The National Credit Union Administration board voted to maintain the current 18 percent interest rate cap on loans made by credit unions until Sept. 10, 2018.
“A reduction in the interest rate cap would directly affect borrowers of modest means, as they are often the members served by credit unions participating in risk-based lending,” acting NCUA Board Chairman Mark McWatters said. “It is important that we ensure that credit unions can continue to provide access to affordable credit to best serve their members.”
The Federal Credit Union Act caps the interest rate on federal credit union loans at 15 percent, but the law gives the NCUA Board discretion to raise that limit for 18-month periods if interest-rate levels could threaten the safety and soundness of credit unions. The 18 percent ceiling has been in place since May 1987.
NCUA determined that lowering the interest rate could have an adverse effect on the safety and soundness of credit unions given the rising money market rates. More than 65 percent of federal credit unions were offering loan products that would be affected by a reduction in the interest-rate ceiling. A cap could reduce loan volume, impair earnings and place additional pressure on net interest income.
A reduction in the interest rate ceiling could also limit access to credit for low-income members.
The board also reported that the National Credit Union Share Insurance Fund ended 2016 with a net position of $12.7 billion.