League Closely Watching NCUA Board's Discussion on Interest Rate Ceiling; Urges Agency to 'Modernize' Approach to Interest Cap

Your League will be monitoring tomorrow’s NCUA Board Meeting, particularly the Board’s planned discussion of the interest rate ceiling set for federal credit unions.

The NCUA set its current interest rate ceiling of 18% in 1987 and its board has since voted more than 20 times to maintain that number. Although the Federal Credit Union Act generally limits federal credit unions to a 15 percent 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. Payday alternative loans are permitted to carry an interest rate of as much as 28 percent. The current, temporary 18 percent ceiling is set to expire on March 10.

“We believe federal credit unions need to provide competitive products that address the needs of their members and steer them away from risky products,” said League President/CEO Carrie Hunt. “Many state-chartered credit unions are permitted to charge interest rates above that 18 percent ceiling, offering loan products that remain a consumer-friendly alternative to other offerings in the marketplace, while also appropriately addressing their lending risk.”

Given the current economic realities and the degree to which key interest rates have risen, raising the interest rate ceiling is clearly justified, noted Hunt.

“We worry that the failure of the NCUA Board to act in raising the interest rate ceiling poses an unnecessary risk to federal credit unions and their earnings, which would directly affect capital, growth and liquidity,” said Hunt.

Federal law allows the agency to increase the interest rate as long as it consults with the appropriate congressional committees, the Treasury Department and other financial regulators; and additionally determines both that money-market interest rates have risen over the past six months, and the current interest rate threatens the safety and soundness of individual credit unions. The league is also supportive of instituting a floating cap. “Instead of coming back every 18 months and having this discussion it is time to modernize and create a floating cap.”

The NCUA Board will also discuss the agency’s Annual Performance Plan, which outlines the agency’s strategic goals and objectives, performance goals, and how it will go about accomplishing its strategic objectives.

“The annual performance plan can be informative,” said Hunt. “It represents the direct connection between the long-term strategic goals contained in the agency’s Strategic Plan and the day-to-day activities of NCUA’s management and staff members. In many respects, it represents an opportunity for credit unions to evaluate program management at the agency and further hold the agency accountable with each new budget cycle.”

NCUA Board Meeting Agenda