Facilitating the LIBOR Transition (Regulation Z), 69716-69800 [2021-25825]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 86, Number 233 (Wednesday, December 8, 2021)]
[Rules and Regulations]
[Pages 69716-69800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25825]



[[Page 69715]]

Vol. 86

Wednesday,

No. 233

December 8, 2021

Part II





Bureau of Consumer Financial Protection





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12 CFR Part 1026





Facilitating the LIBOR Transition (Regulation Z); Final Rule

Federal Register / Vol. 86 , No. 233 / Wednesday, December 8, 2021 / 
Rules and Regulations

[[Page 69716]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2020-0014]
RIN 3170-AB01


Facilitating the LIBOR Transition (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretation.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
amending Regulation Z, which implements the Truth in Lending Act 
(TILA), generally to address the anticipated sunset of LIBOR, which is 
expected to be discontinued for most U.S. Dollar (USD) tenors in June 
2023. Some creditors currently use USD LIBOR as an index for 
calculating rates for open-end and closed-end products. The Bureau is 
amending the open-end and closed-end provisions to provide examples of 
replacement indices for LIBOR indices that meet certain Regulation Z 
standards. The Bureau also is amending Regulation Z to permit creditors 
for home equity lines of credit (HELOCs) and card issuers for credit 
card accounts to transition existing accounts that use a LIBOR index to 
a replacement index on or after April 1, 2022, if certain conditions 
are met. This final rule also addresses change-in-terms notice 
provisions for HELOCs and credit card accounts and how they apply to 
accounts transitioning away from using a LIBOR index. Lastly, the 
Bureau is amending Regulation Z to address how the rate reevaluation 
provisions applicable to credit card accounts apply to the transition 
from using a LIBOR index to a replacement index. The Bureau is 
reserving judgment about whether to include references to a 1-year USD 
LIBOR index and its replacement index in various comments; the Bureau 
will consider whether to finalize comments proposed on that issue in a 
supplemental final rule once it obtains additional information.

DATES: 
    Effective dates: This final rule is effective on April 1, 2022, 
except the amendment to appendix H to part 1026 in amendatory 
instruction 8, which is effective on October 1, 2023.
    Compliance dates: The mandatory compliance date for revisions to 
the change-in-terms notice requirements in Sec.  1026.9(c)(1)(ii) and 
(c)(2)(v)(A) is October 1, 2022. The mandatory compliance date for all 
other provisions of the final rule is April 1, 2022.

FOR FURTHER INFORMATION CONTACT: Krista Ayoub, Kristen Phinnessee, or 
Lanique Eubanks, Senior Counsels, Office of Regulations, at 202-435-
7700. If you require this document in an alternative electronic format, 
please contact [email protected].

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

    The Bureau is adopting amendments to Regulation Z, which implements 
TILA, for both open-end and closed-end credit to address the 
anticipated sunset of LIBOR.\1\ The effective date of this final rule 
is April 1, 2022. For HELOCs and credit card accounts, the updated 
requirements in this final rule related to disclosing a reduction in a 
margin in the change-in-terms notices are effective on April 1, 2022, 
with a mandatory compliance date of October 1, 2022. For the revisions 
related to the post-consummation disclosure form for certain adjustable 
rate mortgages (ARMs), specifically sample form H-4(D)(4) in appendix H 
(that can be used for complying with Sec.  1026.20(d)), this final rule 
provides creditors, assignees, and servicers with additional time to 
add the date at the top of the form if they are not already including 
the date. Specifically, from April 1, 2022, through September 30, 2023, 
creditors, assignees, and servicers have the option of either using the 
version of the form in effect prior to April 1, 2022, that does not 
include the date at the top of the form (denoted as ``Legacy Form'' in 
appendix H), or using the revised form put into effect on April 1, 
2022, (denoted as ``Revised Form'' in appendix H) that includes the 
date at the top of the form. Creditors, assignees, and servicers are 
not required to use the revised form that includes the date at the top 
of the form that will be put into effect on April 1, 2022, until 
October 1, 2023. Also, this final rule adds a new sample form H-4(D)(2) 
in appendix H effective April 1, 2022, that references a Secured 
Overnight Financing Rate (SOFR) index (denoted as ``Revised Form'' in 
appendix H) that can be used for complying with Sec.  1026.20(c). This 
final rule also retains through September 30, 2023, the sample form H-
4(D)(2) that was in effect prior to April 1, 2022, that references a 
LIBOR index (denoted as ``Legacy Form'' in appendix H). This is 
discussed in this section and the effective date discussion in part VI, 
below.
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    \1\ When amending commentary, the Office of the Federal Register 
requires reprinting of certain subsections being amended in their 
entirety rather than providing more targeted amendatory 
instructions. The sections of regulatory text and commentary 
included in this document show the language of those sections. In 
addition, the Bureau is releasing an unofficial, informal redline to 
assist industry and other stakeholders in reviewing the changes made 
in this final rule to the regulatory text and commentary of 
Regulation Z. This redline can be found on the Bureau's website, at 
[placeholder]. If any conflicts exist between the redline and the 
text of Regulation Z, its commentary, or this final rule, the 
documents published in the Federal Register are the controlling 
documents.
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A. Open-End Credit

    The Bureau is adopting several amendments to the open-end credit 
provisions in Regulation Z to address the anticipated sunset of LIBOR. 
First, this final rule sets forth a detailed roadmap for HELOC 
creditors and card issuers to choose a compliant replacement index for 
the LIBOR index.\2\ Regulation Z already permits HELOC creditors and 
card issuers to change an index and margin they use to set the annual 
percentage rate (APR) on a variable-rate account under certain 
conditions, when the original index becomes unavailable or is no longer 
available. The Bureau determined, however, that consumers, HELOC 
creditors, and card issuers would benefit substantially if HELOC 
creditors and card issuers could transition away from a LIBOR index 
before LIBOR is expected to become unavailable.
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    \2\ Reverse mortgages structured as open-end credit are HELOCs 
subject to the provisions in Sec. Sec.  1026.40 and 1026.9(c)(1).
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    Under this final rule, HELOC creditors and card issuers can 
transition away from using the LIBOR index to a replacement index on or 
after April 1, 2022, before LIBOR is expected to become unavailable. To 
accomplish this, this final rule imposes certain requirements on 
selecting a replacement index. HELOC creditors and card issuers must 
ensure that the APR calculated using the replacement index is 
substantially similar to the rate calculated using the LIBOR index, 
based generally on the values of these indices on October 18, 2021.\3\ 
HELOC creditors

[[Page 69717]]

and card issuers may select a replacement index that is newly 
established and has no history or an index that is not newly 
established and has historical fluctuations substantially similar to 
those of the LIBOR index. This final rule provides details on how to 
determine whether a replacement index has historical fluctuations that 
are substantially similar to those of a particular LIBOR index for 
HELOCs and credit card accounts. Specifically, this final rule provides 
examples of the type of factors to be considered in whether a 
replacement index meets the Regulation Z ``historical fluctuations are 
substantially similar'' standard. The Bureau also has determined that 
the prime rate published in the Wall Street Journal (Prime) has 
historical fluctuations substantially similar to those of the 1-month 
and 3-month USD LIBOR indices. In addition, the Bureau has determined 
that spread-adjusted \4\ indices based on SOFR recommended by the 
Alternative Reference Rates Committee (ARRC) for consumer products to 
the replace 1-month, 3-month, or 6-month USD LIBOR index have 
historical fluctuations that are substantially similar to those of the 
applicable USD LIBOR index they are intended to replace. These new 
provisions that detail specifically how HELOC creditors and card 
issuers may replace a LIBOR index with a replacement index for accounts 
on or after April 1, 2022, are set forth in Sec.  1026.40(f)(3)(ii)(B) 
for HELOCs and Sec.  1026.55(b)(7)(ii) for credit card accounts. The 
ARRC has indicated that the SOFR-based spread-adjusted indices 
recommended by ARRC for consumer products to the replace 1-month, 3-
month, 6-month, or 1-year USD LIBOR index will not be published until 
Monday, July 3, 2023, which is the first weekday after Friday, June 30, 
2023, when LIBOR is currently anticipated to sunset for these USD LIBOR 
tenors.\5\ However, the Bureau wishes to facilitate an earlier 
transition for those HELOC creditors or card issuers that may want to 
transition to an index other than the SOFR-based spread-adjusted 
indices recommended by ARRC for consumer products. Accordingly, the 
Bureau is making these provisions effective on April 1, 2022.
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    \3\ If the replacement index is not published on October 18, 
2021, the creditor or card issuer generally must use the next 
calendar day for which both the LIBOR index and the replacement 
index are published as the date for selecting indices values in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index. The one 
exception is that if the replacement index is the SOFR-based spread-
adjusted index recommended by the Alternative Reference Rates 
Committee (ARRC) for consumer products to replace the 1-month, 3-
month, 6-month, or 1-year USD LIBOR index, the creditor or card 
issuer must use the index value on June 30, 2023, for the LIBOR 
index and, for the SOFR-based spread-adjusted index for consumer 
products, must use the index value on the first date that index is 
published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index.
    \4\ The spread between two indices is the difference between the 
levels of those indices, which may vary from day to day. For 
example, if today, index X is 5 percent and index Y is 4 percent, 
then the X-Y spread today is 1 percentage point (or, equivalently, 
100 basis points). A spread adjustment is a term that is added to 
one index to make it more similar to another index. For example, if 
the X-Y spread is typically around 100 basis points, then one 
reasonable spread adjustment may be to add 100 basis points to Y 
every day. Then the spread-adjusted value of Y will typically be 
much closer to the value of X than Y is, although there may still be 
differences between X and the spread-adjusted Y from day to day.
    \5\ Alt. Reference Rates Comm, Summary of the ARRC's Fallback 
Recommendations, at 11 (Oct. 6, 2021), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/spread-adjustments-narrative-oct-6-2021 (Summary of Fallback Recommendations).
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    Second, this final rule makes clarifying changes to existing 
Regulation Z provisions on the replacement of an index when the index 
becomes unavailable. These changes are set forth in Sec.  
1026.40(f)(3)(ii)(A) for HELOCs and in Sec.  1026.55(b)(7)(i) for 
credit card accounts.
    Third, this final rule revises change-in-terms notice requirements 
for HELOCs and credit card accounts to notify consumers how the 
variable rates on their accounts will be determined going forward after 
the LIBOR index is replaced. This final rule ensures that the change-
in-terms notices for these accounts will disclose the index that is 
replacing the LIBOR index and any adjusted margin that will be used to 
calculate a consumer's rate, regardless of whether the margin is being 
reduced or increased. These changes will become effective April 1, 
2022. From April 1, 2022, through September 30, 2022, creditors will 
have the option of complying with these revised change-in-terms notice 
requirements. On or after October 1, 2022, creditors will be required 
to comply with these revised change-in-terms notice requirements. These 
changes are set forth in Sec.  1026.9(c)(1)(ii) for HELOCs and in Sec.  
1026.9(c)(2)(v)(A) for credit card accounts.
    Fourth, this final rule also provides additional details on how a 
creditor may disclose information about the periodic rate and APR in a 
change-in-terms notice for HELOCs and credit card accounts when the 
creditor is replacing a LIBOR index with the SOFR-based spread-adjusted 
index recommended by ARRC for consumer products to replace 1-month, 3-
month, or 6-month USD LIBOR index in certain circumstances. These 
details are set forth in comment 9(c)(1)-4 for HELOCs and in comment 
9(c)(2)(iv)-2.ii for credit card accounts.
    Fifth, this final rule adds an exception from the rate reevaluation 
provisions applicable to credit card accounts. Currently, when a card 
issuer increases a rate on a credit card account, the card issuer 
generally must complete an analysis reevaluating the rate increase 
every six months until the rate is reduced to a certain degree. To 
facilitate compliance, this final rule adds an exception from these 
requirements for increases that occur as a result of replacing a LIBOR 
index using the specific provisions described above for transitioning 
from a LIBOR index or as a result of the LIBOR index becoming 
unavailable. This exception is set forth in Sec.  1026.59(h)(3). This 
exception would not apply to rate increases that are already subject to 
the rate reevaluation requirements prior to the transition from the 
LIBOR index. This final rule also would address cases where the card 
issuer was already required to perform a rate reevaluation review prior 
to transitioning away from LIBOR and LIBOR was used as the benchmark 
for comparison for purposes of determining whether the card issuer can 
terminate the six-month reviews. To facilitate compliance, these 
changes will address how a card issuer can terminate the obligation to 
review where the rate applicable immediately prior to the increase was 
a variable rate calculated using a LIBOR index. These changes are set 
forth in Sec.  1026.59(f)(3).
    Sixth, in relation to the open-end credit provisions, this final 
rule adopts technical edits to comment 59(d)-2 to replace the LIBOR 
reference with a reference to a SOFR index and to make related changes 
and corrections.

B. Closed-End Credit

    The Bureau is adopting amendments to the closed-end credit 
provisions in Regulation Z to address the anticipated sunset of LIBOR. 
First, this final rule provides details on how to determine whether a 
replacement index is a comparable index to a particular LIBOR index for 
purposes of the closed-end refinancing provisions. Currently, under 
Regulation Z, if the creditor changes the index of a variable-rate 
closed-end loan to an index that is not a comparable index, the index 
change may constitute a refinancing for purposes of Regulation Z, 
triggering certain requirements. Specifically, this final rule provides 
examples of the type of factors to be considered in whether a 
replacement index meets the Regulation Z ``comparable'' standard with 
respect to a particular LIBOR index for closed-end transactions. This 
change is set forth in comment 20(a)-3.iv. This final rule also adds an 
illustrative example to identify the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, or 6 month USD LIBOR index as an example of a comparable index 
for the LIBOR indices that they are intended to replace. This change is 
set forth in comment 20(a)(3)-ii.B.

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    Second, in relation to the closed-end credit provisions, this final 
rule adopts technical edits to Sec.  1026.36(a)(4)(iii)(C) and 
(a)(5)(iii)(B), comment 37(j)(1)-1, and sample forms H-4(D)(2) and H-
4(D)(4) in appendix H pursuant to Sec.  1026.20(c) and (d). These 
technical edits would replace LIBOR references with references to a 
SOFR index and make related changes and corrections. This final rule 
also adds a date at the top of the sample form H-4(D)(4) that can be 
used for complying with Sec.  1026.20(d) concerning ARMs. The effective 
date of the revised sample forms in H-4(D)(2) and H-4(D)(4) in appendix 
H is April 1, 2022. With respect to sample form H-4(D)(4) in appendix 
H, from April 1, 2022, through September 30, 2023, creditors, 
assignees, or servicers will have the option of using a format 
substantially similar to form H-4(D)(4) either in effect prior to April 
1, 2022 (that does not include the date at the top of the form and is 
denoted as ``Legacy Form'' in appendix H), or the form that becomes 
effective on April 1, 2022 (that includes the date at the top of the 
form and is denoted as ``Revised Form'' in appendix H). Both versions 
of the forms will be available in appendix H through September 30, 
2023. Starting on or after October 1, 2023, only creditors, assignees, 
or servicers using a format substantially similar to the form that 
becomes effective on April 1, 2022, that includes a date at the top of 
the form, will be deemed to be in compliance. Accordingly, the version 
of form H-4(D)(4) in effect prior to April 1, 2022, will be removed 
from appendix H and cannot be used to demonstrate compliance with Sec.  
1026.20(d). In addition, the revised form of H-4(D)(4) that will become 
effective on April 1, 2022, also provides an example of the form using 
a SOFR index. Because most tenors of USD LIBOR are not expected to be 
discontinued until June 2023, this final rule retains through September 
30, 2023, the sample form H-4(D)(4) that was in effect prior to April 
1, 2022, that references a LIBOR index. New sample form H-4(D)(2) in 
appendix H effective April 1, 2022, (denoted as ``Revised Form'' in 
appendix H) can be used for complying with Sec.  1026.20(c) relating to 
ARMs and provides an example using a SOFR index. This final rule also 
retains through September 30, 2023, the sample form H-4(D)(2) that was 
in effect prior to April 1, 2022, (denoted as ``Legacy Form'' in 
appendix H) that provides an example using a LIBOR index.

II. Background

A. LIBOR

    Introduced in the 1980s, LIBOR (originally an acronym for London 
Interbank Offered Rate) was intended to measure the average rate at 
which a bank could obtain unsecured funding in the London interbank 
market for a given period, in a given currency. LIBOR is calculated 
based on submissions from a panel of contributing banks and published 
every London business day for five currencies (USD, British pound 
sterling (GBP), euro (EUR), Swiss franc (CHF), and Japanese yen (JPY)) 
and for seven tenors \6\ for each currency (overnight, 1-week, 1-month, 
2-month, 3-month, 6-month, and 1-year), resulting in 35 individual 
rates (collectively, LIBOR). As of September 2021, the panel for USD 
LIBOR is comprised of sixteen banks, and each bank contributes data for 
all seven tenors.\7\
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    \6\ The tenor refers to the to the length of time remaining 
until a loan matures.
    \7\ The Intercontinental Exch. LIBOR, Panel Composition, https://www.theice.com/iba/libor.
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    In 2017, the chief executive of the U.K. Financial Conduct 
Authority (FCA), which regulates LIBOR, announced that it did not 
intend to persuade or compel banks to submit information for LIBOR past 
the end of 2021 (subsequently extended to June 30, 2023, for certain 
USD LIBOR tenors only) and that the panel banks had agreed to 
voluntarily sustain LIBOR until then in order to provide sufficient 
time for the market to transition from using LIBOR indices to 
alternative indices.\8\ In March 2021, the FCA announced cessation 
dates for all LIBOR indices. The bank panels are scheduled to end 
immediately after December 31, 2021, for the 1-week and 2-month USD 
LIBOR indices and immediately after June 30, 2023, for the remaining 
USD LIBOR indices. After these dates, representative LIBOR indices will 
no longer be available.\9\
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    \8\ Andrew Bailey, Fin. Conduct Auth., The Future of LIBOR 
(2017), https://www.fca.org.uk/news/speeches/the-future-of-libor; 
Fin. Conduct Auth., FCA Statement on LIBOR Panels (2017), https://www.fca.org.uk/news/statements/fca-statement-libor-panels.
    \9\ Fin. Conduct Auth., Announcements on the End of LIBOR 
(2021), https://www.fca.org.uk/news/press-releases/announcements-end-libor (last updated May 3, 2021); Fin. Conduct Auth., About 
LIBOR Transition (2021), https://www.fca.org.uk/markets/libor-transition (last updated May 7, 2021).
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B. Consumer Products Using LIBOR

    In the United States, financial institutions have used USD LIBOR as 
a common benchmark rate for a variety of adjustable-rate consumer 
financial products, including mortgages, credit cards, HELOCs, and 
student loans. Typically, the consumer pays an interest rate that is 
calculated as the sum of a benchmark index and a margin. For example, a 
consumer may pay an interest rate equal to the 1-year USD LIBOR plus 
two percentage points.
    Financial institutions have been developing plans and procedures to 
transition from the use of LIBOR indices to replacement indices for 
products that are being newly issued and existing accounts that were 
originally benchmarked to a LIBOR index. In some markets, such as for 
HELOCs and credit cards, the vast majority of newly originated lines of 
credit are already based on indices other than a LIBOR index.

