Board Action Bulletin
Briefed on Loan Interest Rate Ceiling and Cybersecurity Threats
ALEXANDRIA, Va. (April 20, 2023) – The National Credit Union Administration Board held its fourth open meeting of 2023 and approved a request for information on climate-related financial risk. The Board also was briefed on the maximum interest rate ceiling for federal credit unions and the cybersecurity threats affecting federally insured credit unions and the broader financial system.
NCUA Seeks Comment on Climate-Related Financial Risks to Credit Unions
The NCUA Board approved by a 2–1 vote a request for information (opens new window) seeking comments on current and future climate and natural disaster risks to federally insured credit unions, related entities, their members, and the National Credit Union Share Insurance Fund.
“As a regulator and insurer, the NCUA has a duty to ensure the institutions it oversees remain resilient against all material risks. Those risks include climate-related financial risks,” NCUA Chairman Todd M. Harper said. “This request for information is essential to furthering our understanding of these issues and their implications for the overall resiliency of individual credit unions, the vibrancy of the credit union system, and the strength of the National Credit Union Share Insurance Fund.”
The NCUA is seeking input that would strengthen its ability to identify and assess credit unions’ current and future climate and natural disaster risks. The NCUA is also seeking stakeholder comments on opportunities to enhance its supervision and regulation of each regulated entity’s management of such risks.
In addition to seeking stakeholders’ views and experiences on the current and future climate and natural disaster risks faced by federally insured credit unions, commenters are encouraged to provide comments on any and all relevant issues they believe the Board should consider with respect to the financial risks associated with climate change. This includes, but is not limited to, risks posed to, or stemming from, field of membership, lending, investments, other assets, deposits, underwriting standards, insurance coverage, liquidity, and capital.
“Anyone who is a stakeholder — those within the credit union system and interested parties outside of it — is encouraged to provide the NCUA with comments,” Chairman Harper said. “It is important that the NCUA understand any potential risks extreme weather events may have on the credit union system and individual credit union balance sheets. The answers we receive may also allow us to discern what tools credit unions would like to have to assist them in effectively monitoring, managing, and mitigating climate-related financial risks.”
Comments will be accepted for 60 days after publication in the Federal Register.
Interest Rate Ceiling Remains Unchanged
The NCUA Office of Examination & Insurance and the Office of General Counsel briefed (opens new window) the Board on the interest rate ceiling and the safety and soundness effects of changing the ceiling on individual federal credit unions. The briefing also included background on loan interest rate ceiling, a legal opinion on a floating interest rate ceiling, federal credit union unsecured lending trends, and economic outlook.
The extension of the 18-percent maximum interest rate ceiling for federal credit unions was approved at the January 2023 NCUA Board meeting. The ceiling will remain unchanged at 18 percent through September 10, 2024.
“To change the interest rate ceiling for federal credit unions, we must consult with certain parties like Congress, the other federal banking agencies, and the Treasury Department,” Harper said. “There is also a legal standard requiring us to determine that the prevailing interest rate levels threaten the safety and soundness of individual credit unions in several aspects.”
Today’s briefing noted that the latest policymaker forecast suggests that the Federal Funds Rate will peak at 5.1 percent in 2023, and there is the potential for interest rate cuts to follow in 2024. Reverting the federal credit union loan rate ceiling to 15 percent, as stated in the briefing, would have a safety and soundness impact on individual federal credit unions with a high concentration of loans above 15 percent rate, those with net operating losses, and those with weak liquidity positions.
Harper also noted that increasing the ceiling, as some stakeholders within the industry have advocated for, would have a detrimental effect on the finances of credit union members.
“We must always remember who ultimately feels the effects of these interest rate ceiling decisions,” Harper said. “The credit union system’s statutory mission is to support the saving and credit needs of all Americans, especially people of modest means. With American households under increasing financial stress from inflationary pressures and economic uncertainty, we should not place additional and unnecessary burdens on families.”
Top Cyberthreats to Credit Union System and Financial Sector Briefed to Board
As stressed in a briefing (opens new window) to the Board by the Chairman’s Special Advisor for Cybersecurity, ransomware and extortion operations, social engineering and openAI platforms, external-facing application vulnerabilities, misconfigurations in cloud environments, distributed denial of service attacks, and geopolitical issues are top cyberthreats to the credit union system and financial sector.
“What concerns me more are the countless threats we do not know about,” Harper said. “And these risks are likely to continue and accelerate, especially as more credit union operations migrate to credit union service organizations and vendors. Unfortunately, CUSOs and third-party service providers do not have the same level of oversight as bank vendors. This growing regulatory blind spot in the financial system threatens our nation’s economic security and the financial well-being of our citizens.”
The NCUA continues to encourage credit union boards of directors to review their third-party and vendor relationships, assess and mitigate any potential risk associated with those products and services, and continue to strengthen their institution’s cyber vigilance and preparedness efforts.
The briefing noted that the NCUA raises awareness of cybersecurity risk to the credit union industry by supporting cybersecurity-related outreach events, providing training and assessment tools, publishing cyber alerts and notifications, and participating in industry tabletop exercises.
Cyber information for credit unions, including regulations and guidance, along with information about protecting themselves and their members from cyberthreats is available on the NCUA’s cybersecurity resources webpage.
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