WASHINGTON (8/8/12)--Federal credit unions (FCUs) may charge no more than 18% on most of their loans, the NCUA reminded them in a letter (12-FCU-04).
"We must reconsider an approved rate over 15% at least every 18 months. The current established 18% percent rate ceiling expires on September 10, 2012. Our decision extends the 18% ceiling for 18 months beginning September 11, 2012 through March 10, 2014,'' NCUA Chairman Debbie Matz wrote.
She noted that the board extended the rate at its July meeting.
The 1980 Depository Institutions Deregulation and Monetary Control Act raised that ceiling to 15%, up from 12%, and authorized further increases--up to 21%--at NCUA board discretion for periods not-to-exceed 18 months provided.
The ceiling has been re-set at the current 18% level since May 1987.
The interest-rate ceiling applies to all federal credit union lending, except originations under the short-term small loan program. The current limit on short-term small loans is 28%.
Increases over the 15% cap may only occur if money market interest rates have risen in the last six months and disintermediation threatens the credit union system.
The NCUA staff discussed at the July meeting that a reduction in the ceiling could impact a large number of federal credit unions and their loans, since about 62% have some loans at rates above 15%.
In the letter, Matz said the decision also preserves the ability of FCUs to offer a payday loan alternative at a rate of 28% under NCUA's Short-Term Small Loan Program.
Use the resource link to read the NCUA's Letter to Federal Credit Unions.