Let me begin by stating that I am opposed to price controls.
But with that said, the Federal Credit Union Act (FCUA) imposes an interest rate cap on federal credit union loans of 15 percent. However, the FCUA provides some discretion to the National Credit Union Administration (NCUA) Board to establish an interest rate above the cap.
When setting the rate above 15 percent, the NCUA Board must determine that money market interest rates have risen over the preceding six-month period and that prevailing interest rate levels threaten the safety and soundness of individual credit unions as evidenced by adverse trends in liquidity, capital, earnings, and growth.
Congress limited the time period for the interest rate to exceed the statutory usury rate to 18 months. So every 18 months, the NCUA Board has to meet to determine the maximum loan interest rate.
In December 1980, the NCUA Board voted to raise the ceiling to 21 percent. In May 1987, the ceiling was reduced to the current level of 18 percent and has remained at that rate since then. There is an exception for payday alternative loans which are capped at the interest rate ceiling set by the Board plus 1,000 basis points.
It made sense for the NCUA Board to raise the rate in 1980, as the yield on the 3-month T-bill averaged 15.49 percent in the seconday market in December 1980. In May 1987, the Board lowered the rate as the yield on the 3-month Treasury Bill (constant maturity) had fallen and was averaging 5.85 percent for the month of May.
But it is hard to justify NCUA's maintaining the ceiling interest rate at 18 percent with money market rates being mired near zero percent for the last six years.
How is this consistent with NCUA's statutory authority?
The 15% cap should have been in place since 2010 at the least. The NCUA Chair has been represented by both political parties, but they all get the majority of their data from CUNA and NAFCU. There is not one legitimate reason that justifies NCUA violation of the FCU Act.
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