Federal credit union loan-rate cap remains 18% into March 2020

The loan interest rate cap for federal credit unions will remain at 18% through March 10, 2020, as a result of action during Thursday’s open meeting of the National Credit Union Administration (NCUA) Board.

Without board action, the cap was on track to revert to 15%, the limit set under the Federal Credit Union (FCU) Act, as of midnight Sept. 10.

The FCU Act sets a 15% maximum interest rate for federal credit union loans; however, the NCUA Board has discretion to raise that limit for up to 18 months if interest rate levels could threaten credit union safety and soundness.

Meeting in open session, the board approved the extension of the 18% cap after reviewing trends in money-market rates and current conditions among federal credit unions. Staff analysis concluded that: 1) money market rates have risen between December 2017 and June 2018; and 2) lowering the rate ceiling below the current 18% maximum would threaten the safety and soundness of individual credit unions due to the anticipated adverse effect upon liquidity, capital, earnings and growth.

The 18% loan rate cap applies to all federal credit union lending except originations made under the agency’s payday alternative loan (PAL) program. The current interest rate ceiling on PALs is 28%, determined by adding 1,000 basis points to the FCU loan rate ceiling set by the NCUA Board. If that rate ceiling reverts to the 15% limit set by statute, the maximum allowable PAL rate would also fall to 15%.

NCUA said that at the end of the first quarter, 496 FCUs offered PALs. PAL balances totaled $30.2 million in March 2018, up from $13.5 million in March 2011.

Also on Thursday, the board:

  • Issued a proposed, one-year delay in risk-based capital (RBC) requirements. The proposal would raise the asset-size threshold for a “complex” credit union to $500 million, leaving just 531 credit unions subject to RBC. Comments are due 30 days after the proposal is published in the Federal Register.
  • Issued a proposal to clarify the agency’s lending ruled ease compliance burden. Among the issues for comment is whether loan maturity limits should be raised. Comments are due 60 days after F.R. publication.
  • Approved a final rule updating the agency’s procurement processes. The final rule, effective 30 days after F.R. publication, includes new contractor suspension and debarment procedures. The procedures seek to protect the agency by helping ensure the NCUA does business only with presently responsible contractors.
  • Approved a reprogramming of the agency’s 2018 budget. This reprogramming reflects a net savings of nearly $8.5 million, primarily due to reduced staff levels from reorganization. NCUA estimates it will have 70 fewer full-time equivalent positions than the 1,183 positions originally planned in the 2018 budget, set last November at a total of $291.8 million.

NCUA Board Aug. 2, 2018, Open Meeting Agenda and Links