CECL, interest rate cap and interest capitalization rules approved by the NCUA Board of Directors

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NCUA lobby.

The three agenda items of the NCUA board program were all discussed and all unanimously approved by the three-member board on Thursday. The ratified issues ranged from updates to the current expected credit loss methodology (CECL) to extending the interest rate cap of 18% until March 2023.

Interest rate limit on federal credit union loans

NCUA staff members analyzed money market rates and found that lowering the interest rate cap for federal credit unions below the current temporary rate of 18% would threaten the safety and soundness of credit unions. credit unions “because of the expected negative effect on liquidity, capital, profits and growth. . “

NCUA President Todd Harper said, “Going forward, I encourage all credit unions to offer their members lower rates where possible and to develop affordable loan products that include a savings function. Providing members with an easy way to save for rainy days will help them deal with small emergencies that might otherwise have resulted in them going to a payday lender.

In a 3-0 approval vote from the board members, the temporary interest rate cap will be in effect from September 11, 2021 to March 10, 2023.

Vice President Kyle Hauptman and board member Rodney Hood have agreed with Harper that this will be an important resource for low-income credit unions trying to help members who have been economically devastated by the pandemic.

As credit unions and the economy continue to recover, Hood suggested establishing a new advisory council made up of credit unions to help give the NCUA a better idea of ​​the needs of credit unions during this recovery.

“It’s more important than ever that we hear directly from credit unions,” Hood said. “We need to do a much better job of getting on-the-ground feedback from credit unions in an informal setting where credit unions don’t feel they will be reprimanded for giving honest and constructive feedback.”

Both Harper and Hauptman agreed with Hood’s idea.

Final Rule, Part 702, Current Methodology of Expected Credit Loss

In another 3-0 approval vote, this part of the final rule, according to a Harper statement, allows credit unions to “temporarily mitigate the initial impact of adopting the CECL by allowing a cooperative of credit covered and insured by the federal government to gradually enter into the day. -an effect on his net worth ratio over a three-year period according to the NCUA’s rapid corrective action standards.

Hauptman pointed out that while credit unions are caught up in the new reality of the CECL, credit unions have not caused the problem. “I sympathize with credit unions who feel their pain at an additional cost for the problems created by others,” Hauptman said. “CECL has a significant cost in time, effort and regulatory risk,” he said.

Under the terms of the final rule, the phase-in would only apply to federally insured credit unions that adopt CECL for fiscal years beginning on or after December 15, 2022.

NCUA staff are developing education and training sessions for credit unions and examiners to be deployed next year.

Final Rule, Part 741, Appendix B, Interest Capitalization

With another unanimous vote (3-0), the NCUA board of directors approved the final rule to remove the ban on credit unions capitalizing interest on loan modifications while maintaining the ban. It is important for a credit union to capitalize the fees and commissions of credit unions.

Harper said: “It also establishes repayment capacity requirements to ensure that adding unpaid interest to the principal balance of a mortgage loan will not impede the borrower’s ability to make payments or make payments. become up to date on the loan. These measures would apply to restructuring of all types of member loans, including commercial and corporate loans. “

Board members agreed that this final rule would give credit unions parity with banks, as well as organizational giants such as Fannie Mae, Freddie Mac and the Federal Housing Administration, all of which currently allow agents to capitalize interest as part of their modification programs.

NCUA Office of Examinations and Insurance Director Myra Toeppe said, “This rule going forward, even after the pandemic, it just gives credit unions another tool in the toolbox to work with. with borrowers. So I think that’s really important and it puts credit unions on par with banks and it’s yet another tool that they can use to help their members change their loans.

According to the NCUA, the final rule comes into effect 30 days after it is filed with the national registry.

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