WASHINGTON — The Consumer Financial Protection Bureau has proposed an amendment to Truth in Lending Act regulations to address the sunset of the London interbank offered rate scheduled for the end of 2021.
Specifically, the proposal would update Regulation Z — under which lenders must disclose certain terms to borrowers or customers with open-end products — to require creditors to issue change-in-terms notices to inform customers of which new interest rate benchmark they will transition to.
Credit card issuers and providers of home equity lines would be able to start using a replacement index on or after March 15, 2021, “if certain conditions are met,” the CFPB said Thursday.
Although the bureau did not specify which interest rate benchmark creditors should adopt in anticipation of the move away from Libor, the agency proposed that the new benchmark should have “historical fluctuations that are substantially similar and that the new rate selected is substantially similar” to Libor.
The CFPB said that the secured overnight financing rate as well as the prime rate published in The Wall Street Journal would meet those qualifications.
Additionally, the agency issued guidance in the form of frequently asked questions on the transition away from Libor and published an updated version of its "Consumer Handbook on Adjustable Rate Mortgages" that will require creditors to provide a disclosure outlining a replacement index to Libor.
