In anticipation of a September expiration date, NAFCU President/CEO Fred Becker is urging the NCUA to approve the current interest rate ceiling for unsecured loans at 18% at the regulator's June 21 board meeting.
Becker told Credit Union Times the 18% ceiling requires NCUA to produce a finding every 18 months that supports maintaining it higher than the 15% mandated by Section 1757 of the Federal Credit Union Act. The ceiling is 28% for short-term, payday alternative loans.
“The board may increase the rate – or in this case maintain the rate above 15% – if it determines interest rates have risen over the preceding six-month period and that the prevailing interest rate would threaten the safety and soundness of individual credit unions,” Becker wrote in a letter to NCUA Board members on Tuesday.
Despite the current low rate environment, short term interest rates have risen over the past six months, Becker said. One-month, three-month, six-month and one-year Treasuries all increased rates across the board from December 2011 to May 2012, according to Federal Reserve numbers provided by NAFCU.
Additionally, Becker stated in the letter than 7.5% of all federal credit unions – nearly half of them below $10 million in assets – have a “most common interest rate” above 15% for unsecured loans.
Failing to maintain the 18% cap would require them to change their interest rate policy, and might discourage them from making such loans going forward, Becker said. He added that credit unions that apply risk-based lending rates could be discouraged from lending to high-risk members.
And, lowering the interest rate will be detrimental to safety and soundness because it could potentially result in a loss of capital, he said.
The NCUA Board is scheduled to meet June 21 and July 24, but does not meet in August.
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