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NAFCU to NCUA: Capitalization of interest would benefit CU members
NAFCU Director of Regulatory Affairs Ann Kossachev wrote to the NCUA Monday to offer support for the agency’s proposed rule on capitalization of interest. The proposal, issued during the board’s November meeting, would allow for the capitalization of interest in connection with loan workouts and modifications and would provide credit unions with the ability to better help their members meet payment obligations on all types of member loans.
NAFCU has previously raised this issue to the NCUA: Last 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."
“The benefits of this new rule would far outweigh any risks to credit union members as the documentation and consumer protection guardrails currently in Appendix B and those that would be added by this rule are sufficient to ensure any efforts to capitalize interest are mutually beneficial for the borrower and the credit union,” wrote Kossachev.
The issue of capitalization of interest 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 letter, Kossachev called on NCUA examiners to only evaluate “whether the credit union is obtaining the necessary information from its member-borrowers in a consistent and coherent fashion.”
“Examiners should defer to the credit union’s evaluation of a borrower’s creditworthiness for a loan modification with capitalization of interest so long as they are meeting the requirements of their internal written policy, in accordance with the additions to proposed Appendix B, Federal law, and state law, if applicable,” wrote Kossachev.
The proposal continues to prohibit additional advances to finance credit union fees and commissions, although certain advances – such as those to cover third party fees to protect loan collateral like force-placed insurance or property taxes – are permitted.
Should the NCUA decide to authorize additional advances to finance credit union fees and commissions, Kossachev asks that appropriate limitations be put in place to provide consumer protections and prevent unrestricted advances.
In addition, Kossachev urges the NCUA to reconcile the language in the proposed rule with its federal preemption regulation under section 701.21(b).
Read the full letter. For more on this topic, view NAFCU’s Regulatory Alert detailing the proposed rule.