NCUA writes FCUs on extended 18% loan rate ceiling

A letter communicating the June extension of the 18% federal credit union loan rate ceiling through March 10, 2023, was issued Thursday by the National Credit Union Administration (NCUA).

The NCUA Board voted June 24 to extend the ceiling, which had been scheduled to expire Sept. 10, in which case the loan rate ceiling would have dropped to the 15% ceiling established under the Federal Credit Union (FCU) Act.

“The Board’s decision preserves your federal credit union’s ability to offer a higher rate payday alternative loan,” the agency said in Letter to Federal Credit Unions 21-FCU-04. “You may still charge up to 28 percent on payday alternative loans under the terms and conditions specified in NCUA’s regulations.”

The letter explains that while the Federal Credit Union Act generally limits federal credit unions to a 15% interest rate ceiling on loans, it provides the NCUA Board flexibility to establish a higher rate for up to 18 months after considering certain statutory criteria.

Specifically, the FCU Act 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 it determines 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.”