III. Summary of Rulemaking Process

A. 2020 Proposal

    On June 4, 2020, the Bureau issued a notice of proposed rulemaking 
containing several proposed amendments to Regulation Z, which 
implements TILA, for both open-end and closed-end credit to address the 
anticipated sunset of LIBOR.\10\ This notice of proposed rulemaking was 
published in the Federal Register on June 18, 2020 (2020 Proposal).\11\ 
The Bureau generally proposed that the final rule would take effect on 
March 15, 2021, except for the updated change-in-term disclosure 
requirements for HELOCs and credit card accounts that would apply as of 
October 1, 2021.
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    \10\ At the same time as issuing the proposal, the Bureau issued 
separate written guidance in the form of Frequently Asked Questions 
(FAQs) for creditors and card issuers to use as they transition away 
from using LIBOR indices. These FAQs addressed regulatory questions 
where the existing rule was clear on the requirements and already 
provides necessary alternatives for the LIBOR transition. The FAQs, 
as well as additional written guidance materials including an 
executive summary of this final rule, are available here: Bureau of 
Consumer Fin. Prot., [Title] https://www.consumerfinance.gov/policy-compliance/guidance/other-applicable-requirements/libor-transition/.
    \11\ 85 FR 36938 (June 18, 2020).
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    The Bureau proposed several amendments to the open-end credit 
provisions in Regulation Z to address the anticipated sunset of LIBOR. 
Specifically, the Bureau proposed to add new provisions that detail 
specifically how HELOC creditors and card issuers may replace a LIBOR 
index with a replacement index for accounts on or after March 15, 2021. 
In the 2020 Proposal, the Bureau set forth certain proposed conditions 
that HELOC creditors and card issuers would be required to meet in 
order to use these newly proposed provisions. Under the 2020 Proposal, 
HELOC creditors and card issuers would have been required

[[Page 69719]]

to ensure that the APR calculated using the replacement index is 
substantially similar to the rate calculated using the LIBOR index, 
based generally on the values of these indices on December 31, 2020. 
The 2020 Proposal also would have imposed other requirements on a 
replacement index. Under the 2020 Proposal, HELOC creditors and card 
issuers could select a replacement index that is newly established and 
has no history, or an index that is not newly established and has a 
history. As proposed, HELOC creditors and card issuers would have been 
permitted to replace a LIBOR index with an index that has a history 
only if the index has historical fluctuations substantially similar to 
those of the LIBOR index. The Bureau proposed to determine that Prime 
has historical fluctuations substantially similar to those of the 1-
month and 3-month USD LIBOR indices. The Bureau also proposed to 
determine that the SOFR-based spread-adjusted indices recommended by 
the ARRC for consumer products to replace the 1-month, 3-month, 6-
month, or 1-year USD LIBOR indices have historical fluctuations that 
are substantially similar to those of the LIBOR indices that they are 
intended to replace.
    The Bureau also proposed amendments to the open-end credit 
provisions to: (1) Make clarifying changes to the existing provisions 
on the replacement of an index when the index becomes unavailable; (2) 
revise change-in-terms notice requirements for HELOCs and credit card 
accounts to ensure that consumers are notified of how the variable 
rates on their accounts will be determined going forward after the 
LIBOR index is replaced; (3) add an exception from the rate 
reevaluation provisions applicable to credit card accounts for 
increases that occur as a result of replacing a LIBOR index using the 
specific proposed provisions described above for transitioning from a 
LIBOR index or as a result of the LIBOR index becoming unavailable; (4) 
address cases where the card issuer was already required to perform a 
rate reevaluation review prior to transitioning away from LIBOR and 
LIBOR was used as the benchmark for comparison for purposes of 
determining whether the card issuer can terminate the six-month 
reviews; and (5) make several technical edits to certain commentary to 
replace LIBOR references with references to a SOFR index.
    The Bureau also proposed amendments to the closed-end credit 
provisions in Regulation Z to address the anticipated sunset of LIBOR, 
including proposed amendments to: (1) Add an illustrative example to 
identify the SOFR-based spread-adjusted indices recommended by the ARRC 
for consumer products as an example of a comparable index for the LIBOR 
indices that they are intended to replace for purposes of the closed-
end refinancing provisions; and (2) make technical edits to certain 
commentary and sample forms to replace LIBOR references with references 
to a SOFR index and make related changes and corrections.
    The comment period for the 2020 Proposal closed on August 4, 2020. 
The Bureau received around 30 comment letters. Approximately half of 
the comment letters were submitted by industry commenters, specifically 
banks and credit unions and their trade associations. Commenters also 
included several consumer groups, a financial services education and 
consulting firm, and several individuals.
    Commenters generally supported the proposed provisions that would 
allow HELOC creditors and card issuers to replace a LIBOR index with a 
replacement index for accounts on or after March 15, 2021, if certain 
conditions are met. Nonetheless, several industry commenters encouraged 
the Bureau to allow HELOC creditors and card issuers to replace a LIBOR 
index sooner than March 15, 2021. Commenters also generally supported 
the proposed conditions that must be met for HELOC creditors and card 
issuers to use the newly proposed provisions described above. Also, 
several industry commenters and several consumer group commenters 
supported the Bureau's proposal determining that Prime and certain 
SOFR-based spread-adjusted indices recommended by ARRC for consumer 
products have historical fluctuations substantially similar to those of 
certain LIBOR indices. Nonetheless, a few consumer group commenters 
indicated that the Bureau should not adopt its proposal that Prime has 
historical fluctuations that are substantially similar to those of 
certain LIBOR indices.
    Several commenters requested additional guidance on the proposed 
conditions that must be met by HELOC creditors and card issuers to use 
the proposed provisions discussed above, including: (1) Many industry 
commenters and one individual commenter requested that the Bureau 
identify additional indices that meet the Regulation Z standards that 
the historical fluctuations of those indices are substantially similar 
to those of certain tenors of LIBOR; (2) several industry commenters 
requested that the Bureau provide a principles-based standard for 
determining when the historical fluctuations of an index are 
substantially similar to those of a particular LIBOR index; (3) a few 
consumer group commenters and a financial services education and 
consulting firm indicated that the Bureau should limit when a newly 
established index can be used to replace a LIBOR index; and (4) several 
industry commenters and several consumer group commenters indicated 
that the Bureau should provide greater detail on the proposed condition 
that HELOC creditors and card issuers must ensure that the APR 
calculated using the replacement index is substantially similar to the 
rate calculated using the LIBOR index.
    Several industry commenters and several consumer group commenters 
also indicated that the Bureau should provide further guidance to HELOC 
creditors and card issuers to assist them in determining whether LIBOR 
(or another index) is unavailable for purposes of Regulation Z.
    Commenters generally supported the Bureau's proposed revisions to 
the notice requirements for HELOCs and credit card accounts. Several 
industry commenters and an individual commenter also requested that the 
Bureau provide comprehensive sample disclosures for change-in-terms 
notices for HELOC accounts and for credit card accounts that can be 
provided to borrowers to help them understand the change in the index. 
Commenters also generally supported the proposed changes to the rate 
reevaluation provisions applicable to credit card accounts.
    With respect to the proposed amendments related to closed-end 
credit, commenters generally supported the proposed new illustrative 
example to identify the SOFR-based spread-adjusted indices recommended 
by the ARRC for consumer products as an example of a comparable index 
for the LIBOR indices that they are intended to replace for purposes of 
the closed-end refinancing provisions. Nonetheless, commenters also 
requested other changes to the closed-end provisions, including: (1) 
Many industry commenters generally urged the Bureau to provide 
additional examples of comparable indices to the LIBOR indices; (2) 
many industry commenters urged the Bureau to provide additional 
guidance on how to determine if an index is a comparable index for 
purposes of Regulation Z; (3) several commenters, including a few 
consumer groups, a financial services education and consulting firm, 
and a few individuals, urged the Bureau to require disclosures to 
consumers with closed-

[[Page 69720]]

end loans notifying consumers of the index change; (4) a few industry 
commenters urged the Bureau to include the same provisions for closed-
end loans that it proposed for HELOCs and credit card accounts which 
would allow HELOC creditors and card issuers to transition from using a 
LIBOR index on or after March 15, 2021, if certain conditions are met; 
and (5) several industry commenters urged the Bureau to include the 
proposed example for the SOFR-based spread-adjusted indices recommended 
by ARRC for consumer products in the text of the rule, rather than the 
commentary.
    The Bureau responds to the above comments in the section-by-section 
discussion below.
    The Bureau notes that some of the comments the Bureau received 
raised issues that are beyond the scope of the 2020 Proposal. 
Specifically, several industry commenters requested that the Bureau 
provide guidance that the use of certain replacement indices would not 
raise Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) concerns. 
The Bureau is not addressing these comments requesting guidance on 
UDAAP in this final rule because they are outside the scope of the 2020 
Proposal.

B. Outreach

    Prior to the 2020 Proposal, the Bureau received feedback through 
both formal and informal channels, regarding ways in which the Bureau 
could use rulemaking to facilitate the market's orderly transition from 
using LIBOR indices to alternate indices. The following is a brief 
summary of some of the Bureau's engagement with industry, consumer 
groups, regulators, and other stakeholders regarding the transition 
away from the use of LIBOR indices prior to the 2020 Proposal. The 
Bureau discusses feedback received through these various channels that 
is relevant to this final rule throughout the document.
    The Bureau is an ex officio member of the ARRC, a group of private-
market participants convened by the Board of Governors of the Federal 
Reserve System (Board) and the Federal Reserve Bank of New York (New 
York Fed) to ensure a successful transition from the use of LIBOR as an 
index. The group is comprised of a diverse set of private-sector 
entities that have an important presence in markets affected by USD 
LIBOR and a wide array of official-sector entities, including banking 
and financial sector regulators, as ex-officio members. As an ex 
officio member, the Bureau does not have voting rights and may only 
offer views and analysis to support the ARRC's objectives. Through its 
interaction with other ARRC members, the Bureau has received questions 
and requests for clarification regarding certain provisions in the 
Bureau's rules that could affect the industry's LIBOR transition plans. 
For example, the Bureau has received informal requests from members of 
the ARRC for clarification that the SOFR-based spread-adjusted index 
recommended by ARRC for consumer products is a comparable index to the 
LIBOR index. The Bureau has also, in coordination with the ARRC, 
actively sought feedback regarding a potential rulemaking related to 
the LIBOR transition. For example, the Bureau convened multiple 
meetings for members of the ARRC to hear consumer groups' views on 
potential issues consumers may face during the anticipated sunset of 
LIBOR and solicited suggestions for potential actions the regulators 
could take to facilitate a smooth transition.
    The Bureau has engaged in ongoing market monitoring with individual 
institutions, trade associations, regulators, and other stakeholders to 
understand their plans for the LIBOR transition, their concerns, and 
potential impacts on consumers. Institutions and trade associations 
have met informally with the Bureau and sent letters outlining their 
concerns related to the anticipated sunset of LIBOR. The Bureau also 
has received feedback regarding the LIBOR transition through other 
formal channels that were related to general Bureau activities. For 
example, in January 2019, the Bureau solicited information from the 
public about several aspects of the consumer credit card market.\12\ 
The Bureau received comments submitted from a banking trade group 
regarding changes to Regulation Z that could support the transition 
away from using LIBOR indices.
---------------------------------------------------------------------------

    \12\ 84 FR 647 (Jan. 31, 2019).
---------------------------------------------------------------------------

    Through these various channels, industry trade associations, 
consumer groups, and other organizations provided information about 
provisions in Bureau regulations that could be modified to reduce 
market confusion, enable institutions and consumers to transition away 
from using LIBOR indices in a timely manner, and lower risks related to 
the LIBOR transition. A number of financial institutions raised 
concerns that LIBOR may continue for some time after December 2021 but 
become less representative or reliable if, as expected, some panel 
banks stop submitting information before LIBOR finally is discontinued. 
Stakeholders noted that FCA could declare LIBOR to be unrepresentative 
at some point after 2021 and wanted clarity from U.S. Federal 
regulators about how U.S. firms should interpret such a declaration. 
Some industry participants asked that the Bureau declare LIBOR to be 
unavailable for the purposes of Regulation Z. They also requested that 
the Bureau facilitate a transition timeline that would provide 
sufficient time for financial institutions to notify consumers of the 
change and make the necessary changes to their systems.
    Credit card issuers and related trade associations stated that 
Prime should be permitted to replace a LIBOR index, noting that while a 
SOFR-based index is expected to replace a LIBOR index in many 
commercial contexts, Prime is the industry standard rate index for 
credit cards. They also requested that the Bureau permit card issuers 
to replace the LIBOR index used in setting the variable rates on 
existing accounts before LIBOR becomes unavailable to facilitate 
compliance. They also requested guidance on how the rate reevaluation 
provisions applicable to credit card accounts apply to accounts that 
are transitioning away from using LIBOR indices.
    Consumer groups emphasized the need for transparency as 
institutions sunset their use of LIBOR indices and indicated a 
preference for replacement indices that are publicly available. They 
recommended regulators protect consumers by preventing institutions 
from changing the index or margin in a manner that would raise the 
interest rate paid by the consumer. They also shared industry's 
concerns that LIBOR may continue for some time after December 2021 but 
become less representative or reliable until LIBOR finally is 
discontinued. Consumer advocates noted that existing contract language 
may limit how and when institutions can transition away from LIBOR. 
They also discussed issues specific to particular consumer products, 
expressing concern, for example, that the contract language in the 
private student loan market is ambiguous and gives lenders wide leeway 
in determining a comparable replacement index for LIBOR indices.

IV. Legal Authority

A. Section 1022 of the Dodd-Frank Act

    Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to 
prescribe rules ``as may be necessary or appropriate to enable the 
Bureau to administer and carry out the purposes and objectives of the 
Federal consumer financial laws, and to prevent evasions

[[Page 69721]]

thereof.'' Among other statutes, title X of the Dodd-Frank Act and TILA 
are Federal consumer financial laws.\13\ Accordingly, in issuing this 
final rule, the Bureau is exercising its authority under Dodd-Frank Act 
section 1022(b) to prescribe rules under TILA and title X that carry 
out the purposes and objectives and prevent evasion of those laws.
---------------------------------------------------------------------------

    \13\ Dodd-Frank Act section 1002(14); codified at 12 U.S.C. 
5481(14) (defining ``Federal consumer financial law'' to include the 
``enumerated consumer laws'' and the provisions of title X of the 
Dodd-Frank Act); Dodd-Frank Act section 1002(12); codified at 12 
U.S.C. 5481(12) (defining ``enumerated consumer laws'' to include 
TILA).
---------------------------------------------------------------------------

B. The Truth in Lending Act

    TILA is a Federal consumer financial law. In adopting TILA, 
Congress explained that: (1) Economic stabilization would be enhanced 
and the competition among the various financial institutions and other 
firms engaged in the extension of consumer credit would be strengthened 
by the informed use of credit; (2) the informed use of credit results 
from an awareness of the cost thereof by consumers; and (3) it is the 
purpose of TILA to assure a meaningful disclosure of credit terms so 
that the consumer will be able to compare more readily the various 
credit terms available to them and avoid the uninformed use of credit, 
and to protect the consumer against inaccurate and unfair credit 
billing and credit card practices.\14\
---------------------------------------------------------------------------

    \14\ TILA section 102(a), codified at 15 U.S.C. 1601(a).
---------------------------------------------------------------------------

    TILA and Regulation Z define credit broadly as the right granted by 
a creditor to a debtor to defer payment of debt or to incur debt and 
defer its payment.\15\ TILA and Regulation Z set forth disclosure and 
other requirements that apply to creditors. Different rules apply to 
creditors depending on whether they are extending ``open-end credit'' 
or ``closed-end credit.'' Under the statute and Regulation Z, open-end 
credit exists where there is a plan in which the creditor reasonably 
contemplates repeated transactions; the creditor may impose a finance 
charge from time to time on an outstanding unpaid balance; and the 
amount of credit that may be extended to the consumer during the term 
of the plan (up to any limit set by the creditor) is generally made 
available to the extent that any outstanding balance is repaid.\16\ 
Typically, closed-end credit is credit that does not meet the 
definition of open-end credit.\17\
---------------------------------------------------------------------------

    \15\ TILA section 103(f), codified at 15 U.S.C. 1602(f); 12 CFR 
1026.2(a)(14).
    \16\ 12 CFR 1026.2(a)(20).
    \17\ 12 CFR 1026.2(a)(10); comment 2(a)(10)-1.
---------------------------------------------------------------------------

    The term ``creditor'' generally means a person who regularly 
extends consumer credit that is subject to a finance charge or is 
payable by written agreement in more than four installments (not 
including a down payment), and to whom the obligation is initially 
payable, either on the face of the note or contract or by agreement 
when there is no note or contract.\18\ TILA defines ``finance charge'' 
generally as the sum of all charges, payable directly or indirectly by 
the person to whom the credit is extended, and imposed directly or 
indirectly by the creditor as an incident to the extension of 
credit.\19\
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    \18\ See TILA section 103(g), codified at 15 U.S.C. 1602(g); 12 
CFR 1026.2(a)(17)(i).
    \19\ TILA section 106(a), codified at 15 U.S.C. 1605(a); see 12 
CFR 1026.4.
---------------------------------------------------------------------------

