On April 28, 2023, the CFPB issued an Interim Final Rule related to the sunsetting of all London-Interbank Offered Rates (“LIBOR”), that updates its prior Final Rule issued in December 2021. The update to the rule reflects passage of the federal “LIBOR Act”, formally known as the “Adjustable Interest Rate (LIBOR) Act” and rules promulgated by the Federal Reserve Board (“the Fed”) to implement that act. The purpose of the LIBOR Act was to provide a uniform approach to handling LIBOR-based contracts which did not include adequate fallback provisions for choosing an alternative index.
You can see our prior article on the LIBOR Act and its regulations in the July 2022 Compliance Edge Newsletter and our article on the CFPB’s earlier final rule in the December 2021 newsletter.
Each of the CFPB’s rules update language in Regulation Z to implement the requirements of the Truth-in-Lending Act.
In the prior transition rule, the CFPB included language that generally suggested alternative replacements for certain tenors of LIBOR, such as replacement by the Secured Overnight Financing Rate (“SOFR”) recommended by the Fed’s Alternative Reference Rates Committee. It did not indicate a replacement for the 1-year/12-month LIBOR.
This Interim Final Rule updates the language used for replacements to align with the Fed’s regulation implementing the LIBOR Act and including a SOFR replacement for the 12-month LIBOR. The language updates references to the SOFR replacement from “index based on SOFR recommended by the Alternative Reference Rates Committee for consumer products” with a reference to “the Board-selected benchmark replacement for consumer loans” where “Board” refers to the Federal Reserve Board and its regulation.
The Interim Final Rule is effective May 15, 2023. The CFPB is requesting comments for 30 days following publication in the Federal Register (as of this writing this Interim Final Rule had not yet been published there).
Issuance of the Interim Final Rule coincided with a joint agency statement (“Joint Statement”) on the LIBOR transition, issued by the Fed, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration and the CFPB. The Joint Statement reminds institutions of the importance of being prepared for the end of publication of all LIBOR tenor panels as of June 30, 2023, and that failure to take such preparations could undermine financial stability and institutions’ safety and soundness, creating legal, operations and consumer protection risks.
