ALEXANDRIA, Va. – The NCUA Board last week approved a usury ceiling of 18% and modified its procedures for notifying federal credit unions of the cap.
Every 18 months, the board must re-evaluate the usury ceiling to ensure it permits credit unions to compete in the economic environment. NCUA determined to leave the cap at 18% rather than let it fall to the statutory 15%, due to the rising rate environment. "The 15% ceiling would restrict certain types of credit and adversely affect a number of credit unions' financial condition," the Board Action Memorandum read.
NCUA Vice Chairman Rodney Hood noted that at one point the interest rate cap was set at 21%. NCUA Director of the Office of Capital Market and Planning Owen Cole acknowledged that, stating that was in the early 1980s when interest rates were well into the double digits. He added that 18% should be sufficient to avoid the "credit rationing effect" and still serve members. Cole welcomed credit union comment on the restrictiveness of the cap.
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Prior to the meeting, NAFCU President and CEO Fred Becker had written the agency, encouraging them to maintain the 18% cap. "NAFCU believes that due to the expected interest rate trends and the increased utilization of risk-based lending programs, the reduction of the interest rate ceiling to 15 percent would be detrimental to federal credit unions," he wrote. "Further, it could discourage federal credit unions from making higher risk loans, leaving some credit union members with the alternative of obtaining these loans from lenders at much higher rates."
The board also approved a final rule updating its procedures for notifying credit unions of the ceiling when the agency reconsiders it every 18 months, as has been the case in recent years, or more frequently as needed. Going forward NCUA will notify credit unions of the board's decision through a Letter to Federal Credit Unions, other official publications and a press statement. According to NCUA, this should save credit unions three to seven days in receiving notification compared to the current method of publishing in the Federal Register. [email protected]
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