ALEXANDRIA, Va.–As it has for 37 straight years now, the NCUA board voted in favor of continuing the federal credit union loan interest rate ceiling at 18%.
Had the board not approved the extension for another 18 months, the rate cap would have reverted to 15%. That 15% rate would then have applied to all loans made by federal credit unions, including credit cards and loans made as part of NCUA’s PAL program.
During the board meeting J. Owen Cole and John G. Nilles, both of the agency’s Examination and Insurance Division, said it was the opinion of both agency staff and credit union stakeholders that the cap should continue to be 18%. The FCU Act actually limits the loan interest rate at 15%, but gives the board authority to raise that rate “if it determines that money market interest rates have risen over the preceding six-month period and that prevailing interest rate levels threaten the safety and soundness of individual credit unions as evidenced by adverse trends in liquidity, capital, earnings and growth.”
Since 1980
The NCUA board has been approving the increase to 18% since 1980. That led NCUA board member Rick Metsger to say he believes the board should “consider exploring alternatives in the future. The NCUA has raised this ceiling every 18 months for nearly 40 years. That suggests the current ceiling is archaic.”
Metsger noted 40% of states with credit union acts have no usury cap at all, and that in some states it’s as high as 60%, while Washington and Alaska allow for variable rate caps.
“It may be time to ask Congress to raise the rate or to give the NCUA board broader authority for setting the cap,” said Metsger. “If the NCUA board has raised the cap for 40 years under a wide variety of economic circumstances, it is suggested to me that the18% is no longer the exception, it is the norm.”
NCUA Acting Chairman Mark McWatters said he agreed with Metsger.
The new 18% rate cap is effective through September 10 of 2018.
NAFCU Weighs In
“We appreciate the leadership shown by NCUA Acting Board Chairman J. Mark McWatters and Board Member Rick Metsger in making the prudent decision to maintain the current 18% usury ceiling, and we thank them for heeding our concerns on this critical issue,” said NAFCU President and CEO Dan Berger. “We also appreciate their recognition of the need for greater flexibility in this area.”
Berger noted that NAFCU has urged the board to maintain the current 18% usury ceiling after March 10. Berger warned that allowing a drop back to 15% would be “detrimental to the safety and soundness of credit unions.”