As Prepared for Delivery on April 20, 2023
In January of this year, the Board considered whether the renewal of a temporary maximum loan rate of 18 percent, a rate that has been sustained continuously by the NCUA Board action since 1987, should be extended once again. Indeed, the Board voted to extend the 18-percent ceiling until September 2024. However, in our January meeting, we asked the General Counsel to opine if a variable rate is legal. At that time, Chairman Harper said at the time that “If a floating interest rate is legal, we will need to move expeditiously with next steps.”
In today’s briefing, we learned that a variable rate is indeed a reasonable legal interpretation of the Act. After we discussed this matter at our January meeting, we received additional documents from the National Archives that showed that our General Counsel opined in the 1980s that a variable rate was a reasonable legal interpretation, However, at the time, the staff recommended “the Board not use the floating or indexed interest ceiling rate,” I presume from the operational considerations of implementing a floating ceiling in the 1980s. While we can all agree data processing has improved significantly since the 1980s, which would make a variable rate easier to implement, I remained concerned that a variable rate could be complicated for smaller credit unions to implement and may cause operational problems with the Truth in Lending Act, among other consumer protection laws.
As I called for in January, I still believe that a 21-percent interest rate ceiling is appropriate and strikes the right balance when considering the statutory goals of thrift promotion and credit availability while being responsive to economic conditions to avoid safety and soundness considerations.
I do have some questions: We have some instances where our federal chartered institutions are at a disadvantage relative to state-chartered institutions for loan interest rate ceilings. I am not advocating for high interest rates, but I am a believer in risk-based pricing. Can you discuss some of these advantages and disadvantages as it relates to the ability of credit unions to serve underserved communities in regard to the interest rate ceiling?
If the Board did adopt a variable interest rate, how would this impact the PALS program?
Thank you. I have no further questions or comments.