WASHINGTON--The Consumer Financial Protection Bureau (CFPB) has issued an interim final rule amending its 2021 LIBOR transition rule.
According to the Bureau, the interim final rule contains updates to reflect the subsequent enactment of the Adjustable Interest Rate (LIBOR) Act and issuance of an implementing regulation by the Federal Reserve.
As CUToday.info reported here, last week NCUA joined with four other federal financial regulatory agencies and state credit union regulators in issuing a statement that the use of United States Dollar LIBOR (USD LIBOR) panels will end on June 30, 2023.
‘Orderly Transition’
“This interim final rule will further facilitate the orderly transition of those consumer loans that currently use the LIBOR index to other indices in anticipation of the planned cessation U.S. Dollar (USD) LIBOR after June 30, 2023,” the CFPB said. “In the wake of the financial crisis, the public learned that a number of large international banks conspired to set the LIBOR rate in order to conceal weaknesses in the banks and to boost their bottom line. Some of these institutions would later admit to criminal practices and pay billions of dollars in penalties.”
The replacement index for LIBOR is the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The changes apply to any LIBOR contracts that do not otherwise specify a replacement rate fallback provision or method for selecting a fallback rate. The Federal Reserve Board issued a final rule to implement the LIBOR Act on January 26, 2023. That rule became effective on Feb. 27, 2023.
Amendments & Updates
The CFPB said its interim final rule amends and updates the Facilitating the LIBOR Transition final rule and, specifically, the Bureau is now conforming Regulation Z with the LIBOR Act and the Federal Reserve Board’s implementing regulation by, among other things, adding references to the SOFR-based replacement for the 12-month LIBOR index.
“This interim final rule does not in any way alter or modify the CFPB’s determination in the 2021 LIBOR Transition final rule in relation to the prime rate as a replacement index,” the CFPB said.
The interim final rule is effective May 15, 2023.
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