NCUA Board Meeting Summary- June 24, 2021

Federal Credit Union Loan Interest Rate Ceiling

The Board voted to reaffirm the current maximum loan rate of 18% (28% for PALs) through March 10, 2023. Today’s action was necessary to avoid the maximum rate from reverting back to the lower statutory level of 15%, which would have occurred in September of this year had the Board not acted.

Board Member Hood encouraged the Board to pursue a potential floating interest rate cap instead of the traditional fixed rate. The agency’s semi-annual regulatory agenda includes an item to solicit comments on various issues related to the interest rate ceiling for loans granted by FCUs.

Final Rule – Current Expected Credit Loss Methodology (Part 702)

The Board adopted a final rule to facilitate the transition of credit unions to the CECL methodology required under GAAP. The final rule provides that, for purposes of determining a credit union’s net worth classification under the PCA regulations, the Board will phase-in over a three-year period the day-one adverse effects on regulatory capital that may result from adoption of CECL.

Consistent with regulations issued by the other federal banking agencies, the final rule will temporarily mitigate the adverse PCA consequences of the day-one capital adjustments, while requiring that credit unions account for CECL for other purposes, such as Call Reports. The final rule also provides that credit unions with less than $10 million in assets are no longer required to determine their charges for loan losses in accordance with GAAP.

The Association has consistently supported NCUA’s adoption of a CECL phase-in.

In response to a question from Chairman Harper, NCUA staff indicated that it is working on CECL compliance resources that should be available by the end of this year.

The final rule will become effective 30 days after publication in the Federal Register. Credit unions are required to comply with CECL by January 2023.

Final Rule – Capitalization of Interest (Part 741, Appendix B)

The Board adopted a final rule to remove the prohibition on the capitalization of interest in connection with loan workouts and modifications. The final rule also establishes documentation requirements to help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan.

The Association acknowledged that the proposal approach to the addition of unpaid interest to the principal balance of a loan is a particularly useful practice in managing loans in deferment or forbearance. Most importantly for credit unions, it seeks to provide a welcomed opportunity to offer an economic lifeline to members still facing financial hardships.

The final rule will become effective 30 days after publication in the Federal Register.

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