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NAFCU sent members a Regulatory Alert Monday detailing the NCUA's proposed rule to allow the capitalization of interest in connection with loan workouts and modifications. NAFCU has consistently called on the NCUA to make this change and provide credit unions with much needed relief – during the pandemic and beyond – to help their members meet payment obligations on all types of member loans. 

The capitalization of interest issue falls under Appendix B to Part 741, which contains the NCUA's Interpretive Rule and Policy Statement (IRPS) on Loan Workouts, Nonaccrual Policy, and Regulatory Reporting of Troubled Debt Restructured Loans.

In the Regulatory Alert, NAFCU highlighted that the proposal would:

• apply to workouts of all types of member loans, including commercial and business loans;
• remove the current prohibition on authorizing additional advances to finance unpaid interest as it is burdensome and hampers federally-insured credit unions’ (FICUs) efforts at loan workouts; and
• establish documentation requirements to ensure a borrower’s ability to become current on the loan.

NAFCU noted that the proposal facilitates a more streamlined loan workout and modification process for borrowers, particularly those impacted by the coronavirus pandemic. In addition, the rule would create parity with the approach taken by bank regulators and the government-sponsored enterprises.

Also in the Regulatory Alert, NAFCU poses several questions for credit unions to consider for feedback. Comments on the proposed rule are due to NAFCU Jan. 15; comments are due to the NCUA Feb. 2.

Earlier this year, NAFCU Board of Directors Chair Debra Schwartz and NAFCU's Regulatory Committee called on the NCUA to "provide credit unions with immediate access to this option, eliminating unnecessary hardship and confusion for borrowers and additional challenges for credit unions."

For more on the proposed changes, including an in-depth section-by-section analysis, view the Regulatory Alert; subscribe to receive Regulatory Alerts.