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VIEWpoint Issue 1 | 2023
2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
1. Capitalization of Interest Final Rule
The Board approved a final rule removing the prohibition on the capitalization of interest relating to loan workouts and modifications. Capitalization of interest is the addition of interest that has been accrued but unpaid to a loan’s principal balance. This new rule will allow for credit union borrowers to repay requirements to ensure their unpaid interest to the principal balance of a mortgage will not prevent their ability to pay the loan.
2. Phasing-In of CECL’s Effects
The Board also approved a final rule phasing in the day-one adverse effects on regulatory capital resulting from adopting the current expected credit losses (CECL) accounting method over a three-year window. The phase-in period is intended to provide flexibility to credit unions without interfering with serving their members. The phase-in will only apply to federally insured credit unions adopting CECL for fiscal years beginning on or after Dec. 15, 2022. Additionally, credit unions with less than $10 million in assets are no longer required to use Generally Accepted Accounting Principles (GAAP) to determine charges for loan losses, and they are also eligible for the phase-in.
3. Extension of Interest Rate Ceiling
The third final rule recently approved by the NCUA includes an extension of the federal credit union loan interest rate ceiling (18%) for loans made by federal credit unions through March 10, 2023. While the Federal Credit Union Act states the maximum interest rate on federal credit union loans is 15%, the NCUA Board has the authority to raise the rate for 18-month increments if it deems the interest rate could threaten safety and soundness, which it presently does in the eyes of the NCUA, due to the “anticipated adverse effects on liquidity, capital, earnings, and growth.” The NCUA will continue to keep its finger on the pulse of market rates and adjust the maximum loan rate accordingly.
For more information on how these newly approved final rules may impact your credit union, contact Doeren Mayhew today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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