United States: CFPB finalizes LIBOR transition rule

The CFPB has published a final rule to facilitate the transition to LIBOR. The rule amends the provisions of Regulation Z, which implements the Loan Truth Act.

The changes serve to move away from the LIBOR indices for both open and closed products. The rule (i) will update the LIBOR-related provisions for closed products, such as adjustable rate mortgages, private student loans, auto loans and personal installment loans, (ii) update the provisions related to LIBOR for open products, including index changes, change of conditions notices and rate reassessment requirements for credit cards and home equity lines of credit, and (iii) revise the regulations Z as a whole to refer to certain maturities of the Guaranteed Overnight Spread Adjusted Overnight Funding Rate (“SOFR”) instead of a LIBOR index. The Final Rule will also restructure the sample rate adjustment notice forms. ARM interest rate for the LIBOR transition.

The CFPB has also published updated FAQs to help creditors comply with the Final Rule and to offer advice on LIBOR transition matters and regulatory issues and considerations.

The changes to Regulation Z will come into effect on April 1, 2022, although some notice of change of conditions requirements do not require compliance until October 1, 2022. The sample rate adjustment notice forms d The updated ARM interest can be used from April. 1, 2022, and should be used from October 1, 2023.

Commentary – Daniel Meade

Interestingly, the final rule identifies one-month, three-month, or six-month deviation-adjusted SOFR as a comparable proxy index for the purposes of O. Reg. Z, but reserves its judgment on the duration to one year of the SOFR corrected for the differences. The CFPB, however, clarified that the mere fact that certain grades of SOFR were identified in the rule did not prevent other indices from being considered as comparable replacements for LIBOR.

The CFPB also indicated that it had determined The Wall Street Journal the one-month and three-month prime rates (as well as the SOFR tenors listed above) meet the “historical fluctuation comparison condition” for replacement rates for open-ended loans, such as credit cards and credit cards. HELOC.

Primary sources

1. CFPB press release: CFPB issues final rule to ease LIBOR transition
2. CFPB Final Rule: Facilitate the Transition to LIBOR (Regulation Z)
3. CFPB Report: Unofficial Red Line of LIBOR Transition Final Rule
4. CFPB Summary: LIBOR 2021 Transition Rule Summary
5. CFPB FAQ: LIBOR transition FAQ
6. CFPB Resource: LIBOR Transition Form Templates

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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