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June 05, 2015
Keep rate ceiling where it is, NAFCU's Berger writes
The NCUA Board should maintain the 18 percent loan interest rate ceiling for federal credit unions because lowering it could potentially result in a loss of capital for credit unions, harming safety and soundness and limiting access to credit for those who most need it, NAFCU wrote Friday.
In his letter to the board, NAFCU President and CEO Dan Berger added that lowering the rate "could discourage federal credit unions from making loans or approving credit card applications for higher-risk members." He said this, in turn, would likely lead to credit union members seeking loans from other lenders at considerably higher rates.
The Federal Credit Union Act generally limits federal credit unions to a 15 percent interest rate ceiling on loans, but it gives the NCUA Board flexibility to establish a higher rate (if specific criteria are met) for up to 18 months. The current 18-month period terminates Sept. 10.
Among the criteria the board may consider is whether it determines 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.
"Given that the prevailing interest rates have increased over the last six months, NAFCU believes NCUA should keep the current 18 percent rate in effect," Berger wrote.
NAFCU's analysis of the interest-rate environment, provided in Berger's letter, graphically portrays a steady increase in rates. Berger said lowering the rate cap would discourage a significant segment of federal credit unions from making certain types of loans "to many individuals who have very few alternatives for credit."
In his letter to the board, NAFCU President and CEO Dan Berger added that lowering the rate "could discourage federal credit unions from making loans or approving credit card applications for higher-risk members." He said this, in turn, would likely lead to credit union members seeking loans from other lenders at considerably higher rates.
The Federal Credit Union Act generally limits federal credit unions to a 15 percent interest rate ceiling on loans, but it gives the NCUA Board flexibility to establish a higher rate (if specific criteria are met) for up to 18 months. The current 18-month period terminates Sept. 10.
Among the criteria the board may consider is whether it determines 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.
"Given that the prevailing interest rates have increased over the last six months, NAFCU believes NCUA should keep the current 18 percent rate in effect," Berger wrote.
NAFCU's analysis of the interest-rate environment, provided in Berger's letter, graphically portrays a steady increase in rates. Berger said lowering the rate cap would discourage a significant segment of federal credit unions from making certain types of loans "to many individuals who have very few alternatives for credit."
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