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In response to the NCUA's decision to extend the 18 percent loan interest rate ceiling until Sept. 10, 2021, NAFCU President and CEO Dan Berger urged NCUA Board Chairman Rodney Hood and board members Todd Harper and Mark McWatters to explore the adoption of a variable interest rate, and encouraged the board to publish an advanced notice of proposed rulemaking (ANPR). An ANPR for the rate ceiling is listed on the NCUA’s Fall Rulemaking agenda.

The board agreed to extend the loan interest rate ceiling during its January board meeting, the current rate was set to expire March 11, 2020, and would have reverted to 15 percent without board action.

“A variable interest rate allows credit unions to adequately utilize risk-based pricing, helping to mitigate interest rate risk and credit risk,” wrote Berger in a letter sent Thursday. “A variable interest rate with a fixed spread over Prime would still be below the interest rates often charged by banks.”

In the letter, Berger specifically suggests the adoption of a 15 percent spread over Prime. 

"Given the confines of the current interest rate ceiling, growth opportunities are stifled as credit unions are unable to take reasonable amounts of risk and lend to those members not suitable for an 18 percent rate," he added.

Berger also noted the benefits of a variable interest rate, highlighting that the implementation costs and administrative burdens are low, and it would "expand lending access to underserved borrowers, and provide a timely and transparent mechanism for adjusting the interest rate ceiling."

Additionally, Berger suggests that setting a variable interest rate would position credit unions as “more competitive in the financial services industry” – something that NAFCU had expressed to the NCUA in a previous letter encouraging the board’s exploration of a floating or variable interest rate.

NAFCU will continue to share suggestions and credit union concerns on this topic with the NCUA. Read Berger’s full letter.