ALEXANDRIA, Va. (6/19/15)--The interest-rate cap of 18% on most federal credit union loans will remain in effect through March 10, 2017, as approved by the National Credit Union Administration board at its open meeting Thursday.
A reduction in the loan rate ceiling to 15% would have affected nearly two-thirds of federal credit unions, according to an agency assessment.
NCUA Chair Debbie Matz said keeping the interest rate at 18% is fundamental to keeping the agency’s payday alternative loans (PALs) program, in which rates are capped at 28%. “If the rate ceiling was reduced, credit unions would be stressed to maintain PAL programs,” she said.
“Reducing the rate to the statutory 15%, for example, would remove the affordable alternative to payday loans offered by 536 federal credit unions,” Matz said. "If the rate ceiling was reduced to 15%, I know, from first-hand experience working in a federal credit union, it would be difficult to cover the costs of such short-term loans.”
The Federal Credit Union Act caps the interest rate on federal credit union loans at 15%, but it also gives the board the ability to raise that limit for periods of 18 months. In January 2014, the board approved an 18% ceiling through Sept. 10. It has been 18% since May 1987.
Credit unions also can alert the Office of Examination and Insurance if they are being affected by the current interest-rate ceiling.
The board will continue to monitor market rates and credit union financial conditions as it is allowed to take action sooner than 18 months if conditions warrant.