CFPB Takes Measures to Transition Away from LIBOR

By the end of 2021, LIBOR likely will be discontinued. This will affect a number of rate loans and lines of credit that use LIBOR as the index. The Consumer Financial Protection Bureau, June 4, 2020, has taken steps to facilitate the transition. First, the CFPB released an updated Consumer Handbook on Adjusted Rate Mortgages to help inform consumers on adjustable-rate mortgage loans. Second, the CFPB released a Notice of Proposed Rulemaking to explain the plan to discontinue LIBOR and address alternatives that meet Regulation Z standards. Third, the CFPB has issued FAQs on LIBOR transition topics that address regulatory requirements for both existing and new accounts.

CHARM

The CHARM booklet contains general information on ARMs and is provided by the lender to the loan applicant at the time of application to provide consumers with information on ARMs. The update, based on consumer-tested drafts, now has a reduced number of pages and more visually appealing design elements. Consumers can also easily compare fixed-rate and ARM options through a comparison table. All LIBOR benchmark index references have been removed.

NPRM

In the NPRM, the CFPB proposes examples of replacement indices for LIBOR that meet Regulation Z standards. One example is for creditors of home equity lines of credit and credit card issuers to replace a LIBOR index with a replacement index that is newly established (i.e., little or no history) or not (i.e., has a history). This rate must be ensured to be similar to the LIBOR index rate. The NPRM also proposes to revise change-in-terms notice requirements for HELOCs and credit card accounts to ensure that consumers understand how the variable rates will be determined. For closed-end credit provisions, the NPRM proposes to identify examples of indices that are substantially similar to the LIBOR index. An example of a comparable index are the SOFR-based spread adjusted indices, recommended by the Alternative Reference Rates Committee.

FAQs

The FAQs are designed to provide insights on matters that do not necessarily require additional rulemaking.

For more information, contact Troy Garris at 301-461-8952, or troy@garrishorn.com.