Capitalization of Interest in Connection with Loan Workouts & Modifications

February 2, 2021

Melane Conyers-Ausbrooks
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314

 

Dear Secretary Conyers-Ausbrooks:

The National Association of State Credit Union Supervisors (NASCUS)[1] submits this letter in response to the National Credit Union Administration’s (NCUA’s) request for comments on RIN 3133-AF30, Proposed Rule: Capitalization of Interest in Connection with Loan Workouts and Modifications.[2] The proposed rule would amend Appendix B of Part 741 of NCUA’s Rules and Regulations to remove the prohibition against the capitalization of interest in connection with loan workouts and modifications. As NCUA acknowledges in the Supplemental Material, banks are not subject to such a prescriptive limitation on capitalization of interest and therefore are better positioned to work with borrowers facing difficulty resulting from the COVID-19 pandemic.[3]

Finalizing the proposal will 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. 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.

NASCUS supports this rulemaking and we urge NCUA to finalize the rule expeditiously. 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.

With respect to NCUA’s “Questions for Comment,” we defer to credit union stakeholders to share their specific operational experience.[4] However, from a broader systemic perspective, NASCUS recommends NCUA reconsider the blanket prohibition 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 commends NCUA for moving to modernize the overly prescriptive limitations related to credit union loan modifications. The proposed rule, when finalized, will benefit both credit unions and economically distressed members. We are happy to discuss our recommendations further at your convenience.

Sincerely,

– signature redacted for electronic publication –

Brian Knight

Executive Vice President & General Counsel

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[1] NASCUS is the professional association of the nation’s 45 state credit union regulatory agencies that charter and supervise over 2,000 state credit unions. NASCUS membership includes state regulatory agencies, state chartered and federally chartered credit unions, and other important stakeholders in the state system. State chartered credit unions hold nearly half the $1.76 trillion assets in the credit union system and are proud to represent nearly half of the 123 million credit union members
[2] “Capitalization of Interest in Connection with Loan Workouts and Modifications” 85 Fed. Reg. 78269 (December 4, 2020).
[3] Id. at 78270.
[4] Id at 78272.