U.S: CFPB ends LIBOR transition rule
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The CFPB issued a final rule to ease the transition to LIBOR. The rule amends the provisions of Regulation Z, which implements the Truth in Lending Act.
The amendments serve to move away from the LIBOR indices for open and closed products. The rule will (i) 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 LIBOR-related provisions for open products, including changes in the index, notices of changes in terms and rate revaluation requirements for credit cards and home equity line of credit loans, and (iii) review Regulation Z in general to refer to certain terms of the Financing Rate Overnight Insured Margin-Adjusted (“SOFR”) index rather than a LIBOR index. The final rule will also restructure the sample ARM Interest Rate Adjustment Notice forms for the LIBOR transition.
The CFPB also issued updated FAQs to assist in creditor compliance with the final rule and to provide guidance on issues related to the LIBOR transition and regulatory questions and considerations.
The amendments made to Regulation Z will take effect on April 1, 2022, although some requirements for notification of changes in the terms do not require compliance until October 1, 2022. The sample forms of the Notice of Rate Adjustment Upgraded ARM interest can be used starting April 1, October 2022 and must be used starting October 1, 2023.
Commentary – Daniel Meade
Interestingly, the final rule identifies the one-month, three-month, or six-month margin-adjusted SOFR as a comparable replacement ratio for the purposes of Reg. Z, but reserves judgment on the one-year term of the margin-adjusted SOFR. . However, the CFPB made clear that the mere fact that certain SOFR timelines were identified in the rule did not preclude other indices from being considered comparable replacements for LIBOR.
The CFPB also noted that it has determined The Wall Street Journal The one-month and three-month prime rates (along with the SOFR terms listed above) meet the “historical fluctuation comparison condition” for replacement rates for indefinite duration credit, such as credit cards and HELOCs.
- CFPB Press Release: CFPB Issues Final Rule to Ease LIBOR Transition
- CFPB Final Rule: Facilitating the LIBOR Transition (Regulation Z)
- CFPB Report: Unofficial Red Line of Final LIBOR Transition Rule
- CFPB Executive Summary: 2021 LIBOR Transition Rule Executive Summary
- CFPB FAQ: LIBOR Transition FAQs
- CFPB Resource: LIBOR Transition Sample Forms
The content of this article is intended to provide general guidance on the subject. The advice of specialists should be sought according to your specific circumstances.
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