    The term ``creditor'' also includes a card issuer, which is a 
person or its agent that issues credit cards, when that person extends 
credit accessed by the credit card.\20\ Regulation Z defines the term 
``credit card'' to mean any card, plate, or other single credit device 
that may be used from time to time to obtain credit.\21\ A charge card 
is a credit card on an account for which no periodic rate is used to 
compute a finance charge.\22\ In addition to being creditors under TILA 
and Regulation Z, card issuers also generally must comply with the 
credit card rules set forth in the Fair Credit Billing Act \23\ and in 
the Credit Card Accountability Responsibility and Disclosure Act of 
2009 (Credit CARD Act) \24\ (if the card accesses an open-end credit 
plan), as implemented in Regulation Z subparts B and G.\25\
---------------------------------------------------------------------------

    \20\ See TILA section 103(g), codified at 15 U.S.C. 1602(g); 12 
CFR 1026.2(a)(17)(iii) and (iv).
    \21\ See 12 CFR 1026.2(a)(15)(i).
    \22\ See 12 CFR 1026.2(a)(15)(iii).
    \23\ Fair Credit Billing Act, Pubic Law 93-495, 88 Stat. 1511 
(1974).
    \24\ Credit Card Accountability Responsibility and Disclosure 
Act of 2009, Public Law 111-24, 123 Stat. 1734 (2009).
    \25\ See generally 12 CFR 1026.5(b)(2)(ii), 1026.7(b)(11), 
1026.12, 1026.51-.60.
---------------------------------------------------------------------------

    TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 
105(a) \26\ directs the Bureau to prescribe regulations to carry out 
the purposes of TILA, and provides that such regulations may contain 
additional requirements, classifications, differentiations, or other 
provisions, and may provide for such adjustments and exceptions for all 
or any class of transactions, that, in the judgment of the Bureau, are 
necessary or proper to effectuate the purposes of TILA, to prevent 
circumvention or evasion thereof, or to facilitate compliance. Pursuant 
to TILA section 102(a), a purpose of TILA is to assure a meaningful 
disclosure of credit terms to enable the consumer to avoid the 
uninformed use of credit and compare more readily the various credit 
terms available to the consumer. This stated purpose is tied to 
Congress's finding that economic stabilization would be enhanced and 
competition among the various financial institutions and other firms 
engaged in the extension of consumer credit would be strengthened by 
the informed use of credit.\27\ Thus, strengthened competition among 
financial institutions is a goal of TILA, achieved through the 
effectuation of TILA's purposes.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 1604(a).
    \27\ TILA section 102(a), codified at 15 U.S.C. 1601(a).
---------------------------------------------------------------------------

    Historically, TILA section 105(a) has served as a broad source of 
authority for rules that promote the informed use of credit through 
required disclosures and substantive regulation of certain practices. 
Dodd-Frank Act section 1100A clarified the Bureau's section 105(a) 
authority by amending that section to provide express authority to 
prescribe regulations that contain ``additional requirements'' that the 
Bureau finds are necessary or proper to effectuate the purposes of 
TILA, to prevent circumvention or evasion thereof, or to facilitate 
compliance. This amendment clarified the authority to exercise TILA 
section 105(a) to prescribe requirements beyond those specifically 
listed in the statute that meet the standards outlined in section 
105(a). As amended by the Dodd-Frank Act, TILA section 105(a) authority 
to make adjustments and exceptions to the requirements of TILA applies 
to all transactions subject to TILA, except with respect to the 
provisions of TILA section 129 that apply to the high-cost mortgages 
referred to in TILA section 103(bb).\28\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 1602(bb).
---------------------------------------------------------------------------

    For the reasons discussed in this document, the Bureau is amending 
certain provisions in Regulation Z that impact the transition from 
LIBOR indices to other indices to carry out TILA's purposes and is 
finalizing such additional requirements, adjustments, and exceptions 
as, in the Bureau's judgment, are necessary and proper to carry out the 
purposes of TILA, prevent circumvention or evasion thereof, or to 
facilitate compliance. In developing these aspects of this final rule 
pursuant to its authority under TILA section 105(a), the Bureau has 
considered the purposes of TILA, including ensuring meaningful 
disclosures, facilitating consumers' ability to compare credit terms, 
and helping consumers avoid the

[[Page 69722]]

uninformed use of credit, and the findings of TILA, including 
strengthening competition among financial institutions and promoting 
economic stabilization.
    TILA section 105(d). As amended by the Dodd-Frank Act, TILA section 
105(d) \29\ states that any Bureau regulations requiring any disclosure 
which differs from the disclosures previously required in certain 
sections shall have an effective date of October 1 which follows by at 
least six months the date of promulgation. The section also states that 
the Bureau may in its discretion lengthen or shorten the amount of time 
for compliance when it makes a specific finding that such action is 
necessary to comply with the findings of a court or to prevent unfair 
or deceptive disclosure practices. The section further states that any 
creditor or lessor may comply with any such newly promulgated 
disclosures requirements prior to the effective date of the 
requirements.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 1604(d).
---------------------------------------------------------------------------

V. Section-by-Section Analysis

Section 1026.9 Subsequent Disclosure Requirements

9(c) Change in Terms
9(c)(1) Rules Affecting Home-Equity Plans
    Section 1026.9(c)(1)(i) provides that for HELOCs subject to Sec.  
1026.40 whenever any term required to be disclosed in the account-
opening disclosures under Sec.  1026.6(a) is changed or the required 
minimum periodic payment is increased, the creditor must mail or 
deliver written notice of the change to each consumer who may be 
affected. The notice must be mailed or delivered at least 15 days prior 
to the effective date of the change. The 15-day timing requirement does 
not apply if the change has been agreed to by the consumer; the notice 
must be given, however, before the effective date of the change. 
Section 1026.9(c)(1)(ii) provides that for HELOCs subject to Sec.  
1026.40, a creditor is not required to provide a change-in-terms notice 
under Sec.  1026.9(c)(1) when the change involves a reduction of any 
component of a finance or other charge or when the change results from 
an agreement involving a court proceeding.
    A creditor for a HELOC subject to Sec.  1026.40 is required under 
current Sec.  1026.9(c)(1) to provide a change-in-terms notice 
disclosing the index that is replacing the LIBOR index. The index is a 
term that is required to be disclosed in the account-opening 
disclosures under Sec.  1026.6(a) and thus, a creditor must provide a 
change-in-terms notice disclosing the index that is replacing the LIBOR 
index.\30\ The exception in Sec.  1026.9(c)(1)(ii) that provides that a 
change-in-terms notice is not required when a change involves a 
reduction in the finance or other charge does not apply to the index 
change. The change in the index used in making rate adjustments is a 
change in a term required to be disclosed in a change-in-terms notice 
under Sec.  1026.9(c)(1) regardless of whether there is also a change 
in the index value or margin that involves a reduction in a finance or 
other charge.
---------------------------------------------------------------------------

    \30\ See 12 CFR 1026.6(a)(1)(ii) and (iv) and comment 
6(a)(1)(ii)-5.
---------------------------------------------------------------------------

    Under current Sec.  1026.9(c)(1), a creditor generally is required 
to provide a change-in-terms notice of a margin change if the margin is 
increasing. In disclosing the variable rate in the account-opening 
disclosures under Sec.  1026.6(a), the creditor must disclose the 
margin as part of an explanation of how the amount of any finance 
charge will be determined.\31\ Thus, a creditor must provide a change-
in-terms notice under current Sec.  1026.9(c)(1) disclosing the changed 
margin, unless Sec.  1026.9(c)(1)(ii) applies. Current Sec.  
1026.9(c)(1)(ii) applies to a decrease in the margin because that 
change would involve a reduction in a component of a finance or other 
charge. Thus, under current Sec.  1026.9(c)(1), a creditor would only 
be required to provide a change-in-terms notice of a change in the 
margin under Sec.  1026.9(c)(1) if the margin is increasing.
---------------------------------------------------------------------------

    \31\ See 12 CFR 1026.6(a)(1)(iv).
---------------------------------------------------------------------------

    A creditor also is required to disclose in the change-in-terms 
notice any increased periodic rate or APR as calculated using the 
replacement index at the time the change-in-terms notice is provided. 
The periodic rate and APR are terms that are required to be disclosed 
in the account-opening disclosures under Sec.  1026.6(a) and thus, a 
creditor must provide a change-in-terms notice disclosing the new 
periodic rate and APR calculated using the replacement index if the 
periodic rate or APR is increasing from the rate calculated using the 
LIBOR index at the time the change-in-terms notice is provided.\32\ 
Comment 9(c)(1)-1 provides that no notice of a change in terms need be 
given if the specific change is set forth initially, such as rate 
increases under a properly disclosed variable-rate plan. Nonetheless, 
the Bureau determines that this comment does not apply when a periodic 
rate or APR is increasing because the index is being replaced (as 
opposed to the periodic rate or APR is increasing because the value of 
the original index is increasing).
---------------------------------------------------------------------------

    \32\ See 12 CFR 1026.6(a)(1)(ii). Comment 6(a)(1)(ii)-3 provides 
that in disclosing the rate(s) in effect for a variable-rate plan at 
the time of the account-opening disclosures (as is required by Sec.  
1026.6(a)(1)(ii)), the creditor may use an insert showing the 
current rate; may give the rate as of a specified date and then 
update the disclosure from time to time, for example, each calendar 
month; or may disclose an estimated rate under Sec.  1026.5(c).
---------------------------------------------------------------------------

    As discussed more in the section-by-section analysis of Sec.  
1026.9(c)(1)(ii), the Bureau proposed to revise Sec.  1026.9(c)(1)(ii) 
which provides an exception under which a creditor is not required to 
provide a change-in-terms notice under Sec.  1026.9(c)(1) when the 
change involves a reduction of any component of a finance or other 
charge. The Bureau proposed to revise Sec.  1026.9(c)(1)(ii) to provide 
that the exception does not apply on or after October 1, 2021, to 
situations where the creditor is reducing the margin when a LIBOR index 
is replaced as permitted by proposed Sec.  1026.40(f)(3)(ii)(A) or 
Sec.  1026.40(f)(3)(ii)(B). The Bureau also proposed comment 
9(c)(1)(ii)-3 to provide detail on this proposed revision to Sec.  
1026.9(c)(1)(ii). This final rule adopts Sec.  1026.9(c)(1)(ii) and 
comment 9(c)(1)(ii)-3 as proposed except to provide that the revisions 
to Sec.  1026.9(c)(1)(ii) are effective April 1, 2022, with a mandatory 
compliance date of October 1, 2022, consistent with the effective date 
of this final rule and consistent with TILA section 105(d).
    This final rule also provides additional details on how a creditor 
may disclose information about the periodic rate and APR in a change-
in-terms notice for HELOCs when the creditor is replacing a LIBOR index 
with the SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products in certain circumstances. Specifically, this final 
rule provides additional details for situations where a creditor is 
replacing a LIBOR index with the SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, or 6-month USD LIBOR index, the creditor is not changing the 
margin used to calculate the variable rate as a result of the 
replacement, and a periodic rate or the corresponding APR based on the 
replacement index is unknown to the creditor at the time the change-in-
terms notice is provided because the SOFR index has not been published 
at the time the creditor provides the change-in-terms notice but will 
be published by the time the replacement of the index takes effect on 
the account. In this case, new comment 9(c)(1)-4 provides that a 
creditor may comply with any

[[Page 69723]]

requirement to disclose in the change-in-terms notice the amount of the 
periodic rate or APR (or changes in these amounts) as calculated using 
the replacement index based on the best information reasonably 
available, clearly stating that the disclosure is an estimate. For 
example, in this situation, comment 9(c)(1)-4 provides that the 
creditor may state that: (1) Information about the rate is not yet 
available but that the creditor estimates that, at the time the index 
is replaced, the rate will be substantially similar to what it would be 
if the index did not have to be replaced; and (2) the rate will vary 
with the market based on a SOFR index.
    In this unique circumstance, the Bureau interprets Sec.  1026.5(c) 
to be consistent with new comment 9(c)(1)-4. Section 1026.5(c) 
provides, in relevant part, that if any information necessary for 
accurate disclosure is unknown to the creditor, it must make the 
disclosure based on the best information reasonably available and must 
state clearly that the disclosure is an estimate. New comment 9(c)(1)-4 
also is consistent with this final rule provisions that provide that if 
a creditor uses the SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products to replace the 1-month, 3-month, or 6-month 
USD LIBOR index as the replacement index and uses as the replacement 
margin the same margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan, the 
creditor will be deemed to be in compliance with the conditions in 
Sec.  1026.40(f)(3)(ii)(A) and (B) that the replacement index and 
replacement margin would have resulted in an APR substantially similar 
to the rate calculated using the LIBOR index.\33\
---------------------------------------------------------------------------

    \33\ See comments 40(f)(3)(ii)(A)-3 and 40(f)(3)(ii)(B)-3; see 
also the section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A) 
for a discussion of the rationale for the Bureau making this 
determination.
---------------------------------------------------------------------------

    As described above, under Sec.  1026.9(c)(1)(i), the change-in-
terms notice for HELOC accounts subject to Sec.  1026.40 generally must 
be mailed or delivered at least 15 days prior to the effective date of 
the change. Also, as discussed above, the ARRC has indicated that the 
SOFR-based spread-adjusted indices recommended by ARRC for consumer 
products to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR 
will not be published until Monday, July 3, 2023, which is the first 
weekday after Friday, June 30, 2023, when LIBOR is currently 
anticipated to sunset for these USD LIBOR tenors. This final rule 
provision is intended to facilitate compliance with the 15-day advance 
notice requirement for change-in-terms notices by allowing creditors in 
the situation described above to provide change-in-terms notices prior 
to the SOFR-based spread-adjusted index being published, so that 
creditors are not left without an index to use on the account after the 
SOFR-based spread-adjusted index is published but before it becomes 
effective on the account. The Bureau has determined that the 
information described in new comment 9(c)(1)-4 sufficiently notifies 
consumers of the estimated periodic rate and APR as calculated using 
the SOFR-based spread-adjusted index, even though the SOFR-based 
spread-adjusted index is not being published at the time the notice is 
sent, as long as the SOFR-based spread-adjusted index is published by 
the time the replacement of the index takes effect on the account.
    The Bureau is reserving judgment about whether to include a 
reference to the 1-year USD LIBOR index in comment 9(c)(1)-4 until it 
obtains additional information. Once the Bureau knows which SOFR-based 
spread-adjusted index the ARRC will recommend to replace the 1-year USD 
LIBOR index for consumer products, the Bureau may determine whether the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate calculated using the LIBOR index. 
Assuming the Bureau determines that the index meets that standard, the 
Bureau will then consider whether to codify that determination in a 
supplemental final rule, or otherwise announce that determination.
9(c)(1)(ii) Notice Not Required
The Bureau's Proposal
    The Bureau proposed to revise Sec.  1026.9(c)(1)(ii) which provides 
an exception under which a creditor is not required to provide a 
change-in-terms notice under Sec.  1026.9(c)(1) when the change 
involves a reduction of any component of a finance or other charge. The 
Bureau proposed to revise Sec.  1026.9(c)(1)(ii) to provide that the 
exception does not apply on or after October 1, 2021, to situations 
where the creditor is reducing the margin when a LIBOR index is 
replaced as permitted by proposed Sec.  1026.40(f)(3)(ii)(A) or Sec.  
1026.40(f)(3)(ii)(B).\34\
---------------------------------------------------------------------------

    \34\ As discussed in more detail in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(A), the Bureau proposed to move 
the provisions in current Sec.  1026.40(f)(3)(ii) that allow a 
creditor for HELOC plans subject to Sec.  1026.40 to replace an 
index and adjust the margin if the index is no longer available in 
certain circumstances to proposed Sec.  1026.40(f)(3)(ii)(A) and to 
revise the proposed moved provisions for clarity and consistency. 
Also, as discussed in more detail in the section-by-section analysis 
of Sec.  1026.40(f)(3)(ii)(B), to facilitate compliance, the Bureau 
proposed to add new LIBOR-specific provisions to proposed Sec.  
1026.40(f)(3)(ii)(B) that would permit creditors for HELOC plans 
subject to Sec.  1026.40 that use a LIBOR index for calculating a 
variable rate to replace the LIBOR index and change the margin for 
calculating the variable rate on or after March 15, 2021, in certain 
circumstances.
---------------------------------------------------------------------------

    The Bureau also proposed to add comment 9(c)(1)(ii)-3 to provide 
additional detail. Proposed comment 9(c)(1)(ii)-3 provided that for 
change-in-terms notices provided under Sec.  1026.9(c)(1) on or after 
October 1, 2021, covering changes permitted by proposed Sec.  
1026.40(f)(3)(ii)(A) or Sec.  1026.40(f)(3)(ii)(B), a creditor must 
provide a change-in-terms notice under Sec.  1026.9(c)(1) disclosing 
the replacement index for a LIBOR index and any adjusted margin that is 
permitted under proposed Sec.  1026.40(f)(3)(ii)(A) or Sec.  
1026.40(f)(3)(ii)(B), even if the margin is reduced. Proposed comment 
9(c)(1)(ii)-3 also provided that prior to October 1, 2021, a creditor 
has the option of disclosing a reduced margin in the change-in-terms 
notice that discloses the replacement index for a LIBOR index as 
permitted by proposed Sec.  1026.40(f)(3)(ii)(A) or Sec.  
1026.40(f)(3)(ii)(B).
    As discussed below, this final rule adopts Sec.  1026.9(c)(1)(ii) 
and comment 9(c)(1)(ii)-3 generally as proposed except to provide that 
the revisions to Sec.  1026.9(c)(1)(ii) are effective April 1, 2022, 
with a mandatory compliance date of October 1, 2022, consistent with 
the effective date of this final rule and consistent with TILA section 
105(d).
Comments Received
    Revisions to change-in-terms notice requirements. In response to 
the 2020 Proposal, the Bureau received comments from trade 
associations, consumer groups, and individual commenters on the 
proposed change-in-terms notice requirements. Several trade 
associations provided the same comments for both the proposed changes 
to the change-in-terms notice requirements in proposed Sec.  
1026.9(c)(1)(ii) for HELOCs and Sec.  1026.9(c)(2)(v)(A) for credit 
card accounts under an open-end (not home-secured) consumer credit 
plan. These trade associations supported the Bureau's proposed 
revisions to the notice requirements, stating that the proposed 
amendments will help consumers understand changes they

