NCUA's First Board Meeting of 2023 Will Tackle Two Issues

NCUA board members are gearing up for their first meeting of the new year this week. The two agenda items include discussions about the Federal Credit Union Loan Interest Rate Ceiling and the NCUA’s 2023 Annual Performance Plan.

The Federal Credit Union Act allows a default interest rate limit of 15% for federal credit union loans, but the law also allows the board to raise that ceiling if members deem it necessary. The last time the NCUA board voted on the interest rate ceiling was in June 2021 when the agency held the cap at 18% – a rate that has remained in place for more than three decades.

Both CUNA and NAFCU officials have recently stated their position that the board should raise the cap even higher given that the economic situation in the country has dramatically shifted, with the Fed “continually hiking interest rates, so that is putting pressure on financial institutions.”

NAFCU Vice President of Regulatory Affairs Ann Petros stated Monday that she’d like to see the agency adopt a “floating permissible interest rate ceiling” that could “be set to a 15% spread over the prime rate.”

“We’re looking for a rate that makes sense and want to encourage the NCUA to evaluate other options,” Petros said. “But, ideally a floating or variable interest rate is the best solution.”

CUNA Senior Director of Advocacy Luke Martone wrote that the NCUA should consider raising the rates this year to avoid potential risks to the credit union system. “Maintaining relatively low loan rates in the face of market interest rate increases can lead to higher loan losses and safety and soundness concerns.”

Martone added, “The alternative, avoiding the risk by turning applicants away, means some consumers are forced to shop for credit at alternative services providers with substantially higher loan rates.”

Petros seemed to echo that sentiment. “Credit unions are insured depository institutions that follow consumer financial protection laws, are examined and supervised federally and/or on the state level. Having consumers have the ability to access safe, affordable credit at a rate that makes sense for both the consumer and the financial institution is what we want to preserve,” she said.

The second and final item on the NCUA’s agenda Thursday is the agency’s 2023 Annual Performance Plan.

Last year, the agency’s Annual Performance Plan focused on three areas:

1. Ensure a safe, sound and viable system of cooperative credit that protects consumers;
2. Improve the financial well-being of individuals and communities through access to affordable and equitable financial products and services; and
3. Maximize organizational performance to enable mission success.

The public can watch a livestream of the NCUA board meeting Thursday, Jan. 26 at 10 a.m. EST.