Capitalization of interest rule needs ‘expeditious’ decision, NASCUS writes

(Feb. 5, 2021) A proposed rule allowing credit unions to capitalize interest should be finalized “expeditiously,” NASCUS said in a comment letter to NCUA this week, noting its support for the rule.

We have no doubt credit unions will exercise the ability to capitalize interest to the benefit of members in need and are confident in the ability of state examiners to provide supervisory oversight of loan workouts and modifications,” NASCUS wrote.

The comment letter was filed in response to the NCUA Board’s proposal issued Nov. 19., the board suggested, in issuing the proposal, that continuing to prohibit the authorization of additional advances to finance unpaid interest may be overly burdensome. Removing the prohibition, the board asserted, would “assist a federally insured credit union’s good-faith efforts to engage in loan workouts with borrowers facing difficulty because of the economic disruption that the COVID- 19 event has caused.”

NASCUS agreed, writing its comment letter that finalizing the proposal would provide credit unions’ greater flexibility to work with economically distressed members. “That enhanced flexibility benefits distressed credit union borrowers by expanding the options for repayment programs as the member regains their economic footing,” NASCUS wrote. “Concurrently, provisions of the rule protecting the best interests of the borrower provide consumer protection guardrails that protect against the unlikely chance that a credit union engages in unfair lending practices.”

The state system made one recommendation through the NASCUS letter: that the agency reconsider the blanket prohibition contained in the proposal against additional advances to cover credit union fees and provide credit unions the full range of options for managing and structuring loan work outs as other depository institutions.

Credit unions have both the ability and integrity to balance the interests of the credit union, distressed borrowers, and other members,” NASCUS wrote.

NASCUS comment: Proposed Rule — Capitalization of Interest in Connection with Loan Workouts and Modifications