NCUA Board Member Tanya F. Otsuka’s Statement on the Loan Interest Rate Ceiling

As Prepared for Delivery on July 18, 2024

Thank you, Naghi and Amanda, for your presentation on the interest rate loan ceiling. As you've noted, the 18-percent loan interest rate ceiling for federal credit unions has remained unchanged since 1987.

From 1987 until now, there have been economic downturns, including the Great Recession, high inflation, and the pandemic. Yet, the credit union system has been able to grow with an interest rate ceiling of 18 percent. At the end 1987, our system of cooperative credit totaled $160 billion in assets. Today, as of March 2024, our credit union system has $2.3 trillion in assets.¹ This is clear evidence that credit unions can thrive while providing their members access to credit at reasonable rates.

Congress established specific statutory requirements that the Board must consider before setting the rate ceiling above 15 percent. Staff's analysis and due diligence consistent with the statute supports keeping the interest rate ceiling at 18 percent. Only In 1980, when inflation peaked at 14.6 percent, far higher than it is today, did the NCUA Board raise the interest rate ceiling to 21 percent.

"From 1987 until now, there have been economic downturns, including the Great Recession, high inflation, and the pandemic. Yet, the credit union system has been able to grow with an interest rate ceiling of 18 percent. At the end 1987, our system of cooperative credit totaled $160 billion in assets. Today, as of March 2024, our credit union system has $2.3 trillion in assets. This is clear evidence that credit unions can thrive while providing their members access to credit at reasonable rates."

In addition, loan portfolio data from our call reports indicates that consumers are already feeling squeezed. Between quarter one 2023 and quarter one 2024, credit card balances grew by $6.6 billion, or 9 percent, to $80.8 billion.² This is more concerning when coupled with the fact that the credit card delinquency rate rose by 54 basis points during the last year. Furthermore, the delinquency rate for the other major loan products offered by credit unions, such as auto loans and residential real estate, are also increasing- 21 and 19 basis points, respectively.³

My questions to you are:

1. Do you anticipate that raising the interest rate ceiling to 21 percent can cause the delinquency rate across loan products to further increase?
2. How would raising the interest rate ceiling to 21 percent affect credit unions members ability to gain access to affordable credit and affect our mission to provide credit to those of modest means?

"It is important to remember that unlike banks, credit unions are not-for-profit organizations, whose main mission is to provide credit and financial services to communities that need it the most. Instead of aiming to achieve a particular profit margin or satisfying shareholders' interests, this mission should be the most important consideration for credit unions."

Thank you, Naghi and Amanda. It is important to remember that unlike banks, credit unions are not-for-profit organizations, whose main mission is to provide credit and financial services to communities that need it the most. Instead of aiming to achieve a particular profit margin or satisfying shareholders' interests, this mission should be the most important consideration for credit unions.

For that reason, I support maintaining the interest rate loan ceiling at 18 percent. This rate provides more flexibility above the threshold that Congress established. This allows credit unions to grow while still being able to provide credit at a competitive rate compared to other financial institutions. Thank you, Chairman Harper and Vice Chairman Hauptman.

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