[[Page 69724]]

may see as a result of the move away from LIBOR.
    A few industry commenters specifically addressed the proposed 
amendments in Sec.  1026.9(c)(1)(ii) for HELOCs. A trade association 
commented that the proposed revisions to Sec.  1026.9(c)(1)(ii) are 
appropriate to inform consumers of the index that is replacing LIBOR 
and any adjustment to the margin, regardless of whether the margin is 
increasing or decreasing, and should reduce confusion for consumers 
during the transition. Another trade association representing credit 
unions supported the proposed changes to Sec.  1026.9(c)(1)(ii) because 
it believed that the proposed amendments would help inform borrowers of 
the changes that could affect their loans.
    Several consumer group commenters supported the proposed amendments 
to the change-in-terms notice requirements under proposed Sec.  
1026.9(c)(1)(ii) for HELOCs but indicated that these proposed 
amendments should not be limited just to the LIBOR transition, but 
should apply to any future index transitions as well.
    An individual commenter stated that the proposed revisions to the 
change-in-terms notice requirements under proposed Sec.  
1026.9(c)(1)(ii) for HELOCs and Sec.  1026.9(c)(2)(v)(A) for credit 
card accounts are important in ensuring that the change is properly 
disclosed to the borrower. A few individual commenters specifically 
supported the proposed revisions to the change-in-terms notice 
requirements under proposed Sec.  1026.9(c)(1)(ii) for HELOCs. Another 
individual commenter requested that the Bureau require creditors to 
show in dollar terms the current rate changes for the previous five 
years and what these changes would have been under the new index. The 
commenter stated that this additional information would enable 
borrowers to understand exactly how the change in the index would 
affect them.
    Sample or model notices. Several industry commenters requested that 
the Bureau provide comprehensive sample disclosures for change-in-terms 
notices required under Sec.  1026.9(c)(1) for HELOC accounts and Sec.  
1026.9(c)(2) for credit card accounts that can be provided to borrowers 
to help them understand the change in the index. An individual 
commenter indicated that the Bureau should provide model disclosures 
for the proposed amendments under proposed Sec.  1026.9(c)(1)(ii).
    Timing of notice. An individual commenter indicated that the Bureau 
should require banks to identify and communicate the replacement index 
well in advance of the transition date.
The Final Rule
    For the reasons discussed below, this final rule adopts Sec.  
1026.9(c)(1)(ii) and comment 9(c)(1)(ii)-3 as proposed except to 
provide that the revisions to Sec.  1026.9(c)(1)(ii) are effective 
April 1, 2022, with a mandatory compliance date of October 1, 2022, 
consistent with the effective date of this final rule and consistent 
with TILA section 105(d). To effectuate the purposes of TILA, the 
Bureau is using its TILA section 105(a) authority to amend Sec.  
1026.9(c)(1)(ii) and adopt comment 9(c)(1)(ii)-3. TILA section 105(a) 
\35\ directs the Bureau to prescribe regulations to carry out the 
purposes of TILA, and provides that such regulations may contain 
additional requirements, classifications, differentiations, or other 
provisions, and may provide for such adjustments and exceptions for all 
or any class of transactions, that, in the judgment of the Bureau, are 
necessary or proper to effectuate the purposes of TILA, to prevent 
circumvention or evasion thereof, or to facilitate compliance. The 
Bureau believes that when a creditor for a HELOC plan that is subject 
to Sec.  1026.40 is replacing the LIBOR index and adjusting the margin 
as permitted by Sec.  1026.40(f)(3)(ii)(A) or Sec.  
1026.40(f)(3)(ii)(B), it is beneficial for consumers to receive notice 
not just of the replacement index, but also any adjustments to the 
margin, even if the margin is decreased. This information will help 
ensure that consumers are notified of the replacement index and any 
adjusted margin (even a reduction in the margin) so that consumers will 
know how the variable rates on their accounts will be determined going 
forward after the LIBOR index is replaced. Otherwise, a consumer that 
is only notified that the LIBOR index is being replaced with a 
replacement index that has a higher index value but is not notified 
that the margin is decreasing could reasonably but mistakenly believe 
that the APR on the plan is increasing.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 1604(a).
---------------------------------------------------------------------------

    The revisions to Sec.  1026.9(c)(1)(ii) are effective April 1, 
2022, with a mandatory compliance date of October 1, 2022. TILA section 
105(d) generally requires that changes in disclosures required by TILA 
or Regulation Z have an effective date of October 1 that is at least 
six months after the date the final rule is adopted.\36\ TILA section 
105(d) also provides that a creditor may comply with newly promulgated 
disclosure requirements prior to the effective date of the requirement. 
Consistent with TILA section 105(d), comment 9(c)(1)(ii)-3 clarifies 
that from April 1, 2022, through September 30, 2022, a creditor has the 
option of disclosing a reduced margin in the change-in-terms notice 
that discloses the replacement index for a LIBOR index as permitted by 
Sec.  1026.40(f)(3)(ii)(A) or Sec.  1026.40(f)(3)(ii)(B). Creditors for 
HELOC plans subject to Sec.  1026.40 may want to provide the 
information about the decreased margin in the change-in-terms notice 
even if they replace the LIBOR index and adjust the margin pursuant to 
Sec.  1026.40(f)(3)(ii)(A) or Sec.  1026.40(f)(3)(ii)(B) earlier than 
October 1, 2022, starting on or after April 1, 2022. These creditors 
may want to provide this information to avoid confusion by consumers 
and because this reduced margin is beneficial to consumers. Thus, 
comment 9(c)(1)(ii)-3 permits creditors for HELOC plans subject to 
Sec.  1026.40 to provide the information about the decreased margin in 
the change-in-terms notice even if they replace the LIBOR index and 
adjust the margin pursuant to Sec.  1026.40(f)(3)(ii)(A) or Sec.  
1026.40(f)(3)(ii)(B) earlier than October 1, 2022, starting on or after 
April 1, 2022. The Bureau encourages creditors to include this 
information in change-in-terms notices provided earlier than October 1, 
2022, starting on or after April 1, 2022, even though they are not 
required to do so, to ensure that consumers are notified of how the 
variable rates on their accounts will be determined going forward after 
the LIBOR index is replaced.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 1604(d).
---------------------------------------------------------------------------

    This final rule does not provide sample or model forms for the 
change-in-terms notices required under Sec.  1026.9(c)(1) when a 
creditor for HELOC plans subject to Sec.  1026.40 transitions away from 
a LIBOR index under Sec.  1026.40(f)(3)(ii)(A) or Sec.  
1026.40(f)(3)(ii)(B). The Bureau believes that sample or model forms 
for such a notice are not necessary or warranted. The change-in-terms 
notice is not a new requirement. The Bureau believes that Sec.  
1026.9(c)(1) and the related commentary provide sufficient information 
for creditors to understand change-in-terms notice requirements without 
the need for sample or model forms.
    This final rule also does not change the timing in which change-in-
terms notices under Sec.  1026.9(c)(1) must be provided to the consumer 
when a creditor replaces a LIBOR index for HELOC plans subject to Sec.  
1026.40. Section 1026.9(c)(1) provides that change-in-terms notices 
generally must be mailed or delivered at least 15 days

[[Page 69725]]

prior to the effective date of the change, and the Bureau did not 
propose changes to the timing of the notices when a creditor replaces a 
LIBOR index. The Bureau concludes that a 15-day period is appropriate 
for change-in-terms notices given when a creditor replaces a LIBOR 
index for HELOC plans subject to Sec.  1026.40; this is the period 
generally applicable to change-in-terms notices for HELOCs under Sec.  
1026.9(c)(1).
9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans
    TILA section 127(i)(1), which was added by the Credit CARD Act, 
provides that in the case of a credit card account under an open-end 
consumer credit plan, a creditor generally must provide written notice 
of an increase in an APR not later than 45 days prior to the effective 
date of the increase.\37\ In addition, TILA section 127(i)(2) provides 
that in the case of a credit card account under an open-end consumer 
credit plan, a creditor must provide written notice of any significant 
change, as determined by a rule of the Bureau, in terms (other than 
APRs) of the cardholder agreement not later than 45 days prior to the 
effective date of the change.\38\
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 1637(i)(1).
    \38\ 15 U.S.C. 1637(i)(2).
---------------------------------------------------------------------------

    Section 1026.9(c)(2)(i)(A) provides that for plans other than 
HELOCs subject to Sec.  1026.40, a creditor generally must provide 
written notice of a ``significant change in account terms'' at least 45 
days prior to the effective date of the change to each consumer who may 
be affected. Section 1026.9(c)(2)(ii) defines ``significant change in 
account terms'' to mean a change in the terms required to be disclosed 
under Sec.  1026.6(b)(1) and (b)(2), an increase in the required 
minimum periodic payment, a change to a term required to be disclosed 
under Sec.  1026.6(b)(4), or the acquisition of a security interest. 
Among other things, Sec.  1026.9(c)(2)(v)(A) provides that a change-in-
terms notice is not required when a change involves a reduction of any 
component of a finance or other charge. The change-in-terms provisions 
in Sec.  1026.9(c)(2) generally apply to a credit card account under an 
open-end (not home-secured) consumer credit plan, and to other open-end 
plans that are not subject to Sec.  1026.40.
    The creditor is required to provide a change-in-terms notice under 
Sec.  1026.9(c)(2) disclosing the index that is replacing the LIBOR 
index pursuant to Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii). A 
creditor is required to disclose the index under Sec.  
1026.6(b)(2)(i)(A) and (4)(ii)(B) and thus, the index is a term that 
meets the definition of a ``significant change in account terms,'' as 
discussed above.\39\ As a result, a creditor must provide a change-in-
terms notice disclosing the index that is replacing the LIBOR index. 
The exception in Sec.  1026.9(c)(2)(v)(A) that provides that a change-
in-terms notice is not required when a change involves a reduction in 
the finance or other charge does not apply to the index change. The 
change in the index used in making rate adjustments is a change in a 
term required to be disclosed in a change-in-terms notice under Sec.  
1026.9(c)(2) regardless of whether there is also a change in the index 
value or margin that involves a reduction in a finance or other charge.
---------------------------------------------------------------------------

    \39\ See also12 CFR 1026.9(c)(2)(iv)(D)(1) and comment 
9(c)(2)(iv)-2.
---------------------------------------------------------------------------

    Under current Sec.  1026.9(c)(2), for plans other than HELOCs 
subject to Sec.  1026.40, a creditor generally is required to provide a 
change-in-terms notice of a margin change if the margin is increasing. 
In disclosing the variable rate in the account-opening disclosures, the 
creditor must disclose the margin as part of an explanation of how the 
rate is determined.\40\ Thus, a creditor must provide a change-in-terms 
notice under Sec.  1026.9(c)(2) disclosing the changed margin, unless 
Sec.  1026.9(c)(2)(v)(A) applies. Current Sec.  1026.9(c)(2)(v)(A) 
applies to a decrease in the margin because that change would involve a 
reduction in a component of a finance or other charge. Thus, under 
current Sec.  1026.9(c)(2), a creditor would only be required to 
provide a change-in-terms notice of a change in the margin under Sec.  
1026.9(c)(2) if the margin is increasing.
---------------------------------------------------------------------------

    \40\ 12 CFR 1026.6(b)(4)(ii)(B).
---------------------------------------------------------------------------

    When an index is being replaced, a creditor is required to disclose 
the replacement index as well as information relevant to the change, if 
that relevant information is required by Sec.  1026.6(b)(1) and 
(b)(2).\41\ Comment 9(c)(2)(iv)-2 explains that, if a creditor is 
changing the index used to calculate a variable rate, the creditor must 
disclose the following information in a tabular format in the change-
in-terms notice: the amount of the new rate (as calculated using the 
new index) and indicate that the rate varies and how the rate is 
determined, as explained in Sec.  1026.6(b)(2)(i)(A). The comment 
provides an example, which indicates that, if a creditor is changing 
from using a prime rate to using LIBOR in calculating a variable rate, 
the creditor would disclose in the table required by Sec.  
1026.9(c)(2)(iv)(D)(1) the new rate (using the new index) and indicate 
that the rate varies with the market based on LIBOR.
---------------------------------------------------------------------------

    \41\ See 12 CFR 1026.9(c)(2)(iv)(A)(1) and (D)(1).
---------------------------------------------------------------------------

    A creditor also is required to disclose in the change-in-terms 
notice any increased periodic rate or APR calculated using the 
replacement index at the time the change-in-terms notice is provided. 
The periodic rate and APR are terms that are required to be disclosed 
in the account-opening disclosures under Sec.  1026.6(b) and thus, a 
creditor must provide a change-in-terms notice disclosing the new 
periodic rate and APR calculated using the replacement index if the 
periodic rate or APR is increasing from the rate calculated using the 
LIBOR index at the time the change-in-terms notice is provided.\42\ 
Section 1026.9(c)(2)(v)(C) provides that a change-in-terms notice is 
not required when the change is an increase in a variable APR in 
accordance with a credit card or other account agreement that provides 
for changes in the rate according to the operation of an index that is 
not under the control of the creditor and is available to the general 
public. Nonetheless, the Bureau determines that Sec.  
1026.9(c)(2)(v)(C) does not apply when a periodic rate or APR is 
increasing because the index is being replaced (as opposed to the 
periodic rate or APR is increasing because the value of the original 
index is increasing).
---------------------------------------------------------------------------

    \42\ See 12 CFR 1026.6(b)(4)(i)(A). Section 1026.6(b)(4)(ii)(G) 
provides that for purposes of disclosing variable rates in the 
account-opening disclosures, a rate generally is accurate if it is a 
rate as of a specified date and this rate was in effect within the 
last 30 days before the disclosures are provided.
---------------------------------------------------------------------------

    The Bureau proposed two changes to the provisions in Sec.  
1026.9(c)(2) and its accompanying commentary. First, the Bureau 
proposed technical edits to comment 9(c)(2)(iv)-2 to replace LIBOR 
references with references to SOFR. Second, the Bureau proposed changes 
to Sec.  1026.9(c)(2)(v)(A) which provides an exception under which a 
creditor is not required to provide a change-in-terms notice under 
Sec.  1026.9(c)(2) when the change involves a reduction of any 
component of a finance or other charge. The Bureau proposed to revise 
Sec.  1026.9(c)(2)(v)(A) to provide that the exception does not apply 
on or after October 1, 2021, to situations where the creditor is 
reducing the margin when a LIBOR index is replaced as permitted by 
proposed Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii). For the 
reasons discussed below, this final rule adopts the amendments to Sec.  
1026.9(c)(2)(v)(A) and its accompanying commentary generally as 
proposed except to provide that the revisions to Sec.  
1026.9(c)(2)(v)(A) and accompanying commentary are effective April 1, 
2022, with a

[[Page 69726]]

mandatory compliance date of October 1, 2022, consistent with the 
effective date of this final rule and consistent with TILA section 
105(d). This final rule also adds new comment 9(c)(2)(iv)-2.ii to 
provide additional details on how a creditor may disclose information 
about the periodic rate and APR in a change-in-terms notice for credit 
card accounts when the creditor is replacing a LIBOR index with the 
SOFR-based spread-adjusted index recommended by ARRC for consumer 
products in certain circumstances. This final rule also makes other 
revisions to current comment 9(c)(2)(iv)-2 to be consistent with the 
revision described above.
9(c)(2)(iv) Disclosure Requirements
    For plans other than HELOCs subject to Sec.  1026.40, comment 
9(c)(2)(iv)-2 explains that, if a creditor is changing the index used 
to calculate a variable rate, the creditor must disclose the following 
information in a tabular format in the change-in-terms notice: the 
amount of the new rate (as calculated using the new index) and indicate 
that the rate varies and how the rate is determined, as explained in 
Sec.  1026.6(b)(2)(i)(A). The comment provides an example, which 
indicates that, if a creditor is changing from using a prime rate to 
using LIBOR in calculating a variable rate, the creditor would disclose 
in the table required by Sec.  1026.9(c)(2)(iv)(D)(1) the new rate 
(using the new index) and indicate that the rate varies with the market 
based on LIBOR. In light of the anticipated discontinuation of LIBOR, 
the Bureau proposed to amend the example in comment 9(c)(2)(iv)-2 to 
substitute SOFR for the LIBOR index. The Bureau also proposed to make 
technical changes for clarity by changing ``prime rate'' to ``prime 
index.'' The Bureau did not receive any comments on the proposed 
amendments.
    This final rule revises comment 9(c)(2)(iv)-2 from the proposal in 
several ways. First, this final rule moves the proposed language in 
comment 9(c)(2)(iv)-2 to comment 9(c)(2)(iv)-2.i and makes revisions to 
the example. New comment 9(c)(2)(iv)-2.i provides that if a creditor is 
changing the index used to calculate a variable rate, the creditor must 
disclose the amount of the new rate (as calculated using the new index) 
and indicate that the rate varies and how the rate is determined, as 
explained in Sec.  1026.6(b)(2)(i)(A). For example, if a creditor is 
changing from using a LIBOR index to using a Prime index in calculating 
a variable rate, the creditor would disclose in the table the new rate 
(using the new index) and indicate that the rate varies with the market 
based on a Prime index.
    This final rule also adds new comment 9(c)(2)(iv)-2.ii to provide 
additional details on how a creditor may disclose information about the 
periodic rate and APR in a change-in-terms notice for credit card 
accounts when the creditor is replacing a LIBOR index with the SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products in certain circumstances. Specifically, this final rule 
provides additional details for situations where a creditor is 
replacing a LIBOR index with the SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, or 6-month USD LIBOR index, the creditor is not changing the 
margin used to calculate the variable rate as a result of the 
replacement, and a periodic rate or the corresponding APR based on the 
replacement index is unknown to the creditor at the time the change-in-
terms notice is provided because the SOFR index has not been published 
at the time the creditor provides the change-in-terms notice but will 
be published by the time the replacement of the index takes effect on 
the account. In this case, new comment 9(c)(2)(iv)-2.ii provides that a 
creditor may comply with any requirement to disclose in the change-in-
terms notice the amount of the periodic rate or APR (or changes in 
these amounts) as calculated using the replacement index based on the 
best information reasonably available, clearly stating that the 
disclosure is an estimate. For example, in this situation, comment 
9(c)(2)(iv)-2.ii provides that the creditor may state that: (1) 
Information about the rate is not yet available but that the creditor 
estimates that, at the time the index is replaced, the rate will be 
substantially similar to what it would be if the index did not have to 
be replaced; and (2) the rate will vary with the market based on a SOFR 
index.
    In this unique circumstance, the Bureau interprets Sec.  1026.5(c) 
to be consistent with new comment 9(c)(2)(iv)-2.ii. Section 1026.5(c) 
provides in relevant part, that if any information necessary for 
accurate disclosure is unknown to the creditor, it must make the 
disclosure based on the best information reasonably available and must 
state clearly that the disclosure is an estimate. New comment 
9(c)(2)(iv)-2.ii also is consistent with this final rule provisions 
that provide that if a creditor uses the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 1-
month, 3-month, or 6-month USD LIBOR index as the replacement index and 
uses as the replacement margin the same margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR index 
used under the plan, the creditor will be deemed to be in compliance 
with the conditions in Sec.  1026.55(b)(7)(i) and (ii) that the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate calculated using the LIBOR index.\43\
---------------------------------------------------------------------------

