Credit union regulator maintains 18% loan interest rate ceiling to March 2023

The loan interest rate ceiling for loans by federal credit unions will remain at 18% through March 10, 2023, under action taken by unanimous vote Thursday by the National Credit Union Administration (NCUA) Board – the 23rd time the board has approved this ceiling since it was initially set in 1987.

The Federal Credit Union (FCU) Act provides for a 15% cap on the interest rate charged on federal credit union lending, but it also authorizes the NCUA Board to set a higher cap at 18-month intervals if two conditions are present: the board determines that money market interest rates have risen over the preceding six-month period; and that prevailing interest rate levels threaten the safety and soundness of individual credit unions “as evidenced by adverse trends in liquidity, capital, earnings and growth.”

(The NCUA presented this chart based on Federal Reserve data.)

NCUA staff analysis concluded both of these conditions are present. A supplemental report showed fluctuations in market rates over the six months ending this March 31 (see chart). Meanwhile, it stated that out of a total of 3,167 FCUs, as of March 31 call report data:

  • 2,176 FCUs held more than $12.7 billion in loan balances with rates above 15% and an average rate of 17.09%. Of that group, 898 had loans with rates greater than 17%, with an average loan rate of 18.05%.
  • 1,422 low-income credit unions (LICUs) had $2.7 billion in loans with rates exceeding 15% and an average rate of 17.19%. Of these 1,422 institutions, 627 LICUs had $46.3 million in loans with interest rates exceeding 17% and an average rate of 18.16%.
  • 21 FCUs had more than 10% of their total assets in loans with rates above 15%; these loan balances total $48.6 million with an average loan rate of 17.26%. Of these 21 institutions, 15 carry loans balances with rates above 17% and an average rate of 17.81%.

The 18% cap, last approved in January 2020 to last through Sept. 10, 2021, would revert to the statutory 15% on Sept. 11 without prior board action. The cap applies to all federal credit union lending except originations made under the NCUA’s payday alternative loan (PAL) program, which are capped at 28% currently.

During discussion of the rate ceiling, NCUA Board Member Rodney Hood floated the idea of establishing an advisory board as well as issuing an advance notice of proposed rulemaking on a floating rate cap. NCUA Chairman Todd Harper echoed an interest in doing more outreach. On a floating rate cap, he noted there have been “some staff concerns” but that it’s “a question that we should work to explore.”

The board acted during an open meeting held virtually and viewable by webcast.

Board action memorandum

Supplemental information