Facilitating the LIBOR Transition Consistent With the LIBOR Act (Regulation Z)

The Consumer Financial Protection Bureau, CFPB, has published in the Federal Register an interim final rule as regards various amendments under the Truth and Lending Regulation (Regulation Z or Statutory Instrument 12 CFR Part 1026), to implement or better transpose the Adjustable Interest Rate (LIBOR) Act of 2021 which determines SOFR, the Secured Overnight Financing Rate, as the Board selected replacement rate for all financial contracts.
Specifically, the CFPB is modifying several provisions under Regulation Z to
– replace all references to interest rates referring to the “index based on SOFR recommended by the Alternative Reference Rates Committee for consumer products“ with the “Board-selected benchmark replacement for consumer loans”;
– replace LIBOR tenors referenced in provisions for consumer loans with SOFR to allow financial institutions to provide a change in terms to their customers;
– define the process of using SOFR in the evaluation of rate increases on credit cards (which SOFR date must be used in the evaluation); and
– replace the 12-month LIBOR tenor in provisions for open- and closed-end credit lines with the corresponding SOFR tenor.
Due to the urgency of the matter – all remaining LIBOR tenors will be terminated on June 30, 2023 – the CFPB did not previously consult on the rule changes. Comments may now be submitted, following the implementation of the interim final rule, up to June 12, 2023.