    \43\ See comments 55(b)(7)(i)-2 and 55(b)(7)(ii)-3; see also the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A) for a 
discussion of the rationale for the Bureau making this 
determination.
---------------------------------------------------------------------------

    As described above, under Sec.  1026.9(c)(2), the change-in-terms 
notice for open-end credit that is not subject to Sec.  1026.40 
(including credit card accounts) generally must be mailed or delivered 
at least 45 days prior to the effective date of the change. Also, as 
discussed above, the ARRC has indicated that the SOFR-based spread-
adjusted indices recommended by ARRC for consumer products to replace 
the 1-month, 3-month, 6-month, or 1-year USD LIBOR index will not be 
published until Monday, July 3, 2023, which is the first weekday after 
Friday, June 30, 2023, when LIBOR is currently anticipated to sunset 
for these USD LIBOR tenors. This final rule provision is intended to 
facilitate compliance with the 45-day advance notice requirement for 
change-in-terms notices by allowing creditors in the situation 
described above to provide change-in-terms notices prior to the SOFR-
based spread-adjusted index being published, so that creditors are not 
left without an index to use on the account after the SOFR-based 
spread-adjusted index is published but before it becomes effective on 
the account. The Bureau has determined that the information described 
in new comment 9(c)(2)(iv)-2.ii sufficiently notifies consumers of the 
estimated rate calculated using the SOFR-based spread-adjusted index, 
even though the SOFR-based spread-adjusted index is not being published 
at the time the notice is sent, as long as the SOFR-based spread-
adjusted index is published by the time the replacement of the index 
takes effect on the account.
    The Bureau is reserving judgment about whether to include a 
reference to the 1-year USD LIBOR index in comment 9(c)(2)(iv)-2.ii 
until it obtains additional information. Once the Bureau knows which 
SOFR-based spread-adjusted index the ARRC will recommend to replace the 
1-year USD LIBOR index for consumer products, the Bureau may determine 
whether the

[[Page 69727]]

replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate calculated using the LIBOR index. 
Assuming the Bureau determines that the index meets that standard, the 
Bureau will then consider whether to codify that determination in a 
supplemental final rule, or otherwise announce that determination.
9(c)(2)(v) Notice Not Required
The Bureau's Proposal
    The Bureau proposed to revise Sec.  1026.9(c)(2)(v)(A) to provide 
that for plans other than HELOCs subject to Sec.  1026.40, the 
exception in Sec.  1026.9(c)(2)(v)(A) to change-in-terms notice 
requirements under Sec.  1026.9(c)(2) does not apply on or after 
October 1, 2021, to margin reductions when a LIBOR index is replaced as 
permitted by proposed Sec.  1026.55(b)(7)(i) or Sec.  
1026.55(b)(7)(ii).\44\
---------------------------------------------------------------------------

    \44\ As discussed in more detail in the section-by-section 
analysis of Sec.  1026.55(b)(7)(i), the Bureau proposed to move the 
provisions in current comment 55(b)(2)-6 that allow a card issuer to 
replace an index and adjust the margin if the index becomes 
unavailable in certain circumstances to proposed Sec.  
1026.55(b)(7)(i) and to revise the proposed moved provisions for 
clarity and consistency. Also, as discussed in more detail in the 
section-by-section analysis of Sec.  1026.55(b)(7)(ii), to 
facilitate compliance, the Bureau proposed to add new LIBOR-specific 
provisions to proposed Sec.  1026.55(b)(7)(ii) that would permit 
card issuers for a credit card account under an open-end (not home-
secured) consumer credit plan that use a LIBOR index under the plan 
to replace the LIBOR index and change the margin on such plans on or 
after March 15, 2021, in certain circumstances.
---------------------------------------------------------------------------

    The Bureau also proposed to add comment 9(c)(2)(v)-14 to provide 
additional detail. Proposed comment 9(c)(2)(v)-14 provided that for 
change-in-terms notices provided under Sec.  1026.9(c)(2) on or after 
October 1, 2021, covering changes permitted by proposed Sec.  
1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii), a creditor must provide a 
change-in-terms notice under Sec.  1026.9(c)(2) disclosing the 
replacement index for a LIBOR index and any adjusted margin that is 
permitted under proposed Sec.  1026.55(b)(7)(i) or Sec.  
1026.55(b)(7)(ii), even if the margin is reduced. Proposed comment 
9(c)(2)(v)-14 also provided that prior to October 1, 2021, a creditor 
has the option of disclosing a reduced margin in the change-in-terms 
notice that discloses the replacement index for a LIBOR index as 
permitted by proposed Sec.  1026.55(b)(7)(i) or Sec.  
1026.55(b)(7)(ii).
Comments Received
    As discussed in the section-by-section analysis of Sec.  
1026.9(c)(1)(ii), in response to the 2020 Proposal, several industry 
commenters and several individual commenters provided the same comments 
for both the proposed changes to the change-in-terms notice 
requirements in proposed Sec.  1026.9(c)(1)(ii) for HELOCs and Sec.  
1026.9(c)(2)(v)(A) for credit card accounts under an open-end (not 
home-secured) consumer credit plan. With respect to these comments, (1) 
several trade associations and an individual commenter supported the 
Bureau's proposed revisions to the notice requirements; (2) another 
individual commenter requested that the Bureau require lenders to show 
in dollar terms the current rate changes for the previous five years 
and what these changes would have been under the new index; (3) several 
industry commenters requested that the Bureau provide comprehensive 
sample disclosures for change-in-terms notices that can be provided to 
borrowers to help them understand the change in the index; and (4) an 
individual commenter indicated that the Bureau should require banks to 
identify and communicate the replacement index well in advance of the 
transition date.
The Final Rule
    For the reasons discussed below, this final rule adopts Sec.  
1026.9(c)(2)(v)(A) and comment 9(c)(2)(v)-14 generally as proposed 
except to provide that the revisions to Sec.  1026.9(c)(2)(v)(A) and 
comment 9(c)(2)(v)-14 are effective April 1, 2022, with a mandatory 
compliance date of October 1, 2022, consistent with the effective date 
of this final rule and consistent with TILA section 105(d). For the 
same reasons that the Bureau is adopting the revisions to Sec.  
1026.9(c)(1)(ii) for HELOC accounts, the Bureau believes that when a 
creditor for plans other than HELOCs subject to Sec.  1026.40 is 
replacing the LIBOR index and adjusting the margin as permitted by 
Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii), it is beneficial for 
consumers to receive notice not just of the replacement index but also 
any adjustments to the margin, even if the margin is decreased. 
Informing consumers of the replacement index and any adjusted margin 
(even a reduction in the margin) tells consumers how the variable rates 
on their accounts will be determined going forward after the LIBOR 
index is replaced. Otherwise, a consumer that is only notified that the 
LIBOR index is being replaced with a replacement index that has a 
higher index value but is not notified that the margin is decreasing 
could reasonably but mistakenly believe that the APR on the plan is 
increasing.
    The revisions to Sec.  1026.9(c)(2)(v)(A) are effective April 1, 
2022, with a mandatory compliance date of October 1, 2022. TILA section 
105(d) generally requires that changes in disclosures required by TILA 
or Regulation Z have an effective date of the October 1 that is at 
least six months after the date the final rule is adopted.\45\ TILA 
section 105(d) also provides that a creditor may comply with newly 
promulgated disclosure requirements prior to the effective date of the 
requirement. Consistent with TILA section 105(d), comment 9(c)(2)(v)-14 
clarifies that from April 1, 2022, through September 30, 2022, a 
creditor has the option of disclosing a reduced margin in the change-
in-terms notice that discloses the replacement index for a LIBOR index 
as permitted by Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii). 
Creditors for plans other than HELOCs subject to Sec.  1026.40 may want 
to provide the information about the decreased margin in the change-in-
terms notice, even if they replace the LIBOR index and adjust the 
margin pursuant to Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii) 
earlier than October 1, 2022, starting on or after April 1, 2022. These 
creditors may want to provide this information to avoid confusion by 
consumers and because this reduced margin is beneficial to consumers. 
Thus, comment 9(c)(2)(v)-14 permits creditors for plans other than 
HELOCs subject to Sec.  1026.40 to provide the information about the 
decreased margin in the change-in-terms notice even if they replace the 
LIBOR index and adjust the margin pursuant to Sec.  1026.55(b)(7)(i) or 
Sec.  1026.55(b)(7)(ii) earlier than October 1, 2022, starting on or 
after April 1, 2022. The Bureau encourages creditors to include this 
information in change-in-terms notices provided earlier than October 1, 
2022, starting on or after April 1, 2022, even though they are not 
required to do so, to ensure that consumers are notified of how the 
variable rates on their accounts will be determined going forward after 
the LIBOR index is replaced.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 1604(d).
---------------------------------------------------------------------------

    For the similar reasons discussed in the section-by-section 
analysis of Sec.  1026.9(c)(1)(ii) for HELOC accounts, this final rule 
does not provide sample or model forms for the change-in-terms notices 
required under Sec.  1026.9(c)(2) when a creditor transitions away from 
a LIBOR index under Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii) 
for plans that are not subject to Sec.  1026.40. The Bureau believes 
that sample or model forms for such a notice are not necessary or 
warranted. The change-in-terms notice is not a new requirement. The 
Bureau believes that Sec.  1026.9(c)(2) and the related commentary 
provide sufficient

[[Page 69728]]

information for creditors to understand change-in-terms notice 
requirements without the need for a model form.
    For similar reasons discussed in the section-by-section analysis of 
Sec.  1026.9(c)(1)(ii) for HELOC accounts, this final rule also does 
not change the timing in which change-in-terms notices under Sec.  
1026.9(c)(2) must be provided to the consumer when a creditor replaces 
a LIBOR index for plans that are not subject to Sec.  1026.40. Section 
1026.9(c)(2) provides that change-in-terms notices generally must be 
mailed or delivered at least 45 days prior to the effective date of the 
change, and the Bureau did not propose changes to the timing of the 
notices when a creditor replaces a LIBOR index. The Bureau concludes 
that a 45-day period is appropriate for change-in-terms notices given 
when a creditor replaces a LIBOR index for plans other than HELOCs 
subject to Sec.  1026.40; this is the period generally applicable to 
change-in-terms notices for open-end (not home-secured) plans under 
Sec.  1026.9(c)(2).

Section 1026.20 Disclosure Requirements Regarding Post-Consummation 
Events

20(a) Refinancings
The Bureau's Proposal
    Section 1026.20 includes disclosure requirements regarding post-
consummation events for closed-end credit. Section 1026.20(a) and its 
commentary define when a refinancing occurs for closed-end credit and 
provide that a refinancing is a new transaction requiring new 
disclosures to the consumer. Comment 20(a)-3.ii.B explains that a new 
transaction subject to new disclosures results if the creditor adds a 
variable-rate feature to the obligation, even if it is not accomplished 
by the cancellation of the old obligation and substitution of a new 
one. The comment also states that a creditor does not add a variable-
rate feature by changing the index of a variable-rate transaction to a 
comparable index, whether the change replaces the existing index or 
substitutes an index for one that no longer exists. To clarify comment 
20(a)-3.ii.B, the Bureau proposed to add to the comment an illustrative 
example, which would indicate that a creditor does not add a variable-
rate feature by changing the index of a variable-rate transaction from 
the 1-month, 3-month, 6-month, or 1-year USD LIBOR index to the SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR 
index respectively because the replacement index is a comparable index 
to the corresponding USD LIBOR index.\46\ The Bureau requested comment 
on whether it was appropriate to add the proposed example to comment 
20(a)-3.ii.B and whether the Bureau should make any other amendments to 
Sec.  1026.20(a) or its commentary in connection with the LIBOR 
transition. The Bureau also requested comment on whether there were any 
other replacement indices that it should identify as an example of a 
comparable index in comment 20(a)-3.ii.B, and if so, which indices and 
on what bases. For the reasons discussed below, the Bureau is 
finalizing the amendments to comment 20(a)-3.ii.B generally as proposed 
with a revision to cross-reference new comment 20(a)(3)-iv and with a 
revision not to include 1-year USD LIBOR in the comment at this time 
pending the Bureau's receipt of additional information and further 
consideration by the Bureau. This final rule also adds new comment 
20(a)(3)-iv to provide examples of the type of factors to be considered 
in whether a replacement index meets the Regulation Z ``comparable'' 
standard with respect to a particular LIBOR index for closed-end 
transactions.
---------------------------------------------------------------------------

    \46\ By ``corresponding USD LIBOR index,'' the Bureau means the 
specific USD LIBOR index for which the ARRC is recommending the 
replacement index as a replacement for consumer products. Thus, 
because the ARRC has recommended, for consumer products, a specific 
spread-adjusted 6-month term rate SOFR index for consumer products 
as a replacement for the 6-month USD LIBOR index, the 6-month USD 
LIBOR index would be the ``corresponding USD LIBOR index'' for that 
specific spread-adjusted 6-month term rate SOFR index for consumer 
products.
---------------------------------------------------------------------------

Comments Received
    SOFR spread-adjusted index. Several industry commenters, several 
consumer group commenters, and a financial services education and 
consulting firm expressed support for the proposed new illustrative 
example in comment 20(a)-3.ii.B, which indicated that a creditor does 
not add a variable-rate feature by changing the index of a variable-
rate transaction from the 1-month, 3-month, 6-month, or 1-year USD 
LIBOR index to the SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products to replace the 1-month, 3-month, 6-month, or 
1-year USD LIBOR index respectively because the replacement index is a 
comparable index to the corresponding USD LIBOR index. A few industry 
commenters and an individual commenter expressed concern about SOFR's 
lack of history.
    Additional examples of indices that are comparable to the LIBOR. 
Many industry commenters generally urged the Bureau to provide 
additional examples of comparable indices to the LIBOR indices. Some 
commenters mentioned specific indices that the Bureau should clarify 
are comparable to LIBOR, such as Prime, AMERIBOR[supreg] rates,\47\ the 
effective Federal funds rate (EFFR),\48\ and the Constant Maturity 
Treasury (CMT) rates.\49\ An industry commenter urged the Bureau to 
designate other replacement indices as compliant if recommended by the 
Board.
---------------------------------------------------------------------------

    \47\ According to its website, ``AMERIBOR[supreg] is a new 
interest rate benchmark created by the American Financial Exchange 
[that] reflects the actual borrowing costs of thousands of small, 
medium and regional banks across America [and] is also useful for 
larger banks and financial institutions that do business with these 
banks.'' Am. Fin. Exch., AMERIBOR[supreg] Brochure, https://ameribor.net/background.
    \48\ The EFFR is a rate produced by the New York Fed which is 
calculated as a volume-weighted median of overnight Federal funds 
transactions reported in the FR 2420 Report of Selected Money Market 
Rates. Fed. Rsrv. Bank of N.Y., Effective Federal Funds Rate, 
https://www.newyorkfed.org/markets/reference-rates/effr.
    \49\ The CMT rates are Treasury Yield Curve Rates where the 
``[y]ields are interpolated by the Treasury from the daily yield 
curve. This curve, which relates the yield on a security to its time 
to maturity is based on the closing market bid yields on actively 
traded Treasury securities in the over-the-counter market. These 
market yields are calculated from composites of indicative, bid-side 
market quotations (not actual transactions) obtained by the Federal 
Reserve Bank of New York at or near 3:30 p.m. each trading day.'' 
U.S. Dep't of the Treasury, Daily Treasury Yield Curve Rates, 
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield (last updated Sept. 24, 2021).
---------------------------------------------------------------------------

    In addition, several industry commenters expressed support for the 
Bureau's statement that the example provided in comment 20(a)-3.ii.B is 
not the only index that is comparable to LIBOR. In addition, an 
industry commenter urged the Bureau to avoid mandating the use of any 
particular replacement index.
    Additional guidance on what constitutes a comparable index. Many 
industry commenters urged the Bureau to provide additional guidance on 
how to determine if an index is a comparable index for purposes of 
Regulation Z. Some of these commenters shared views on what types of 
index the Bureau should consider as comparable for purposes of 
Regulation Z. Several industry commenters urged that any guidance that 
the Bureau provides on how to determine if an index is comparable 
should provide alternatives to reliance on historical fluctuations 
because such historical evidence would not be available for new 
indices. Several consumer group commenters and a financial services 
education and consulting firm commenter cautioned

