It seems like we’ve been talking about the discontinuation of the London Inter-Bank Offered Rate (LIBOR) index forever now. But, we must be entering the homestretch because the CFPB released a Final Rule on December 7, 2021. It also updated the existing LIBOR Transition FAQs and posted a blog to advise those consumers who may be affected.
Financial institutions should not enter into any new loan contracts that reference LIBOR after December 31, 2021. LIBOR is expected to be phased out completely by June 30, 2023.
The Final Rule is generally effective April 1, 2022, and sets out provisions for both closed-end and open-end credit. Here are some highlights:
Closed-End:
- The Final Rule provides some recommendations as well as other factors to consider when determining if a replacement index is “comparable” to LIBOR. The Commentary was updated to make clear that replacing the index with a “comparable” index does not constitute a refinancing under Regulation Z.
- The Final Rule also amends certain adjustable-rate mortgage (ARM) rate change notices in Appendix H [H-4(D)(2) and H-4(D)(4)]. These are mostly technical edits that include removing references to LIBOR and adding a date to the top of the disclosures. The revised forms may be used beginning April 1, 2022, but must be used on or after October 1, 2023.
Open-End:
- Creditors/card issuers can begin transitioning away from the LIBOR index on or after April 1, 2022, under certain conditions. The replacement index may be a new or an existing index and, as applicable, must have had substantially similar historical changes. The Final Rule provides recommendations and factors to consider when making this determination.
- The Final Rule also revises change-in-terms notice requirements in light of changes necessary due to LIBOR being discontinued. The effective date is April 1, 2022, but compliance is not mandatory until October 1, 2022.
- The Final Rule includes an exemption from the credit card rate increase reevaluation requirements in certain circumstances.
However, it’s important to note you must follow what your note or contract may say about selecting a replacement index, including when you can do so. For example, if your contract states that a replacement index will only be used if the original index becomes unavailable, you would need to wait until the LIBOR index is actually unavailable.
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