Monthly Recap: Cap. of Interest, CECL, & FCU Interest Ceiling

Logo for the National Credit Union Administration

On Thursday, the National Credit Union Administration (NCUA) Board approved the following final rules during its monthly meeting:

Capitalization of interest in connection with loan workouts and modification – Part 741, Appendix B: The rule removes the prohibition on the capitalization of interest in connection with loan workouts and modifications. The final rule also establishes documentation requirements to help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan.

Current Expected Credit Loss (CECL) Methodology – Part 702:  This final rule will facilitate the transition of credit unions to the CECL methodology required under generally accepted accounting principles (GAAP). The final rule provides that, for purposes of determining a credit union’s net worth classification under the PCA regulations (Prompt Corrective Action), the NCUA will phase-in over a three-year period the day-one adverse effects on regulatory capital that may result from adoption of CECL.

Consistent with regulations issued by the other federal banking agencies, the final rule will temporarily mitigate the adverse PCA consequences of the day-one capital adjustments, while requiring that credit unions account for CECL for other purposes, such as call reports. The final rule also provides that credit unions with less than $10 million in assets are no longer required to determine their charges for loan losses in accordance with GAAP.

Federal Credit Union (FCU) Loan Interest Rate Ceiling: In addition, the board also approved to reaffirm the current maximum loan rate of 18 percent (28 percent for payday alternative loans - PALs) through March 10, 2023. The action was necessary to avoid the maximum rate from reverting back to the lower statutory level of 15 percent, including PALS, which would have occurred in September of this year had the board not acted.

Click here for additional information.

Pin It