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NAFCU President and CEO Dan Berger last week urged the NCUA Board to maintain the current 18 percent usury ceiling after March 10, warning that allowing a drop back to 15 percent would be "detrimental to the safety and soundness of credit unions."

Berger, in a letter to NCUA Board Chairman Rick Metsger and Board Member J. Mark McWatters, said lowering the interest rate cap could potentially result in a loss of capital for credit unions and discourage them from "making loans or approving credit card applications for higher risk members."

The NAFCU president reminded the NCUA Board that the agency has flexibility in establishing the interest ceiling on loans. The Federal Credit Union Act sets a cap of 15 percent but permits NCUA's board to make adjustments based on certain criteria. "The NCUA Board may increase the rate – or in this case maintain the rate above 15 percent – 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," Berger wrote.

He also pointed out the impact on credit unions if the ceiling dropped to 15 percent: As of Sept. 30, 280 of the 3,648 federal credit unions in the U.S. had a most-common interest rate above 15 percent for their unsecured loans, and 94 federal credit unions had a most-common interest rate of 18 percent.

Berger also encouraged the NCUA to explore options to modify the interest rate ceiling away from a fixed rate to a "fixed spread over Prime" or "floating" interest rate ceiling. He explained that under this model using today's rates, "the ceiling would be set at 18.75 percent and it would automatically adjust with the level of Prime." He added that this approach would also help credit unions reduce their interest rate risk.

He suggested this be a potential topic for a board briefing.