NCUA Board Keeps 18% Loan Cap, at Least for Now

The NCUA board decided to maintain the 18% interest rate loan cap, but will investigate the possibility of using a floating cap in the future. Learn why.

David Baumann


Jan 27



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David Baumann

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David Baumann

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Agency cites credit union safety and soundness in maintaining current rate, may consider floating cap following investigation.

The NCUA board agreed at its monthly meeting Thursday to maintain the 18% loan interest rate cap, but asked staff to investigate whether the agency could adopt a floating rate cap.

The issue will be revisited at the April board meeting following that investigation.

Had the board not acted on Thursday, the interest rate cap would have reverted to 15%. The NCUA may only raise the rate to 18%—where it has been kept for the past several years—if certain conditions are met.

The board also agreed to maintain the 28% interest rate on loans modeled on the agency’s Payday Alternative Loan program.

Agency Details Reasons for Maintaining Rate

“A reduction in the FCU interest rate ceiling below 18 percent could adversely affect the safety and soundness of a significant number of FCU,” agency staff warned in a memo, noting further, “The reversion to a 15 percent interest rate ceiling would constrain an FCU’s ability to apply risk-based pricing to higher risk credits and reduce net interest margins in the current rising rate environment.”

Board Chairman Todd Harper agreed to review the interest rate issue more frequently than the 18-month cycle called for in federal law.

However, he cautioned against increasing the interest rate cap, which has been advocated by credit union trade groups.

“From my perspective, adjusting the maximum loan interest rate higher would place additional burdens on credit union member budgets already stretched thin by inflation and tighter credit conditions,” he said.

Harper added, “The credit union system’s statutory mission is to support the saving and credit needs of all Americans, especially people of modest means, so that is yet another reason why the maximum interest rate on loans should not be raised at this time.”

Input From Other Board Members

Board Vice Chairman Kyle Hauptman said the agency needs additional information about the impact the rate cap has on credit union safety and soundness.

Board member Rodney Hood added he would prefer that interest rates be set by the market and not the government, but agreed that agency staff should study the possibility of a floating rate or a cap of 21%.

“I do, however, acknowledge a variable rate could be complicated for credit unions, and especially smaller credit unions, to implement,” he said.

Hood noted further that one credit union has said that if the NCUA maintains the 18% cap, it might have to deny credit card applications unless the member has an excellent credit score.

Performance Plan Approved

The board also approved its 2023 Performance Plan.

Of note, the plan calls for the NCUA to this year:

–Publish a Request for Information seeking input on climate-related financial risks. That guidance had been scheduled to be issued in 2022 and Harper indicated that it will be discussed at the February board meeting.

–Approve at least 25 Underserved Area expansions, in accordance with regulation and agency policy.

–Complete at least 50 fair lending examinations.

–Hire two fair lending personnel.

–Perform quality control reviews on at least 200 examination reports to determine if consumer financial protection supervisory priorities are being addressed.

–Issue guidance or conduct research semi-annually addressing issues noted during consumer financial protection quality control reviews.

–Charter at least four new credit unions by December 31, 2023.

Harper noted the plan also includes the hiring of 70 new examiners, with money having already been budgeted for those additional employees.

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