Rates, charges and fees vs. NCUA’s interest rate limitation

A couple of weeks ago, we wrote about Regulation Z’s rule that details the requirements for over-the-limit transactions on a credit card and the opt-in process that must be completed before charging members when they exceed their credit limit on a credit card account. In response to the blog, credit unions have asked whether an over the limit fee must be included in NCUA’s 18% interest rate calculation. Today’s blog focuses on what credit card costs and fees a federal credit union can charge without including them in the calculation for NCUA’s interest rate cap.

Section 701.21(c)(7)(i) governs the usury interest rate ceiling federal credit unions are required to follow. Under this rule, federal credit unions are not allowed to extend credit to members at rates exceeding 18 percent per year on the unpaid balance inclusive of all finance charges. Neither the Federal Credit Union Act nor NCUA regulations specify how the rate of interest is to be calculated. The regulation merely states that it must be “inclusive of all finance charges.” NCUA’s practice has been to follow the definition of “finance charge” found in section 1026.4(a) of Regulation Z:

“The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.”


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