ALEXANDRIA, Va.-The NCUA Board is scheduled to address credit unions' usury cap at its July board meeting. The cap is currently set at 18%, but NCUA must reevaluate it every 18 months (by September 9) or it will slip back down to the 15% statutory level contained in the Federal Credit Union Act. The statute allows credit unions to make loans at an interest rate of up to 15% unless NCUA deems it necessary to increase that level to as high as 18%. NCUA Chairman Dennis Dollar said that for the last 12 years since he has been involved in credit unions, the level has been set at 18%. "I don't believe that a statutory cap is necessary. I believe we as regulators would set it similar to the 18%." Dollar remarked. He added that credit unions may need greater flexibility to adjust to the marketplace at some time and that the agency would be better able to respond quickly than Congress. NCUA can establish the usury rate above 15% only after consultation with certain members of Congress, Treasury, and the other federal financial institution regulators. Factors to be considered in setting the rate include whether interest rates have increased over the previous six months and if the 15% rate would inhibit the safety and soundness of credit unions. NAFCU President and CEO Fred Becker recently wrote NCUA in support of maintaining the 18% interest rate cap for federal credit unions. "Despite the low interest rate environment, the rates of several US Treasury securities increased during the second quarter. We believe this is the beginning of a long-term trend, with rates rising even faster over the second half of 2003 and in 2004," he wrote. NAFCU cited Federal Reserve data on various increasing Treasury rates from the past six months. Economists are calling for rising interest rates over the next year-and-a-half when NCUA would again be reevaluating the usury rate. "As a result, most forecasts, including NAFCU's, are calling for a rising interest rate environment, both short-term and long-term, over the next 18 months," Becker advocated. "In addition, NAFCU believes that due to the expected interest rate trends, the tepid rate of overall loan demand, and the increased presence of risk-based lending programs, a reduction of the rate to 15% would be detrimental to federal credit unions," he concluded. "Further, it could discourage federal credit unions from making higher risk loans, leaving some credit union members with the alternative of obtaining loans from lenders at much higher rates." CUNA has also indicated that it supports the extension of the 18% usury ceiling.