narrow, economically appropriate range where the dividend rates can be set for each kind of share account and permit the committee to adjust the rates within those parameters. Additionally, the committee needs to report its rate adjustments to the board monthly and the board must retain its authority to change the rate set by the committee or withdraw the delegation of power. Even though NCUA admitted the permissibility of delegating a federal credit union’s dividend setting authority, “We continue to believe that declaring dividends…is a responsibility so fundamental to the FCU’s board that it should not be delegated. It is our understanding that declaring dividends can be accomplished when the FCU’s board deems appropriate, including in conjunction with or after its periodic review and approval of financial statement, and will not interfere with the purpose of the delegation to allow the management committee to adjust dividend rates to react to changing conditions.” [email protected]