On Compliance: Proposed capitalization of interest rule

Amending Appendix B to Part 741 of NCUA’s rule would increase credit unions’ loan workout options.

The National Credit Union Administration Board approved a proposed rule in November 2020 that, if finalized as proposed, would give federally insured credit unions a new loan workout option to help accommodate members during the COVID-19 Pandemic and beyond.

Currently, federally insured credit unions have several loan workout options allowed under Appendix B to Part 741 of NCUA rules including “re-agings, extensions, deferrals, renewals, or rewrites.”

Appendix B, however, also says that a federally insured credit union’s loan workout policy “must provide that in no event may the credit union authorize additional advances to finance unpaid interest and credit union fees,” which prohibits federally insured credit unions from capitalizing the loan’s past-due interest—i.e. adding it to the loan balance and charging interest on it—as part of a loan modification or other workout.

The proposed rule would amend Appendix B to remove the prohibition on federally insured credit unions restructuring troubled loans by capitalizing unpaid interest in a loan workout.

 

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