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ALEXANDRIA, Va.-NAFCU recommended in a recent letter to the NCUA Board that they leave the interest rate ceiling at 18% for credit unions given the rising interest rate environment. The Federal Credit Union Act sets a 15% cap on interest charged on credit union loans, but if conditions warrant, the agency may raise it after consultation with certain members of Congress, Treasury, and other federal financial regulators. The rate will revert to 15% as of March 9, 2005 if the board does not take action. According to NAFCU, the Federal Open Market Committee’s recent and expected future rate increases, in addition to the interest rate outlook for Treasury notes, point toward the higher 18% rate cap. NAFCU President and CEO Fred Becker told NCUA that these are solid reasons for keeping the rate above 15%. “In addition, NAFCU believes that due to the expected interest rate trends and increased presence of risk-based lending programs, a reduction of the rate to 15% would be detrimental to federal credit unions,” he wrote. “Further, such a reduction 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.”

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