CFPB Proposal to Ease LIBOR Transition
On June 4, 2020, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule to make certain changes to Regulation Z (Reg. Z). The proposed rule is intended to facilitate changes in credit products where the variable rate index is tied to London Interbank Offered Rate (LIBOR). The proposed rule includes provisions that apply to both open-end and closed-end credit products.
Reg. Z currently requires that a variable rate index is “no longer available” before a creditor may change the agreed index. The proposed rule would permit creditors to make a change in an index tied to LIBOR after specified dates, so long as the creditor includes in any change in terms notice specified information concerning any replacement index (including any adjusted margin — regardless of whether the existing margin is changing).
The proposed rule would also allow creditors to transition to a “substantially similar” index based on historical fluctuations of the index measured as of December 31, 2020, rather than on the date that LIBOR is no longer available as an index.
The proposed rule also removes a rate analysis requirement for variable rate credit card accounts tied to LIBOR. For these accounts, if an increase in the Annual Percentage Rate occurs because of an index change from LIBOR, a creditor would not be required to provide an account analysis every six months until certain conditions are met. For closed-end credit products that use LIBOR as an index, the proposed rule provides an example of a comparable index.
The proposed rule is open for comment through August 4, 2020, and would become effective on March 15, 2021, but the change in terms notice provisions would apply as of October 1, 2021, with creditors permitted to adopt earlier compliance.
Please contact Christopher R. Rahl with questions about open-end credit products, Reg. Z requirements and the implications of the proposed rule.