[[Page 69729]]

the Bureau against recognizing newly established indices as suitable 
replacement indices for LIBOR indices, unless they satisfy the criteria 
reviewed by the ARRC in selecting SOFR. Several commenters asserted 
that any guidance on what constitutes a comparable index should clarify 
that the index change should be ``value neutral,'' meaning that the 
change should not raise or lower the interest rate on the loan. A few 
industry commenters urged the Bureau to clarify that a creditor may use 
any ``reasonable method'' to determine if a replacement index is 
comparable. Several industry commenters urged the Bureau to clarify 
that an index is comparable if the index and the margin achieve a 
substantially similar interest rate.
    Disclosures concerning index changes. Several commenters, including 
several consumer groups, a financial services education and consulting 
firm, and a few individuals, urged the Bureau to require disclosures to 
consumers with closed-end loans informing consumers of the index 
change. Several industry commenters stated that if the Bureau requires 
a disclosure for closed-end products, the Bureau should require it to 
be provided 45 days before the index change. Another industry commenter 
urged the Bureau to provide guidance on how to complete a Loan Estimate 
or Closing Disclosure for a SOFR product.
    Timing of transition. A few industry commenters urged the Bureau to 
include the same provisions for closed-end loans that it proposed for 
HELOCs and credit card accounts which would allow creditors for HELOCs 
and card issuers to transition from using a LIBOR index on or after 
March 15, 2021, if certain conditions are met.
    Placement of example in Regulation Z. Several industry commenters 
urged the Bureau to include the proposed example in the text of the 
rule, rather than the commentary, and explained their perception that 
including the example in the commentary would not provide sufficient 
legal protection.
The Final Rule
    The Bureau is finalizing the amendments to comment 20(a)-3.ii.B 
generally as proposed with a revision to cross-reference comment 20(a)-
3.iv and with a revision not to include 1-year USD LIBOR in the comment 
at this time pending the Bureau's receipt of additional information and 
further consideration by the Bureau. This final rule also adds new 
comment 20(a)-3.iv to provide examples of the type of factors to be 
considered in whether a replacement index meets the Regulation Z 
``comparable'' standard with respect to a particular LIBOR index for 
closed-end transactions.
    SOFR spread-adjusted index. The Bureau agrees with the commenters 
that expressed support for the new illustrative example in comment 
20(a)-3.ii.B.
    The Bureau has reviewed the SOFR indices upon which the ARRC has 
indicated it will base its recommended replacement indices and the 
spread adjustment methodology that the ARRC is recommending using to 
develop the replacement indices. Based on this review, the Bureau has 
determined that the spread-adjusted replacement indices that the ARRC 
is recommending for consumer products to replace the 1-month, 3-month, 
or 6-month USD LIBOR index will provide a good example of a comparable 
index to the tenors of LIBOR that they are designated to replace.
    On June 22, 2017, the ARRC identified SOFR as its recommended 
alternative to LIBOR after considering various potential alternatives, 
including other term unsecured rates, overnight unsecured rates, other 
secured repurchase agreements (repo) rates, U.S. Treasury bill and bond 
rates, and overnight index swap rates linked to the EFFR.\50\ The ARRC 
made its final recommendation of SOFR after evaluating and 
incorporating feedback from a 2016 consultation and end-users on its 
advisory group.\51\
---------------------------------------------------------------------------

    \50\ The Fed. Rsrv. Bank of N.Y., ARRC Consultation on Spread 
Adjustment Methodologies for Fallbacks in Cash Products Referencing 
USD LIBOR at 3 (Jan. 21, 2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Spread_Adjustment_Consultation.pdf (ARRC Consultation on Spread 
Adjustment Methodologies).
    \51\ Id.
---------------------------------------------------------------------------

    As the ARRC has explained, SOFR is a broad measure of the cost of 
borrowing cash overnight collateralized by U.S. Treasury 
securities.\52\ SOFR is determined based on transaction data composed 
of: (i) Tri-party repo, (ii) General Collateral Finance repo, and (iii) 
bilateral Treasury repo transactions cleared through Fixed Income 
Clearing Corporation. SOFR is representative of general funding 
conditions in the overnight Treasury repo market. As such, it reflects 
an economic cost of lending and borrowing relevant to the wide array of 
market participants active in financial markets. In terms of the 
transaction volume underpinning it, SOFR has the widest coverage of any 
Treasury repo rate available. Averaging over $1 trillion of daily 
trading, transaction volumes underlying SOFR are far larger than the 
transactions in any other U.S. money market.\53\
---------------------------------------------------------------------------

    \52\ Id.
    \53\ Fed. Rsrv. Bank of N.Y., Additional Information About SOFR 
and Other Treasury Repo Reference Rates, https://www.newyorkfed.org/markets/treasury-repo-reference-rates-information (last updated Apr. 
16, 2021).
---------------------------------------------------------------------------

    On April 21, 2021, CME Group Benchmark Administration Ltd (CME 
Group) started producing term rates for 1-month SOFR, 3-month SOFR, and 
6-month SOFR, which now go back as far as January 3, 2019.\54\ Prior to 
that, the Board produced data on 1-month, 3-month, and 6-month 
``indicative'' term SOFR rates that likely provide a good indication of 
how term SOFR rates would have performed starting from June 11, 
2018.\55\ On July 29, 2021, the ARRC formally recommended the 1-month, 
3-month, and 6-month term SOFR rates produced by the CME Group as the 
underlying SOFR rates for use in replacing the 1-month, 3-month, and 6-
month USD LIBOR tenors respectively for existing accounts.\56\ On 
October 6, 2021, the ARRC published a summary of the decisions that the 
ARRC has made to that date concerning its recommended SOFR-based 
spread-adjusted indices for contracts referencing USD LIBOR.\57\ In 
that summary, for consumer products, the ARRC indicated that for 1-year 
USD LIBOR, the ARRC's recommended replacement index will be to a 
spread-adjusted index based on a 1-year term SOFR rate or to a spread-
adjusted index based on the 6-month term SOFR rate. The replacement 
index will use the spread adjustment for 1-year USD LIBOR mentioned in 
Table 1 below for arriving at the recommended replacement index for 
replacing 1-year USD LIBOR in consumer products.\58\ The ARRC indicated 
that it will make a recommendation on the SOFR-based

[[Page 69730]]

spread-adjusted index to replace 1-year USD LIBOR and all other 
remaining details of its recommended replacement indices for consumer 
products no later than one year before the date when 1-year USD LIBOR 
is expected to cease (i.e., by June 30, 2022).\59\ In March 2021, the 
ARRC announced that it has selected Refinitiv, a London Stock Exchange 
Group (LSEG) business, to publish the ARRC's recommended spread 
adjustments and SOFR-based spread-adjusted indices for cash 
products.\60\ Refinitiv will publicly make available, for free, the 
SOFR-based spread-adjusted indices for consumer products so that 
consumers can see the actual indices that are used by industry in the 
pricing of their adjustable-rate consumer loan contracts that will be 
transitioning to the SOFR-based spread-adjusted indices for consumer 
products.\61\
---------------------------------------------------------------------------

    \54\ Press Release, The Chi. Mercantile Exch., CME Group 
Announces Launch of CME Term SOFR Reference Rates (Apr. 21, 2021), 
https://www.cmegroup.com/media-room/press-releases/2021/4/21/cme_group_announceslaunchofcmetermsofrreferencerates.html#; The Chi. 
Mercantile Exch, CME Term SOFR Reference Rates Benchmarks (Sept. 21, 
2021), https://www.cmegroup.com/market-data/files/cme-term-sofr-reference-rates-benchmarks.pdf.
    \55\ June 11, 2018, is the first date for which indicative term 
SOFR rate data are available. Erik Heitfield & Yang-Ho- Park, 
Indicative Forward-Looking SOFR Term Rates (Apr. 19, 2019), The Fed. 
Rsrv. Bank, FEDS Notes, https://www.federalreserve.gov/econres/notes/feds-notes/indicative-forward-looking-sofr-term-rates-20190419.htm (last updated May 26, 2021).
    \56\ Press Release, Alt. Reference Rates Comm., ARRC Formally 
Recommends Term SOFR (July 29, 2021), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Press_Release_Term_SOFR.pdf.
    \57\ Summary of Fallback Recommendations, supra note 5, at 1.
    \58\ Id. at 10.
    \59\ Id.
    \60\ Fed. Rsrv. Bank of N.Y., ARRC Announces Refinitiv as 
Publisher of its Spread Adjustment Rates for Cash Products (Mar. 17, 
2021), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/20210317-press-release-Spread-Adjustment-Vendor-Refinitiv.pdf.
    \61\ Id.
---------------------------------------------------------------------------

    The Bureau is reserving judgment about whether to include a 
reference to the 1-year USD LIBOR index in comment 20(a)-3.ii.B until 
it obtains additional information. Once the Bureau knows which SOFR-
based spread-adjusted index the ARRC will recommend to replace the 1-
year USD LIBOR index for consumer products, the Bureau may determine 
whether that index meets the ``comparable'' standard based on 
information available at that time. Assuming the Bureau determines that 
the index meets that standard, the Bureau will then consider whether to 
codify that determination by finalizing the proposed comment related to 
the 1-year USD LIBOR index in a supplemental final rule, or otherwise 
announce that determination.
    The Bureau has reviewed the historical data on the 1-month, 3-
month, and 6-month term SOFR rates produced by CME Group and the 
indicative term SOFR rates produced by the Board and on 1-month, 3-
month, and 6-month USD LIBOR from June 11, 2018, to October 18, 2021. 
The Bureau calculated the spread-adjusted term SOFR rates by adding the 
long-term values of the spread-adjustments set forth in Table 1 
described below to the historical data on the 1-month, 3-month, and 6-
month term SOFR rates described above.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.40(f)(3)(ii)(A), the Bureau has determined that: (1) The 
historical fluctuations of 6-month USD LIBOR are substantially similar 
to those of the 6-month spread-adjusted term SOFR rates; (2) the 
historical fluctuations of 3-month USD LIBOR are substantially similar 
to those of 3-month spread-adjusted term SOFR rates; and (3) the 
historical fluctuations of 1-month USD LIBOR are substantially similar 
to those of the 1-month spread-adjusted term SOFR rate.
    The ARRC and the Bureau also have compared the rate history that is 
available for SOFR (to calculate compounded averages) with the rate 
history for the applicable LIBOR indices.\62\ The New York Fed 
publishes three compounded averages of SOFR on a daily basis, including 
a 30-day compounded average of SOFR (30-day SOFR), and a daily index 
that allows for the calculation of compounded average rates over custom 
time periods.\63\ Prior to the start of the official publication of 
SOFR in 2018, the New York Fed released data from August 2014 to March 
2018 representing modeled, pre-production estimates of SOFR that are 
based on the same basic underlying transaction data and methodology 
that now underlie the official publication.\64\ The Bureau analyzed the 
spread-adjusted indices based on the 30-day SOFR. The Bureau calculated 
the spread-adjusted 30-day SOFR rates by adding the long-term values of 
the spread-adjustments set forth in Table 1 described below to the 
historical data on 30-day SOFR. For the reasons discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A), the Bureau 
finds that the historical fluctuations in the spread-adjusted index 
based on 30-day SOFR are substantially similar to those of 1-month, 3-
month, and 6-month USD LIBOR.
---------------------------------------------------------------------------

    \62\ See, e.g., ARRC Consultation on Spread Adjustment 
Methodologies, supra note 50, at 4 (comparing 3-month compounded 
SOFR relative to the 3-month USD LIBOR since 2014). The ARRC and the 
Bureau have also considered the history of other indices that could 
be viewed as historical proxies for SOFR. See, e.g., David Bowman, 
Historical Proxies for the Secured Overnight Financing Rate (July 
15, 2019), https://www.federalreserve.gov/econres/notes/feds-notes/historical-proxies-for-the-secured-overnight-financing-rate-20190715.htm (Historical SOFR).
    \63\ Fed. Rsrv. Bank of N.Y., SOFR Averages and Index Data, 
https://apps.newyorkfed.org/markets/autorates/sofr-avg-ind.
    \64\ See Historical SOFR, supra note 62.
---------------------------------------------------------------------------

    Term SOFR rates will have fewer differences with LIBOR term rates 
than 30-day SOFR does.\65\ Since they are also term rates, they also 
include term premia, and these should usually be similar to the term 
premia embedded in LIBOR. Since term SOFR rates will also be forward-
looking, they should adjust quickly to changing expectations about 
future funding conditions as LIBOR term rates do, rather than following 
them with a lag as 30-day SOFR does. However, term SOFR rates will 
still have differences from the LIBOR indices. SOFR is a secured rate 
while the LIBOR indices are unsecured and therefore include an element 
of bank credit risk. The LIBOR indices also may reflect supply and 
demand conditions in wholesale unsecured funding markets that also 
could lead to differences with SOFR.
---------------------------------------------------------------------------

    \65\ 30-day SOFR is a historical, backward-looking 30-day 
average of overnight rates, while the LIBOR indices are forward-
looking term rates published with several different tenors 
(overnight, 1-week, 1-month, 2-month, 3-month, 6-month, and 1-year). 
The LIBOR indices, therefore, reflect funding conditions for a 
different length of time than 30-day SOFR does, and they reflect 
those funding conditions in advance rather than with a lag as 30-day 
SOFR does. The LIBOR indices may also include term premia missing 
from 30-day SOFR. (The ``term premium'' is the excess yield that 
investors require to buy a long-term bond instead of a series of 
shorter-term bonds.)
---------------------------------------------------------------------------

    Forward-looking term SOFR rates will without adjustments differ in 
levels from the LIBOR indices. The ARRC intends to account for these 
differences from the historical levels of LIBOR term rates through 
spread adjustments in the replacement indices that it recommends. On 
January 21, 2020, the ARRC released a consultation on spread adjustment 
methodologies that provided historical analyses of a number of 
potential spread adjustment methodologies and that showed that the 
proposed methodology performed well relative to other options, 
including potential dynamic spread adjustments.\66\ On April 8, 2020, 
the ARRC announced that it had agreed on a recommended spread 
adjustment methodology for cash products referencing USD LIBOR.\67\ In 
response to the January 2020 consultation, the ARRC received over 70 
responses from consumer advocacy groups, asset managers, corporations, 
banks, industry associations, GSEs, and others.\68\ In May 2020, the 
ARRC released a follow-up consultation on the spread adjustment 
methodologies with respect to two

[[Page 69731]]

technical issues.\69\ In June 2020, the ARRC announced recommendations 
on these two technical issues.\70\ Following its consideration of 
feedback received on its public consultations, the ARRC is recommending 
a long-term spread adjustment equal to the historical median of the 
five-year spread between USD LIBOR and SOFR. On March 8, 2021, the ARRC 
issued an announcement \71\ recognizing a set of values as the long-
term spread adjustment for the SOFR-based spread-adjusted indices,\72\ 
as shown in Table 1 below, based on the March 5, 2021, announcements by 
the ICE Benchmarks Administration and the FCA.
---------------------------------------------------------------------------

    \66\ ARRC Consultation on Spread Adjustment Methodologies, supra 
note 50.
    \67\ Press Release, Alt. Reference Rates Comm., ARRC Announces 
Recommendation of a Spread Adjustment Methodology (Apr. 8, 2020), 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Spread_Adjustment_Methodology.pdf (ARRC Announces 
Recommendation of a Spread Adjustment Methodology).
    \68\ Alt. Reference Rates Comm., Summary of Feedback Received in 
the ARRC Spread-Adjustment Consultation and Follow-Up Consultation 
on Technical Details 2 (May 6, 2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Spread_Adjustment_Consultation_Follow_Up.pdf (ARRC Supplemental 
Spread-Adjustment Consultation).
    \69\ Id.
    \70\ Press Release, Alt. Reference Rates Comm., ARRC Announces 
Further Details Regarding Its Recommendation of Spread Adjustments 
for Cash Products (June 30, 2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Recommendation_Spread_Adjustments_Cash_Products_Press_Release.pdf.
    \71\ Press Release, Alt. Reference Rates Comm., ARRC Confirms a 
``Benchmark Transition Event'' has occurred under ARRC Fallback 
Language (Mar. 8, 2021), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Benchmark_Transition_Event_Statement.pdf.
    \72\ Press Release, Bloomberg, Bloomberg Notice on IBOR 
Fallbacks (Mar. 5, 2021), https://www.bloomberg.com/company/press/bloomberg-notice-on-ibor-fallbacks/; Summary of Fallback 
Recommendations, supra note 5, at 4.

