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Infosight Highlight: Loans–Interest Rate and FCUs
Friday, August 18, 2017 7:00 AM

The Federal Credit Union Act permits federal credit unions to make loans and extend lines of credit to members but prohibits FCUs from charging an annual percentage rate (APR), inclusive of all finance charges, above 15 percent. The Act, however, permits the NCUA board, after considering certain statutory criteria, to establish a higher interest rate ceiling in 18-month cycles. (The Federal Credit Union Act: Section 1757(5)(A)(vi))

Current Increases
Since 1987, when the NCUA Board decreased the temporary ceiling from 21 percent, it has consistently acted to maintain a temporary ceiling of 18 percent. The current NCUA board approved 18 percent ceiling remains in effect through March 10, 2017. (Per NCUA Rules and Regulations Part 701.21 (c)(7)(ii))

Finance Charges
Finance charges that must be included in the determination of the interest rate are consistent with those defined in Regulation Z, Truth in Lending.

Penalty for Exceeding the Allowable Interest Rate
An FCU that knowingly charges or receives an interest rate that exceeds that allowed by law is subject to forfeiture of the entire amount on interest charged or received. Such action must be taken by the borrower or his legal representative within two years of the time the usurious collection was made.

Source: InfoSight Compliance

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