NCUA should examine floating interest rate cap for FCU loans

May 22, 2019

CUNA requested NCUA explore the idea of adopting a floating interest rate cap for federal credit union loans instead of its traditional fixed interest rate (currently 18%) in a letter to NCUA Chairman Rodney Hood and board members Todd Harper and J. Mark McWatters Wednesday.

“The NCUA should conduct outreach to the industry—preferably through an advance notice of proposed rulemaking (ANPR)—to gather information on the potential benefits and concerns associated with replacing the existing fixed interest rate cap with a floating cap,” the letter reads.

The board is permitted under the Federal Credit Union Act to increase the interest rate cap above 15% if certain criteria are met, including consultation with the appropriate Congressional committees, the Treasury and federal financial regulators if the prevailing interest rate threatens safety and soundness of credit unions. This increase can be in place for no more than 15 months.

The current extension to 18% was approved at NCUA’s August 2018 meeting, and will be in place until March 10, 2020.

The board clearly has flexibility in how it determines the interest rate cap, which has been at 18% since 1987. In order to continue the current cap, the board must revisit it prior to its expiration in March 2020,” the letter reads. “While it is critical that the board at least maintain the current cap of 18%, we ask the Board to examine the potential benefits associated with a floating interest rate cap, such as the enhanced ability of federal credit unions to manage interest rate risk.”