NCUA finalizes CUNA-backed CECL, interest capitalization rules

June 24, 2021

NCUA finalized rules on the current expected credit loss (CECL) transition methodology and capitalization of interest Thursday at its board meeting. The board also voted to affirm the 18% interest rate cap on loans made by federal credit unions.

CUNA supported both final rules as proposed and wrote to NCUA last month urging it to finalize them as quickly as possible.

“We thank NCUA for moving quickly to finalize these rules, as both will provide credit unions continuing to face pandemic-related pressures with needed regulatory relief,” said CUNA President/CEO Jim Nussle. “These steps, in addition to others taken by NCUA, will help ensure credit unions can continue to serve members still feeling the adverse impact of the pandemic.”

The CECL transition methodology provides that, for purposes of determining a credit union’s net worth classification under PCA, the NCUA will phase-in over a three-year period the day-one adverse effects on regulatory capital that may result from adoption of the CECL standard.

CUNA believes the rule both provides a sufficient amount of time to spread out the adjustment, and it conforms with flexibility provided by other federal banking agencies.

The capitalization of interest rule will remove the existing prohibition on credit unions’ capitalizing interest in connection with loan workouts and modifications.

CUNA supported this, as it believes the prohibition on capitalization of interest is overly burdensome and, in some cases, may hamper a credit union’s good-faith efforts to engage in loan workouts with borrowers facing difficulty.

The board’s vote to affirm the 18% interest rate cap was necessary by Sept. 11, as NCUA needed to change or reaffirm the loan rate by then, or the rate will return to the lower statutory level of 15%.

In affirming the 18% rate, the NCUA Board made it effective from Sept. 11 through March 10, 2023.

CUNA has called on NCUA to explore the idea of adopting a floating interest rate cap, preferably through an Advance Notice of Proposed Rulemaking to gather information on the potential benefits and concerns.