An open letter to NCUA Chairman Todd Harper:
Credit unions are a safe haven for 135 million American consumers looking to protect and build their financial well-being. Unfortunately,
One of those outdated restrictions is the permissible interest rate ceiling. The Federal Credit Union Act of 1934 set the interest rate ceiling at 15%. As you know, the act does provide the National Credit Union Administration with discretion to go above that limit, but only in 18-month increments and only if the conditions of a two-pronged test are met. Since 1987, the NCUA has repeatedly voted to raise and maintain the interest rate ceiling at 18% — acknowledging that not doing so would impair the safety and soundness of individual institutions, while also undermining access to affordable credit for low-income and low-credit-score borrowers.
It's safe to assume that you and your NCUA board members realize the world has evolved significantly over the past 89 years, and that daily life has become more expensive and more complicated. People's spending habits and credit needs have changed. A 15% permissible interest rate ceiling is clearly not effective, and 18% is also becoming less so.
While there are very direct, yet misinformed, arguments advocating against adjusting the interest rate ceiling, I urge you to take a look at the real, clear facts in support of doing so.
First, it increases access to credit. In September 2022, 78% of low-income federal credit unions and 72% of all federal credit unions reported making loans at rates between 15% and 18%, according to your agency's own data. Data shows that state-chartered credit unions subject to even lower permissible interest rate ceilings have been unable to grow their unsecured lending portfolios — meaning less fortunate consumers and small businesses likely went without much-needed credit or, more likely, secured credit on much less favorable terms from other lenders.
As we've seen several times during your four-year tenure as NCUA chairman, in a rising-interest-rate environment, many credit unions will be forced to reduce necessary services to consumers and small businesses in their communities if they are not allowed flexibility to manage interest-rate-related risks.
Second, raising the rate ceiling protects consumers. If a credit union cannot offer a loan to a consumer within the current 18% ceiling, that person will turn to other options, such as large banks or payday lenders. Predatory lending practices are real, and they pose a huge risk to consumers, especially those facing financial hardship and in immediate need of help. The NCUA has spent an incredible amount of time and resources to put an end to such predatory practices that this very issue would lead to.
Additionally, credit unions offer extensive financial literacy programs and counseling to help members manage their finances. These programs highlight the importance of paying bills on time — interest rates only become an issue when rolling credit expenses over month after month; credit unions work hard to combat this cycle of debt.
Finally, raising the rate cap strengthens the credit union industry. Risk-based pricing is an important regulatory requirement to ensure the safety and soundness of the industry. Raising the interest rate ceiling will empower credit unions to fairly serve more of our nation's underserved and unserved. It upholds their equal responsibilities to all members and emboldens the credit union system to operate in a safe and sound manner.
A trademark of the credit union industry is its mission to help people. This mantra guides credit unions' decision-making, putting their members' best interests ahead of profits. Credit unions work hard to find solutions to members' financial problems, invest in their communities and offer the best products and services available. Raising the industry's interest rate ceiling will allow credit unions to continue to do so.
Mr. Chairman, I implore you to look at all sides of this issue and listen to your member credit unions, not just those who are arguing the loudest in Washington. As someone who began your career deeply involved in the credit union difference — people helping people — I trust you'll prioritize this mission and do what's right to ensure credit unions are protected and the 135 million Americans they serve have a real opportunity to achieve and maintain financial freedom.