  Table 1--Values of the Long-Term Spread-Adjustment for the SOFR-Based
                         Spread-Adjusted Indices
------------------------------------------------------------------------
                                                       Spread applied to
            USD LIBOR tenor being replaced              SOFR based rate
                                                             (bps)
------------------------------------------------------------------------
1-month LIBOR........................................             11.448
3-month LIBOR........................................             26.161
6-month LIBOR........................................             42.826
1-year LIBOR.........................................             71.513
------------------------------------------------------------------------

    For consumer products, the ARRC is additionally recommending a 1-
year transition period to this five-year median spread adjustment 
methodology.\73\ Thus, the transition will be gradual. Specifically, 
the ARRC has recommended, for a period of one year, a short-term spread 
adjustment for SOFR-based spread-adjusted indices in order to ensure 
that consumers do not encounter a sudden change in their monthly 
payments when the LIBOR index is replaced. The short-term spread 
adjustment initially will be the 2-week average of the LIBOR-SOFR 
spread up to July 3, 2023, for the SOFR-based spread-adjusted indices 
for consumer products to replace 1-month, 3-month, 6-month, or 1-year 
USD LIBOR.\74\ For these indices, over the first ``transition'' year 
following July 3, 2023, the daily published short-term spread 
adjustment will move linearly toward the longer-term fixed spread 
adjustment.\75\ After the initial transition year, the spread 
adjustment will be permanently set at the longer-term fixed rate 
spread.\76\ The ARRC also stated that it was not aware of any consumer 
products using 1-week and 2-month LIBOR, which will cease publication 
immediately after December 31, 2021.\77\ The inclusion of a transition 
period for consumer products was endorsed by many respondents, 
including consumer advocacy groups.\78\
---------------------------------------------------------------------------

    \73\ ARRC Announces Recommendation of a Spread Adjustment 
Methodology, supra note 67; Summary of Fallback Recommendations, 
supra note 5, at 11.
    \74\ Summary of Fallback Recommendations, supra note 5, at 11.
    \75\ Id.
    \76\ Id.
    \77\ Id.
    \78\ ARRC Supplemental Spread-Adjustment Consultation, supra 
note 68, at 1.
---------------------------------------------------------------------------

    The ARRC intends for the spread adjustment to reflect and adjust 
for the historical differences between LIBOR and SOFR in order to make 
the spread-adjusted rate comparable to LIBOR in a fair and reasonable 
way, thereby minimizing the impact to borrowers and lenders.\79\
---------------------------------------------------------------------------

    \79\ Id. at 2, 3.
---------------------------------------------------------------------------

    The Bureau finds that the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products as a replacement for the 
1-month, 3-month, or 6-month USD LIBOR index are comparable indices to 
the 1-month, 3-month, or 6-month USD LIBOR index respectively. The 
SOFR-based spread-adjusted indices that the ARRC recommends for 
consumer products will be published and made publicly available on 
Refinitiv's website. The Bureau has concluded that using them as a 
replacement for the corresponding tenors of LIBOR does not seem likely 
to significantly change the economic position of the parties to the 
contract, given that SOFR and the LIBOR indices have generally moved 
together and the replacement index will be spread adjusted based on a 
methodology derived through public consultation.
    For the reasons discussed above, the Bureau is finalizing the 
amendment to comment 20(a)-3.ii.B to add an illustrative example, which 
indicates that a creditor does not add a variable-rate feature by 
changing the index of a variable-rate transaction from the 1-month, 3-
month, or 6-month USD LIBOR index to the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 1-
month, 3-month, or 6-month USD LIBOR index respectively because the 
replacement index is a comparable index to the corresponding USD LIBOR 
index.
    Additional examples of indices that are comparable to the LIBOR. As 
discussed in more detail above, the Bureau received comments from 
industry requesting additional safe harbors, meaning additional 
examples of indices that are comparable to the LIBOR indices for 
closed-end transactions such as Prime, AMERIBOR[supreg] rates, EFFR, 
and CMT rates.
    This final rule does not set forth safe harbors indicating that 
Prime, AMERIBOR[supreg] rates, EFFR, or the CMT rates satisfy the 
Regulation Z ``comparable'' standard for appropriate replacement 
indices for a particular LIBOR index in a closed-end transaction. 
First, for Prime, AMERIBOR[supreg] rates, EFFR, or CMT rates, with 
respect to the Regulation Z ``comparable'' standard for closed-end 
credit, all of these rates may need to be ``spread-adjusted'' to 
account for the differences in rate levels from the LIBOR rates in 
order to potentially comply with the standard. This step is important 
for comparability because unlike for HELOC and credit card contracts, 
some closed-end contracts, especially mortgages, typically do not allow 
for margin adjustments to account for any spread adjustment needed when 
changing the index. The Bureau is not aware of market participants 
having developed a methodology to spread adjust the rates. Without 
spread adjustments to the indices, the indices do not appear to be able 
to meet the ``comparable'' standard. Second, as discussed in more 
detail below, the Bureau notes that the determinations of whether an 
index is comparable to a LIBOR index are fact-specific, and they depend 
on the replacement index being considered and the LIBOR tenor being 
replaced. The commenters did not specify which AMERIBOR[supreg] rates, 
EFFR, or CMT rates should be used as the replacement tenor and which 
LIBOR tenor the rate would replace.
    In addition, the Bureau understands that the vast majority of the 
impacted industry participants will use the indices for which this 
final rule provides a safe harbor (i.e., certain SOFR-based spread-
adjusted indices recommended by the ARRC for consumer products) as 
replacement indices for closed-end transactions. The Bureau notes that 
this final rule does not disallow the use of other replacement indices 
if they comply with Regulation Z.
    An industry commenter urged the Bureau to designate other 
replacement indices as compliant if recommended by

[[Page 69732]]

the Board. The Bureau notes in response that the Board has not 
recommended other replacement indices.
    The Bureau appreciates commenters' suggestion to reiterate that the 
example included in comment 20(a)-3.ii.B is not intended to provide an 
exhaustive list of indices that are comparable to LIBOR. The example 
included in comment 20(a)-3.ii.B is illustrative only, and the Bureau 
does not intend to suggest that the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, or 6-month USD LIBOR index are the only indices that would be 
comparable to the LIBOR indices. The Bureau recognizes that there may 
be other comparable indices that creditors may use as replacements for 
the various tenors of LIBOR.
    Additional guidance on what constitutes a comparable index. As 
discussed in more detail above, numerous industry commenters asked the 
Bureau to provide additional guidance on how to determine if an index 
is comparable for purposes of Regulation Z.
    To facilitate compliance with Regulation Z, this final rule adds 
new comment 20(a)-3.iv to provide a non-exhaustive list of factors to 
be considered in whether a replacement index meets the Regulation Z 
``comparable'' standard with respect to a particular LIBOR index for 
closed-end transactions. Specifically, new comment 20(a)-3.iv provides 
that the relevant factors to be considered in determining whether a 
replacement index is comparable to a particular LIBOR index depend on 
the replacement index being considered and the LIBOR index being 
replaced. New comment 20(a)-3.iv also provides that the types of 
relevant factors to establish if a replacement index could meet the 
``comparable'' standard with respect to a particular LIBOR index using 
historical data or future expectations, include but are not limited to, 
whether: (1) The movements over time are comparable; (2) the consumers' 
payments using the replacement index compared to payments using the 
LIBOR index are comparable if there is sufficient data for this 
analysis; (3) the index levels are comparable; (4) the replacement 
index is publicly available; and (5) the replacement index is outside 
the control of the creditor. The first three factors are important to 
help minimize the financial impact on consumers, including the payments 
they must make, when LIBOR is replaced with another index. The last two 
factors would promote transparency for consumers and help reduce 
potential manipulation of the replacement rate by the creditor in the 
future. As discussed above, the Bureau has considered these factors in 
determining that the SOFR-based spread-adjusted indices recommended by 
the ARRC for consumer products to replace the 1-month, 3-month, or 6-
month USD LIBOR indices have historical fluctuations that are 
comparable to those of the 1-month, 3-month, or 6-month USD LIBOR 
indices respectively. There is sufficient historical data to analyze, 
which shows that the consumers' payments using the SOFR index are 
comparable to payments using the LIBOR index and the index levels are 
comparable. Further, the SOFR-based spread-adjusted indices recommended 
by the ARRC for consumer products will be publicly available and are 
outside of the creditor's control.
    The Bureau notes that this final rule does not set forth a 
principles-based standard for determining whether a replacement index 
is comparable to a particular LIBOR tenor for closed-end credit. These 
determinations are fact-specific and depend on the replacement index 
being considered and the LIBOR tenor being replaced, as well as 
prevailing market conditions. For example, these determinations may 
need to consider certain aspects of the historical data itself for a 
particular replacement index, such as (1) the length of time the data 
has been available and how much of the available data to consider in 
the analysis of whether the Regulation Z standards have been satisfied; 
(2) the quality of the historical data, including the methodology of 
how the rate is determined and whether it sufficiently represents a 
market rate; and (3) whether the replacement index is a backward-
looking rate (e.g., historical average of rates) such that timing 
aspects of the data may need to be adjusted to match up with the 
particular forward-looking LIBOR term-rate being replaced. These 
considerations will vary depending on the replacement index being 
considered and the LIBOR tenor that is being replaced. Therefore, this 
final rule does not provide a principles-based standard for determining 
whether a replacement index for closed-end credit is comparable to 
those of a particular LIBOR index.
    Disclosures concerning index changes. This final rule does not 
adopt commenters' suggestion to require a new disclosure informing 
consumers about a change in an index. The Bureau did not propose to 
require a new disclosure and lacks sufficient information about the 
potential benefits and costs of such a new disclosure.
    The Bureau anticipates, however, that industry practices and 
existing legal requirements will provide consumers with information 
about changes to their interest rate that affect their loan payments. 
The Bureau understands that industry is developing best practices and 
model communications that creditors can use to inform consumers about 
the LIBOR transition.\80\ In addition, other provisions in Regulation Z 
require disclosures to consumers with adjustable-rate mortgages if the 
interest rate or payment amount will change. For example, initial 
interest rate adjustment notices required by Sec.  1026.20(d) alert 
consumers to the initial reset of an adjustable-rate mortgage, and 
subsequent interest rate adjustment notices required by Sec.  
1026.20(c) alert consumers to interest rate adjustments and provide the 
consumer with information about the new interest rate and new periodic 
payment prior to each adjustment that results in a payment change. In 
addition, required periodic statements for closed-end consumer credit 
transactions secured by a dwelling provide consumers with mortgage loan 
account information, including alerting the consumer to upcoming 
interest rate changes for each billing cycle.\81\
---------------------------------------------------------------------------

    \80\ See, e.g., The Fed. Nat'l Mortg. Ass'n, LIBOR Transition 
Playbook, https://capitalmarkets.fanniemae.com/media/5206/display; 
The Fed. Home Loan Mortg. Corp., LIBOR Transition Playbook (Apr. 
2021), https://www.freddiemac.com/about/pdf/LIBOR_transition_playbook.pdf; Mortg. Bankers Ass'n, Adjustable-Rate 
Mortgage Disclosure: Possible Discontinuation of LIBOR (Apr. 2021), 
https://www.mba.org/Documents/Policy/Issue%20Briefs/20305_MBA_LIBOR_Consumer_Disclosure.pdf; Alt. Reference Rates Comm., 
LIBOR ARM Transition Resource Guide (Aug. 18, 2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/LIBOR_ARM_Transition_Resource_Guide.pdf.
    \81\ 12 CFR 1026.41.
---------------------------------------------------------------------------

    The Bureau appreciates commenters' suggestion to provide guidance 
on completing a Loan Estimate or Closing Disclosure for a SOFR product 
and will consider providing that guidance in the future through 
implementation materials.
    Timing of transition. The Bureau declines to adopt the commenter's 
suggestion to include the same provisions for closed-end loans that it 
proposed for HELOCs and credit card accounts which would allow 
creditors for HELOCs and card issuers to transition from using a LIBOR 
index on or after March 15, 2021, if certain conditions are met. It is 
not necessary or warranted for Regulation Z to address the timing of 
the transition from using the LIBOR indices for closed-end loans

[[Page 69733]]

because Regulation Z does not address when a creditor may transition a 
closed-end loan to a new index. Instead, Regulation Z provides guidance 
on the circumstances when an index change requires creditors to treat 
the transaction as a refinancing and, accordingly, to provide the 
disclosures required at origination.
    Placement of example in Regulation Z. The Bureau declines to adopt 
commenters' suggestion to include the proposed example in the text of 
the rule rather than the commentary because it is not necessary or 
warranted to protect creditors from liability. Good faith compliance 
with the commentary affords protection from liability under TILA 
section 130(f), which protects entities from civil liability for any 
act done or omitted in good faith in conformity with any interpretation 
issued by the Bureau.\82\
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 1640; comment 1 to 12 CFR part 1026.
---------------------------------------------------------------------------

Section 1026.36 Prohibited Acts or Practices and Certain Requirements 
for Credit Secured by a Dwelling

36(a) Definitions
36(a)(4) Seller Financiers; Three Properties
36(a)(4)(iii)
36(a)(4)(iii)(C)
    Section 1026.36(a)(1) defines the term ``loan originator'' for 
purposes of the prohibited acts or practices and requirements for 
credit secured by a dwelling in Sec.  1026.36. Section 1026.36(a)(4) 
addresses the three-property exclusion for seller financers and 
provides that a person (as defined in Sec.  1026.2(a)(22)) that meets 
all of the criteria specified in Sec.  1026.36(a)(4)(i) to (iii) is not 
a loan originator under Sec.  1026.36(a)(1). Pursuant to Sec.  
1026.36(a)(4)(iii)(C), one such criterion requires that, if the 
financing agreement has an adjustable rate, the index the adjustable 
rate is based on is a widely available index such as indices for U.S. 
Treasury securities or LIBOR. In light of the anticipated 
discontinuation of LIBOR, the Bureau proposed to amend the examples of 
indices provided in Sec.  1026.36(a)(4)(iii)(C) to substitute SOFR for 
LIBOR. The Bureau received no comments on the proposed amendments to 
Sec.  1026.36(a)(4)(iii)(C) and is finalizing the amendments as 
proposed.
36(a)(5) Seller Financiers; One Property
36(a)(5)(iii)
36(a)(5)(iii)(B)
    Section 1026.36(a)(1) defines the term ``loan originator'' for 
purposes of the prohibited acts or practices and requirements for 
credit secured by a dwelling in Sec.  1026.36. Section 1026.36(a)(5) 
addresses the one-property exclusion for seller financers and provides 
that a natural person, estate, or trust that meets all of the criteria 
specified in Sec.  1026.36(a)(5)(i) to (iii) is not a loan originator 
under Sec.  1026.36(a)(1). Pursuant to Sec.  1026.36(a)(5)(iii)(B), one 
such criterion currently requires that, if the financing agreement has 
an adjustable rate, the index the adjustable rate is based on is a 
widely available index such as indices for U.S. Treasury securities or 
LIBOR. In light of the anticipated discontinuation of LIBOR, the Bureau 
proposed to amend the examples of indices provided in Sec.  
1026.36(a)(5)(iii)(B) to substitute SOFR for LIBOR. The Bureau received 
no comments on the proposed amendments to Sec.  1026.36(a)(5)(iii)(B) 
and is finalizing the amendments as proposed.

Section 1026.37 Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate)

37(j) Adjustable Interest Rate Table
37(j)(1) Index and Margin
    Section 1026.37 governs the content of the Loan Estimate disclosure 
for certain mortgage transactions. If the interest rate may adjust and 
increase after consummation and the product type is not a step rate, 
Sec.  1026.37(j)(1) requires disclosure in the Loan Estimate of, inter 
alia, the index upon which the adjustments to the interest rate are 
based. Comment 37(j)(1)-1 explains that the index disclosed pursuant to 
Sec.  1026.37(j)(1) must be stated such that a consumer reasonably can 
identify it. The comment further explains that a common abbreviation or 
acronym of the name of the index may be disclosed in place of the 
proper name of the index, if it is a commonly used public method of 
identifying the index. The comment provides, as an example, that 
``LIBOR'' may be disclosed instead of London Interbank Offered Rate. In 
light of the anticipated discontinuation of LIBOR, the Bureau proposed 
to amend this example in comment 37(j)(1)-1 to provide that ``SOFR'' 
may be disclosed instead of Secured Overnight Financing Rate. The 
Bureau did not receive any comments on the proposed amendments to 
comment 37(j)(1)-1 and is finalizing the amendments as proposed.

Section 1026.40 Requirements for Home Equity Plans

40(f) Limitations on Home Equity Plans
40(f)(3)
40(f)(3)(ii)
    TILA section 137(c)(1) provides that no open-end consumer credit 
plan under which extensions of credit are secured by a consumer's 
principal dwelling may contain a provision that permits a creditor to 
change unilaterally any term except in enumerated circumstances set 
forth in TILA section 137(c).\83\ TILA section 137(c)(2)(A) provides 
that a creditor may change the index and margin applicable to 
extensions of credit under such a plan if the index used by the 
creditor is no longer available and the substitute index and margin 
will result in a substantially similar interest rate.\84\ In 
implementing TILA section 137(c), Sec.  1026.40(f)(3) prohibits a 
creditor from changing the terms of a HELOC subject to Sec.  1026.40 
except in enumerated circumstances set forth in Sec.  1026.40(f)(3). 
Section 1026.40(f)(3)(ii) provides that a creditor may change the index 
and margin used under the HELOC plan if the original index is no longer 
available, the new index has a historical movement substantially 
similar to that of the original index, and the new index and margin 
would have resulted in an APR substantially similar to the rate in 
effect at the time the original index became unavailable.
---------------------------------------------------------------------------

    \83\ 15 U.S.C. 1647(c).
    \84\ 15 U.S.C. 1647(c)(2)(A).
---------------------------------------------------------------------------

    Current comment 40(f)(3)(ii)-1 provides that a creditor may change 
the index and margin used under the HELOC plan if the original index 
becomes unavailable, as long as historical fluctuations in the original 
and replacement indices were substantially similar, and as long as the 
replacement index and margin will produce a rate similar to the rate 
that was in effect at the time the original index became unavailable. 
Current comment 40(f)(3)(ii)-1 also provides that if the replacement 
index is newly established and therefore does not have any rate 
history, it may be used if it produces a rate substantially similar to 
the rate in effect when the original index became unavailable. As 
discussed in the section-by-section analysis of Sec.  1026.55(b)(7), 
card issuers for a credit card account under an open-end (not home-
secured) consumer credit plan are subject to current comment 55(b)(2)-
6, which provides a similar provision on the unavailability of an index 
as current comment 40(f)(3)(ii)-1.

