LIBOR Transition Final Rule

On December 7, 2021, the Consumer Financial Protection Bureau (Bureau) issued the 2021 LIBOR Transition Final Rule amending certain provisions in Regulation Z, which implements the Truth in Lending Act (TILA), to address the sunset of LIBOR.

Closed-End Credit

The LIBOR Transition Final Rule adds an example to the commentary of an index that would be comparable to LIBOR for purposes of Regulation Z’s requirements that apply to refinancings of closed-end loans.  Additionally, the LIBOR Transition Rule adds commentary that provides a non-exhaustive set of factors for use in determining if indices are comparable to LIBOR indices. The determination of whether a particular replacement index meets the Regulation Z standards is fact-specific and, among other factors, depends on the replacement index being considered and the tenor of LIBOR being replaced.

Open-End Credit

The Rule includes revisions for changing an index on a HELOC (including an open-end reverse mortgage) under Regulation Z. First, the Rule amends the existing Unavailable Provision, with updates that facilitate the transition from a LIBOR index when LIBOR is no longer available.

Second, the Rule adds an alternative LIBOR-Specific provision, which allows HELOC creditors to replace a LIBOR index used on the account and adjust the margin to calculate the variable rate on or after April 1, 2022, even if prior to the discontinuation of LIBOR.

Credit Cards

The LIBOR Transition Rule amends the existing Unavailable Provision, with updates that facilitate the transition from a LIBOR index when LIBOR is no longer available, and adds an alternative provision, the LIBOR-Specific Provision, which allows credit card issuers to replace a LIBOR index used on the account and adjust the margin to calculate the variable rate on or after April 1, 2022, even if prior to the discontinuation of LIBOR.

The Final Rule also addresses credit card rate reevaluation requirements based on a transitioned index, and required change in terms notices.

The LIBOR Transition Rule is generally effective April 1, 2022, although compliance with some provisions is not required until later dates.

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