Capitalization of interest final rule

During its June 2021 open meeting, the National Credit Union Administration (NCUA) Board approved a final ruleeliminating the prohibition on the capitalization of interest in loan workouts and modifications. The final rule was published in the Federal Register on June 30, 2021, and the rule will be effective July 30, 2021.

NAFCU previously blogged about the proposed rule back in December, and the preamble to the final rules notes that the NCUA Board adopted the proposed rule without making any changes. The final rule amends Appendix B to Part 741 of NCUA’s rules and regulations. Appendix B sets forth NCUA’s expectations regarding loan workouts, a credit union’s nonaccrual policy, and the regulatory reporting of troubled debt restructured loans. In its current form, Appendix B prohibits federally insured credit unions from implementing loan workout policies that “authorize additional advances to finance unpaid interest and credit union fees.” The final rule eliminates the prohibition, but only with respect to the capitalization of interest. The preamble to the final rule is very clear that the prohibition still applies to credit union fees and commissions:

“The final rule continues to provide that a [federally insured credit union] may not, under any event, authorize additional advances to finance credit union fees and commissions. [Federally insured credit union]s will be permitted to continue to make advances to cover third party fees to protect loan collateral, such as force-placed insurance or property taxes. The Board believes that maintaining the prohibition on the capitalization of credit union fees is an important consumer protection feature of the rule for member borrowers.”


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