NCUA letter highlights interest rate ceiling extension

June 29, 2015

ALEXANDRIA, Va. (6/29/15)--Following its decision to continue federal credit unions’ current interest rate ceiling until March 10, 2017, the National Credit Union Administration issued a Letter to Federal Credit Unions (15-FCU-02) both announcing the rate decision and offering more information.

In the letter sent last week, the NCUA highlighted the board’s June 18 decision to continue the current ceiling of 18% annual percentage rate for most loans, and 28% for payday alternative loans (PALs).

“The Federal Credit Union Act generally limits federal credit unions to a 15% interest rate ceiling on loans. However, the NCUA board may establish a higher rate for up to 18 months after considering certain statutory criteria,” the letter reads. “The current rate ceiling would have expired on Sept. 10, 2015. This month’s NCUA board action extends the ceiling for a period of 18 months through March 10, 2017.”

During the June 18 meeting, NCUA Chair Debbie Matz said keeping the 18% ceiling is fundamental to keeping the agency’s PAL program, as a 15% cap would make it difficult for credit unions to cover the costs of the short-term PALs.

“You may still charge those borrowers up to 28% on PALs under the terms and conditions specified in NCUA’s regulation: a principal amount of $200 to $1,000, an application fee of no more than $20, and a term of one to six months,” the letter reads. “You may make up to three PALs to each member during a six-month period, as long as no PALs overlap and no PALs are rolled over.”

The letter also adds that if market rates move “significantly in either direction” before March 10, 2017, the board may revisit the rate ceiling at any time.