Posted by Anthony Demangone
In short, NCUA regulations contain a general prohibition against compensating directors and other volunteer officials, not including the one paid director position as allowed by the Federal Credit Union Act. General rules often contain exceptions, as does this one. For example, under NCUA's compensation rule, you can pay for a director's health insurance (subject to the rule's limitations), and this insurance benefit does not violate NCUA's general ban on compensation. The same goes for training expenses.
The exceptions, though, only pertain to NCUA's rule. As NCUA indicates in its legal opinion:
The use of the term “compensation” in §701.33 is only for the purpose of describing the kind and amount of payment or reimbursement an FCU is permitted to provide to a board officer. NCUA’s use of that term does not in any way affect an FCU’s obligation to issue a Form 1099 to an individual when the IRC requires it.
So, there really is a two-step process. First, when conferring a benefit or reimbursing expenses for a volunteer, the payment or benefit first must be able to pass through NCUA's compensation regulation. If the payment can pass through the rule's requirements, a credit union must then determine if it must issue an appropriate 1099, in the name of the director.
The FDIC issued FIL-60-2010 to help supervised banks comply with the new model privacy notice requirements. The guidance does a nice job of framing the issue. While the guidance applies to banks, I believe credit unions will find it to be a useful overview.