In anticipation of a September expiration date, NAFCUPresident/CEO Fred Becker is urging the NCUA to approve the currentinterest rate ceiling for unsecured loans at 18% at theregulator's June 21 board meeting.

Becker told Credit Union Times the 18% ceiling requiresNCUA to produce a finding every 18 months that supports maintainingit higher than the 15% mandated by Section 1757 of the FederalCredit Union Act. The ceiling is 28% for short-term, paydayalternative loans.

“The board may increase the rate – or in this case maintain therate above 15% – if it determines interest rates have risen overthe preceding six-month period and that the prevailing interestrate would threaten the safety and soundness of individual creditunions,” Becker wrote in a letter to NCUA Board members onTuesday.

Despite the current low rate environment, short term interestrates have risen over the past six months, Becker said. One-month,three-month, six-month and one-year Treasuries all increased ratesacross the board from December 2011 to May 2012, according toFederal Reserve numbers provided by NAFCU.

Additionally, Becker stated in the letter than 7.5% of allfederal credit unions – nearly half of them below $10 million inassets – have a “most common interest rate” above 15% for unsecured loans.

Failing to maintain the 18% cap would require them to changetheir interest rate policy, and might discourage them from makingsuch loans going forward, Becker said. He added that credit unionsthat apply risk-based lending rates could be discouraged fromlending to high-risk members.

And, lowering the interest rate will be detrimental to safetyand soundness because it could potentially result in a loss ofcapital, he said.

The NCUA Board is scheduled to meet June 21 and July 24, butdoes not meet in August.