The CFPB issued a final rule to facilitate the transition to LIBOR. The rule amends provisions of Regulation Z, which implements the Truth in Lending Act.

The amendments serve to transition away from LIBOR indices for open-end and closed-end products. The rule will (i) update LIBOR-related provisions for closed-end products, such as adjustable-rate mortgages, private student loans, auto loans, and personal installment loans, (ii) update LIBOR-related provisions for open-end products, including index changes, change-in-terms notices, and rate reevaluation requirements for credit cards and home equity line of credit loans, and (iii) revise Regulation Z overall to reference certain tenors of the spread-adjusted Secured Overnight Financing Rate ("SOFR") index instead of a LIBOR index. The final rule will also restructure ARM Interest Rate Adjustment Notice sample forms for the LIBOR transition.

The CFPB also issued updated FAQs to aid in creditors' compliance with the final rule and to offer guidance on related LIBOR transition topics and regulatory questions and considerations.

The amendments made to Regulation Z will go into effect on April 1, 2022, though some change-in-terms notice requirements do not mandate compliance until October 1, 2022. The updated ARM Interest Rate Adjustment Notice sample forms may be used beginning on April 1, 2022, and must be used beginning on October 1, 2023.

Commentary

Interestingly, the final rule identifies the one-month, three-month or six-month spread-adjusted SOFR as a comparable replacement index for the purposes of Reg. Z, but is reserving judgment on the one-year tenor of spread-adjusted SOFR. The CFPB made clear, however, that just because certain tenors of SOFR were identified in the rule, it did not preclude other indices from being found to be comparable replacements for LIBOR.

The CFPB also noted that it has determined The Wall Street Journal one-month and three-month prime rates (along with the SOFR tenors noted above) meet the "Historical Fluctuations Comparison condition" for replacement rates for open-end credit, such as credit cards and HELOCs.

Primary Sources

1. CFPB Press Release: CFPB Issues Final Rule to Facilitate Transition from LIBOR

2. CFPB Final Rule: Facilitating the LIBOR Transition (Regulation Z)

3. CFPB Report: Unofficial Redline of the LIBOR Transition Final Rule

4. CFPB Executive Summary: Executive Summary of the 2021 LIBOR Transition Rule

5. CFPB FAQ: LIBOR Transition FAQs

6. CFPB Resource: LIBOR Transition Sample Forms