Dan Berger, the president and CEO of the National Association of Federal Credit Unions, urged the National Credit Union Administration last week to maintain the federal credit union loan rate ceiling at 18 percent when it considers the matter on Thursday.
The Federal Credit Union Act limits the FCU loan rate ceiling to 15 percent, unless NCUA establishes a higher rate after considering other factors.
NCUA may raise the rate above 15 percent if it determines that the prevailing interest rate would threaten the safety and soundness of individual institutions and if rates have risen over the preceding six months.
“NAFCU believes that lowering the interest rate will be detrimental to the safety and soundness of credit unions as it could potentially result in a loss of capital,” Berger said. “Further, it could discourage FCUs from making loans or approving credit card applications for higher risk members. This in turn would likely lead to credit union members seeking loans from other lenders at considerably higher rates.”
Berger said that despite the current low rate environment, data from the Federal Reserve indicates that shot-term rates have risen in the past six months. He said 7.5 percent of credit unions would be required to change their rate policy if the interest rate ceiling is lowered to 15 percent.
“Lowering the current interest rate ceiling would not only force all such credit unions to change their rate policy but it would almost certainly force many credit unions to simply stop lending to many individuals who have very few credit alternatives,” Berger said. “In short, lowering the interest rate ceiling would lead to credit unions significantly tightening lending standards which would, in turn, result in less credit availability at a time when there is already a significant shortage of available credit.”
NCUA last took action on the rate ceiling in 2012. Without intervention the rate ceiling will revert back to 15 percent after March 10.