Publication of 24 of the 35 London Interbank Offered Rate (“LIBOR”) settings ceased as of January 1, 2022. Five U.S. dollar LIBOR settings (overnight, 1-month, 3-month, 6-month, and 12-month) will continue until the end of 2023.
In advance of the sunset of the LIBOR index, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule to amend Regulation Z, for both open-end and closed-end credit, to address the discontinuation of the London Interbank Offered Rate (“LIBOR”) index for consumer transactions.
The final rule includes several amendments affecting open-end credit provisions in Regulation Z. Guidance is provided on how a Home Equity Line of Credit (“HELOC”) creditor should choose a replacement index. Creditors can transition away from the LIBOR index before it becomes completely unavailable. HELOC creditors must confirm that the annual percentage rate calculated using the replacement index is substantially similar to the rate calculated using the LIBOR index. The new requirements that detail how HELOC creditors may transition to a replacement index are set forth in 12 CFR § 1026.40(f)(3)(ii)(B).
Amendments adopted for closed-end credit provisions include details on how to determine whether a replacement index is a comparable index to a particular LIBOR index. Closed-end creditors must be cautious when selecting a replacement index for a variable-rate closed-end loan. If a creditor selects a replacement index that is not comparable, it may constitute a refinancing under Regulation Z. The final rule includes examples of the type of factors to be considered and provides illustrative examples of specific Secured Overnight Financing Rate (“SOFR”) indexes that are comparable to the 1-month, 3-month, and 6- month LIBOR index that they are intended to replace. There is currently not a recommended index for a one-year index replacement.
There are important effective dates to take note of for compliance. The effective date for most of the amendments was April 1, 2022. For HELOCs and credit cards, the update to requirements related to disclosing a reduction in a margin in the change-in-terms notices were effective April 1, 2022, but mandatory compliance is not required until October 1, 2022. Amendments to post-consummation forms H-4(D)(2) and H-4(D) in Appendix H is effective on October 1, 2023.
For more information regarding the discontinuation of LIBOR, click here. To view the CFPB set of Frequently Asked Questions regarding the LIBOR transition, click here.
DocMagic will be removing all LIBOR loan plans from the list of available generic plans (DSI) as of May 5, 2022. DocMagic will announce in a future update when all LIBOR plans will be made unavailable in customer accounts.
If you have any questions about this article, please contact our Compliance Department.