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The NCUA Board Thursday approved a final rule amending the agency's regulations to remove the prohibition on the capitalization of interest in connection with loan workouts and modifications for all federally-insured credit unions (FICUs). NAFCU, since March of 2020, 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.

"NAFCU applauds the NCUA for approving a final rule allowing credit unions and their members to capitalize interest on loan modifications," said NAFCU President and CEO Dan Berger. "The NAFCU team worked hard to advocate for this rule as it will provide credit unions with flexibility and their members with a safe, sound solution with strong consumer protections that will help them manage their loan payments amid the COVID-19 economic recovery. We thank the NCUA Board for listening to our feedback and instituting this rule."

The board previously approved the proposed rule in November and it is finalized as proposed.

The final rule applies to workouts of all types of member loans, requires an ability-to-repay (ATR) analysis, and provides parity with banks and the practices of Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs), which permit the capitalization of interest.

In addition, the rule establishes certain consumer protections and requires compliance with applicable federal and state consumer protection laws. NAFCU's advocacy also helped secure flexibility for credit unions that may have been capitalizing interest prior to this final rule.

The board also approved a final rule regarding the current expected credit loss (CECL) standard methodology to provide parity with a similar rule from the banking regulators.

The final rule implements an automatic phase-in for the day-one adverse prompt corrective action (PCA) impacts over a 3-year period credit unions that adopt CECL on or after Dec. 15, 2022. In addition, state-chartered FICUs with less than $10 million in assets that are required by state law to comply with Generally Accepted Accounting Principles (GAAP) are eligible for the transition phasing.

In addition, the final rule clarifies that FICUs with less than $10 million in assets are not required to determine charges for loan losses in accordance with GAAP and may use any reasonable reserve methodology.

NAFCU supported the phase-in proposal and called on the NCUA to issue it as soon as possible; the association will continue to update credit unions on the latest regarding CECL implementation, including any potential roundtable, as NAFCU recently requested FASB offer for credit unions.

The final item the NCUA Board tackled was the federal credit union loan interest rate ceiling. The board unanimously approved an 18 percent interest rate ceiling for the period beginning Sept. 11, 2021, through March 10, 2023.

The agency deemed that, absent board action to maintain the 18 percent interest rate ceiling, a significant number of FICUs would be adversely impacted. The NCUA stated it will continue to monitor the market to determine whether adjustments to the interest rate ceiling are necessary.

NAFCU continues to advocate for an increased interest rate ceiling to mitigate risk and increase borrowing opportunities, and also has encouraged the board to explore a floating or a variable interest rate.