Feb. 3, 2021

State system recommends reconsidering blanket prohibition against additional advances

NCUA’s proposed rule allowing credit unions to capitalize interest should be finalized “expeditiously,” NASCUS wrote in a comment letter to the agency 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.

NASCUS agreed with NCUA (when it proposed the rule in November) that removing the prohibition on capitalization of interest by federally insured credit unions 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.

See the link below for the complete text of the NASCUS comment letter.

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

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NASCUS is the national association that advocates for a strong and healthy state credit union system, and whose members include state regulatory agencies, credit unions, credit union leagues, and organizations that support the state credit union system.

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