On December 7, 2021, the Consumer Financial Protection Bureau (CFPB) issued a final rule to facilitate the transition from the LIBOR interest rate index for consumer financial products. Effective April 1, 2022, the final rule mandates the discontinuance of using LIBOR for any new consumer loans as of December 31, 2021, and outlines requirements for how creditors should select a replacement index for existing LIBOR consumer loans after April 1, 2022.
For closed-end loans, the final rule recommends Secured Overnight Financing Rate (SOFR) based indices as a replacement for LIBOR. The final rule also includes a list of factors to help determine if a certain index meets the Regulation Z comparable standard, and updates post-consummation disclosure forms for use with adjustable-rate mortgagor loan products where the SOFR index will replace LIBOR.
For open-end loans, the rule permits creditors to replace LIBOR and adjust the margin on or after April 1, 2022. Like the closed-end rules, the final rules include a list of factors to help determine if a certain index meets the Regulation Z comparable standard and identifies SOFR and Prime as indices meeting the standard. The change-in terms notice requirements were also finalized for disclosing margin reductions for HELOC and credit card accounts; these requirements are effective April 1, 2022 with a mandatory compliance date of October 1, 2022.