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NAFCU calls for interest rate ceiling increase ahead of NCUA Board meeting
Ahead of today’s NCUA Board meeting, during which members are set to consider the federal credit union (FCU) permissible interest rate ceiling and the NCUA’s 2023 Annual Performance Plan, NAFCU President and CEO Dan Berger sent a letter urging the agency make adjustments that will mitigate FCUs’ interest-rate-related risks and enable FCUs to better serve their communities.
While the Federal Credit Union Act establishes a 15 percent permissible interest rate ceiling, the NCUA Board can raise the ceiling for a period of up to 18 months if conditions of a two-pronged test – related to money market rates and interest rate levels that threaten the safety and soundness of individual FCUs – are met. Berger noted the NCUA Board has consistently maintained the interest rate ceiling at 18 percent for decades by extending the expiration date.
The rate is currently set to expire March 10.
NAFCU has long called for the NCUA to establish a floating permissible interest rate ceiling to permanently address constraints and issues posed by the 15 percent ceiling. Berger reiterated the need for this flexibility during periods when benchmark interest rates rise sharply and urged the NCUA Board to pursue legal and economic research to properly evaluate this change.
In the meantime, Berger recommended the NCUA establish a 21 percent interest rate ceiling to allow credit unions to “remain a viable, better alternative to banks and fintech lenders” considering the current federal funds rate environment.
Absent an increase in the permissible interest rate ceiling to 21 percent, Berger called on the NCUA to again extend the 18 percent ceiling because reverting to 15 percent in today’s economic environment would be “catastrophic” for FCUs and their members.
Berger commended the NCUA Board for its recent shift to principles-based regulation, citing the loan participations and eligible obligations proposed rule and the derivatives rule finalized in 2021.
“At the heart of the NCUA Board’s reasoning in these rulemakings is a simple principle: FCUs capable of prudently using tailored interest rate risk management tools should be permitted to use those tools to protect and grow their balance sheets and, in the process, help reduce overall risks to the credit union system,” Berger said, adding that the board should apply that approach to the interest rate ceiling.
Read Berger’s full letter here. NAFCU will monitor today’s board meeting – set to begin at 10 a.m. Eastern and available via livestream on the agency’s website – and provide credit unions with an update at its conclusion.