[[Page 69734]]

The Bureau's Proposal
    As discussed in part III, the industry has requested that the 
Bureau permit card issuers to replace the LIBOR index used in setting 
the variable rates on existing accounts before LIBOR becomes 
unavailable to facilitate compliance. Among other things, the industry 
is concerned that if card issuers must wait until LIBOR become 
unavailable to replace the LIBOR indices used on existing accounts, 
these card issuers would not have sufficient time to inform consumers 
of the replacement index and update their systems to implement the 
change. To reduce uncertainty with respect to selecting a replacement 
index, the industry has also requested that the Bureau determine that 
Prime has historical fluctuations that are substantially similar to 
those of the LIBOR indices. The Bureau believes that similar issues may 
arise with respect to the transition of existing HELOC accounts away 
from using a LIBOR index.
    To address these concerns, as discussed in more detail in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(B), the Bureau 
proposed to add new LIBOR-specific provisions to proposed Sec.  
1026.40(f)(3)(ii)(B). These proposed provisions would have permitted 
creditors for HELOC plans subject to Sec.  1026.40 that use a LIBOR 
index under the plan to replace the LIBOR index and change the margins 
for calculating the variable rates on or after March 15, 2021, in 
certain circumstances without needing to wait for LIBOR to become 
unavailable.
    Specifically, proposed Sec.  1026.40(f)(3)(ii)(B) provided that if 
a variable rate on a HELOC subject to Sec.  1026.40 is calculated using 
a LIBOR index, a creditor may replace the LIBOR index and change the 
margin for calculating the variable rate on or after March 15, 2021, as 
long as: (1) The historical fluctuations in the LIBOR index and 
replacement index were substantially similar; and (2) the replacement 
index value in effect on December 31, 2020, and replacement margin will 
produce an APR substantially similar to the rate calculated using the 
LIBOR index value in effect on December 31, 2020, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. Proposed Sec.  
1026.40(f)(3)(ii)(B) also provided that if the replacement index is 
newly established and therefore does not have any rate history, it may 
be used if the replacement index value in effect on December 31, 2020, 
and replacement margin will produce an APR substantially similar to the 
rate calculated using the LIBOR index value in effect on December 31, 
2020, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan.
    Also, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(B), to reduce uncertainty with 
respect to selecting a replacement index that meets the standards in 
proposed Sec.  1026.40(f)(3)(ii)(B), the Bureau proposed to determine 
that Prime is an example of an index that has historical fluctuations 
that are substantially similar to those of the 1-month and 3-month USD 
LIBOR indices. The Bureau also proposed to determine that the SOFR-
based spread-adjusted indices recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR 
have historical fluctuations that are substantially similar to those of 
the LIBOR indices that they are intended to replace. The Bureau also 
proposed additional detail in comments 40(f)(3)(ii)(B)-1 through -3 
with respect to proposed Sec.  1026.40(f)(3)(ii)(B).
    In addition, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(A), the Bureau proposed to move the 
unavailability provisions in current Sec.  1026.40(f)(3)(ii) and 
current comment 40(f)(3)(ii)-1 to proposed Sec.  1026.40(f)(3)(ii)(A) 
and proposed comment 40(f)(3)(ii)(A)-1 respectively and to revise the 
proposed moved provisions for clarity and consistency. The Bureau also 
proposed additional detail in comments 40(f)(3)(ii)(A)-2 and -3 with 
respect to proposed Sec.  1026.40(f)(3)(ii)(A). For example, to reduce 
uncertainty with respect to selecting a replacement index that meets 
the standards for selecting a replacement index under proposed Sec.  
1026.40(f)(3)(ii)(A), the Bureau proposed the same determinations 
described above related to Prime and the SOFR-based spread-adjusted 
indices recommended by the ARRC for consumer products in relation to 
proposed Sec.  1026.40(f)(3)(ii)(A). The Bureau proposed to make these 
revisions and provide additional detail because the Bureau understands 
that some HELOC creditors may use the unavailability provision in 
proposed Sec.  1026.40(f)(3)(ii)(A) to replace a LIBOR index used under 
a HELOC plan, depending on the contractual provisions applicable to 
their HELOC plans, as discussed in more detail below.
    Proposed comment 40(f)(3)(ii)-1 would have addressed the 
interaction among the unavailability provisions in proposed Sec.  
1026.40(f)(3)(ii)(A), the LIBOR-specific provisions in proposed Sec.  
1026.40(f)(3)(ii)(B), and the contractual provisions that apply to the 
HELOC plan. Proposed comment 40(f)(3)(ii)-1 provided that a creditor 
may use either the provision in proposed Sec.  1026.40(f)(3)(ii)(A) or 
proposed Sec.  1026.40(f)(3)(ii)(B) to replace a LIBOR index used under 
a HELOC plan subject to Sec.  1026.40 so long as the applicable 
conditions are met for the provision used. This proposed comment made 
clear, however, that neither provision excuses the creditor from 
noncompliance with contractual provisions.
    To facilitate compliance, proposed comment 40(f)(3)(ii)-1 also 
provided examples on the interaction among the unavailability 
provisions in proposed Sec.  1026.40(f)(3)(ii)(A), the LIBOR-specific 
provisions in proposed Sec.  1026.40(f)(3)(ii)(B), and three types of 
contractual provisions for HELOCs because the Bureau understands that 
HELOC contracts may be written in a variety of ways. For example, the 
Bureau recognizes that some existing contracts for HELOCs that use 
LIBOR as an index for a variable rate may provide that: (1) A creditor 
can replace the LIBOR index and the margin for calculating the variable 
rate unilaterally only if the LIBOR index is no longer available or 
becomes unavailable; and (2) the replacement index and replacement 
margin will result in an APR substantially similar to a rate that is in 
effect when the LIBOR index becomes unavailable. Other HELOC contracts 
may provide that a creditor can replace the LIBOR index and the margin 
for calculating the variable rate unilaterally only if the LIBOR index 
is no longer available or becomes unavailable but does not require that 
the replacement index and replacement margin will result in an APR 
substantially similar to a rate that is in effect when the LIBOR index 
becomes unavailable. In addition, other HELOC contracts may allow a 
creditor to change the terms of the contract (including the LIBOR index 
used under the plan) as permitted by law.
    As discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A), this final rule adopts Sec.  1026.40(f)(3)(ii)(A) 
as proposed. As discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B), this final rule adopts Sec.  1026.40(f)(3)(ii)(B) 
generally as proposed with revisions to: (1) Set April 1, 2022, as the 
date on or after which HELOC creditors are permitted to replace the 
LIBOR index used under the plan pursuant to Sec.  1026.40(f)(3)(ii)(B) 
prior to LIBOR becoming unavailable;

[[Page 69735]]

(2) set October 18, 2021, as the date creditors generally must use 
under Sec.  1026.40(f)(3)(ii)(B) for selecting indices values in 
determining whether the APRs using the LIBOR index and the replacement 
index are substantially similar; and (3) provide that if the 
replacement index is not published on October 18, 2021, the creditor 
generally must use the next calendar day for which both the LIBOR index 
and the replacement index are published as the date for selecting 
indices values in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR 
index.\85\
---------------------------------------------------------------------------

    \85\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B) for the rationale for why the Bureau selected 
the October 18, 2021, date. The one exception is that if the 
replacement index is the SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products to replace the 1-
month, 3-month, 6-month, or 1-year USD LIBOR index, the creditor 
must use the index value on June 30, 2023, for the LIBOR index and, 
for the SOFR-based spread-adjusted index for consumer products, must 
use the index value on the first date that index is published, in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.
---------------------------------------------------------------------------

Comments Received
    The Bureau received a significant number of comments on proposed 
Sec.  1026.40(f)(3)(ii)(A) and (B) from industry, including banks, 
credit unions, and their trade associations. The Bureau also received 
several comment letters from consumer groups and individual consumers. 
In response to the 2020 Proposal, most commenters generally provided 
the same comments for both proposed Sec.  1026.40(f)(ii)(A) and (B) for 
HELOC accounts and Sec.  1026.55(b)(7)(i) and (ii) for credit card 
accounts under an open-end (not home-secured) consumer credit plan.
    Allow transition from a LIBOR index prior to LIBOR becoming 
unavailable. The Bureau received comments from industry, consumer 
groups, and individuals on proposed Sec.  1026.40(f)(3)(ii)(B) and 
proposed Sec.  1026.55(b)(7)(ii) that would permit creditors for HELOC 
plans subject to Sec.  1026.40 and card issuers that use a LIBOR index 
under the plan to replace the LIBOR index and change the margins for 
calculating the variable rates on or after March 15, 2021, in certain 
circumstances without needing to wait for LIBOR to become unavailable. 
Several industry commenters encouraged the Bureau to adopt these 
proposed provisions. A trade association indicated that these proposed 
provisions, if adopted, would allow HELOC creditors and card issuers to 
undertake the transition on a timeline that is more manageable and less 
likely to cause disruption for both HELOC creditors and consumers. A 
few other trade associations indicated that these proposed provisions 
allowing transition to a replacement index prior to LIBOR becoming 
unavailable, if adopted, would address concerns that LIBOR may continue 
to be available but may become less representative or reliable.
    Several consumer group commenters and an individual commenter 
generally supported proposed Sec.  1026.40(f)(3)(ii)(B) for HELOC 
accounts and Sec.  1026.55(b)(7)(ii) for credit card accounts, 
indicating that the Bureau should allow HELOC creditors and card 
issuers to replace a LIBOR index used under a plan before LIBOR becomes 
unavailable. The individual commenter indicated that these provisions 
would allow HELOC creditors and card issuers enough lead time to 
communicate with borrowers regarding the changes to the index.
    A few credit union trade association commenters supported the 
Bureau's proposal to allow creditors for HELOCs and card issuers to 
make the transition away from a LIBOR index as soon as March 15, 2021, 
but requested that the Bureau consider moving this date up even 
earlier. Several trade association commenters requested that HELOC 
creditors and card issuers be allowed to transition away from a LIBOR 
index as early as December 31, 2020.
    A trade association commenter representing reverse mortgage 
creditors requested that the Bureau coordinate with both the U.S. 
Department of Housing and Urban Development (HUD) and the Government 
National Mortgage Association (Ginnie Mae) with respect to the March 
15, 2021, date in proposed Sec.  1026.40(f)(3)(ii)(B). This commenter 
was concerned that if HUD decides to switch the HECM index to a SOFR 
index as of January 1, 2021, creditors would need to comply with that 
in order to make HECM loans insured by the Federal Housing 
Administration (FHA). This commenter indicated that it was not clear 
how such a required change by HUD would interact with proposed Sec.  
1026.40(f)(3)(ii)(B), if adopted.
    Determination that Prime and certain SOFR-based spread-adjusted 
indices recommended by the ARRC for consumer products have historical 
fluctuations that are substantially similar to those of certain USD 
LIBOR indices. The Bureau received comments from several trade 
associations and consumer groups on the Bureau's proposed determination 
that Prime and certain SOFR-based spread-adjusted indices recommended 
by the ARRC have historical fluctuations that are substantially similar 
to those of certain USD LIBOR indices. Several trade association 
commenters, including trade association commenters that represent 
credit unions, supported the Bureau's proposal determining that Prime 
has historical fluctuations substantially similar to those of certain 
LIBOR indices for purposes of proposed Sec. Sec.  1026.40(f)(3)(ii)(A) 
and (B) and 1026.55(b)(7)(i) and (ii). A few of these trade association 
commenters that represent credit unions indicated that many credit 
unions already use Prime for new open-end plans in lieu of LIBOR or 
plan to transition away from LIBOR to Prime for existing open-end 
plans. Several trade association commenters supported the Bureau's 
proposal determining that certain SOFR-based spread-adjusted indices 
recommended by the ARRC have historical fluctuations substantially 
similar to those of certain LIBOR indices for purposes of proposed 
Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii).
    A few consumer group commenters indicated that the Bureau should 
not adopt its proposal that Prime has historical fluctuations that are 
substantially similar to those of certain LIBOR indices for purposes of 
proposed Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) 
and (ii). These consumer group commenters instead indicated that the 
Bureau should signal its expectation that industry participants will 
select the SOFR-based spread-adjusted indices recommended by ARRC for 
consumer products as the replacement index and that failure to do so 
will invite increased scrutiny of compliance with Regulation Z. Several 
other consumer group commenters indicated that they support the 
Bureau's proposal that both Prime and the SOFR-based spread-adjusted 
indices recommended by the ARRC have historical fluctuations that are 
substantially similar to certain LIBOR indices. These consumer group 
commenters believed the SOFR-based spread-adjusted indices recommended 
by the ARRC are the best replacement for consumers and the only 
appropriate replacement in contracts where the margin cannot be 
adjusted. However, these consumer group commenters supported the 
Bureau's proposal under proposed Sec. Sec.  1026.40(f)(3)(ii)(A) and 
(B) and 1026.55(b)(7)(i) and (ii) that: (1) Prime has substantially 
similar historic fluctuations to those of certain LIBOR indices; and 
(2) a creditor or card issuer using Prime must comply with the 
condition that the replacement index

[[Page 69736]]

and replacement margin result in an APR substantially similar to the 
rate at the time the LIBOR became unavailable.
    Additional examples of indices that have historical fluctuations 
that are substantially similar to those of certain USD LIBOR indices. 
Many industry commenters and one individual commenter requested that 
the Bureau identify additional indices which meet the Regulation Z 
standards in proposed Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 
1026.55(b)(7)(i) and (ii) that the historical fluctuations of those 
indices are substantially similar to those of certain tenors of LIBOR. 
A few trade associations and several banks requested that the Bureau 
consider providing a safe harbor for AMERIBOR[supreg] rates that the 
historical fluctuations of those indices would be considered 
substantially similar to those of certain LIBOR indices for purposes of 
Regulation Z's standards. A few trade associations representing credit 
unions requested that the Bureau consider providing a safe harbor for 
EFFR that the historical fluctuations of that rate would be considered 
substantially similar to those of certain LIBOR indices for purposes of 
Regulation Z's standards. A few trade associations requested that the 
Bureau consider providing a safe harbor for CMT rates that the 
historical fluctuations of those rates would be considered 
substantially similar to those of certain LIBOR indices for purposes of 
Regulation Z's standards. A trade association commenter representing 
reverse mortgage creditors requested that the Bureau expressly provide 
a safe harbor for the index prescribed by the HUD Secretary for 
replacement of the LIBOR index for HECMs, if that index is different 
from the SOFR-spread adjusted indices recommended by ARRC for consumer 
products, that the historical fluctuations of that index would be 
considered substantially similar to those of certain LIBOR indices for 
purposes of Regulation Z's standards. This trade group encouraged the 
Bureau, HUD, and Ginnie Mae to conduct statistical analyses to 
determine what the effect of such a replacement index will be on, for 
example, existing pools of securitized HECMs to ensure that such 
replacement index is truly substantially similar.
    An individual commenter indicated that the difference among LIBOR 
and SOFR rates would trigger issues around the pricing of loans linked 
to SOFR and that the Bureau needs to study this issue. This commenter 
noted that various lenders have already started looking at other 
indices like AMERIBOR[supreg].
    Additional guidance on determining whether historical fluctuations 
are substantially similar to those of certain USD LIBOR indices. 
Several industry commenters requested that the Bureau provide guidance 
by defining when the historical fluctuations of an index are 
substantially similar to those of a particular LIBOR index for purposes 
of proposed Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 
1026.55(b)(7)(i) and (ii). A few trade associations requested that the 
Bureau provide guidance on the meaning of ``substantially similar'' and 
also adopt a flexible principles-based standard in order to avoid 
effectively ``mandating'' any specific index as the replacement for 
LIBOR. A credit union trade association commenter indicated that 
although the proposal allows the use of an established index with 
historical fluctuations substantially similar to those of a LIBOR 
index, the proposal does not define what it means for a rate to be 
substantially similar. This commenter indicated that credit unions 
would benefit from the Bureau clarifying when historical fluctuations 
are considered substantially similar to those of a LIBOR index.
    Newly established index as replacement for a LIBOR index. The 
Bureau received comments from industry, consumer groups, and a 
financial services education and consulting firm in relation to the use 
of a newly established index for purposes of proposed Sec. Sec.  
1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii). An industry 
trade association indicated that in order to enhance compliance 
certainty, the Bureau should provide greater detail to HELOC creditors 
and card issuers regarding the factors or considerations that should be 
taken into account to determine that an index is newly established for 
purposes of proposed Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 
1026.55(b)(7)(i) and (ii). This commenter suggested that such factors 
could include the length of time in which an index has been published 
or made available, as well as the period of time since the index has 
gained broad acceptance or use in financial markets. A financial 
services education and consulting firm indicated that the Bureau should 
only recognize newly established indices as being appropriate 
replacements for LIBOR if they are developed with the same high 
standards as SOFR. This commenter indicated its belief that all efforts 
should be made to minimize any value transfer in relation to replacing 
a LIBOR index.
    A few consumer group commenters indicated that the Bureau should 
limit its recognition of a newly established index as an appropriate 
replacement for LIBOR for purposes of proposed Sec. Sec.  
1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii). These 
consumer group commenters indicated their belief that without any 
historical track record, the appropriateness of a newly established 
index cannot be determined based only on the fact of it reflecting 
LIBOR on a single day.
    Several consumer group commenters indicated that the Bureau should 
restrict the use of new indices that lack historical data. These 
consumer group commenters indicated that if the Bureau allows newly 
established indices, the Bureau should require HELOC creditors or card 
issuers to demonstrate in advance, with a verifiable methodology, that 
the newly established index would have had substantially similar 
historical fluctuations as the original index. These consumer group 
commenters indicated that the Bureau should base this requirement on 
the steps the New York Fed used to evaluate the SOFR and prove that it 
was sufficiently similar to the LIBOR index.
    Substantially similar rates. The Bureau received several comments 
from industry, consumer groups, and individuals in relation to whether 
an APR calculated using a replacement index is substantially similar to 
the APR using the LIBOR index for purposes of proposed Sec. Sec.  
1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii).
    A trade association commenter indicated that the Bureau should 
provide greater detail as to the process HELOC creditors and card 
issuers must use to determine whether an APR calculated using a 
replacement index is substantially similar to the APR using the LIBOR 
index for purposes of proposed Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) 
and 1026.55(b)(7)(i) and (ii). Several consumer group commenters 
indicated that the Bureau should interpret ``substantially similar'' to 
require HELOC creditors or card issuers to minimize any value transfer 
when selecting a replacement index and setting a new margin for 
purposes of proposed Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 
1026.55(b)(7)(i) and (ii).
    An individual commenter indicated that consumers should be allowed 
to refinance their existing debt at no cost into existing market rate 
products at their discretion and banks should be forced to not 
artificially inflate rates ahead of the anticipated sunset date of 
LIBOR.
    In determining whether the APRs are substantially similar, the 
Bureau received comments from industry and consumer groups on the 
Bureau's proposal to use a single date for the index values for 
purposes of proposed

[[Page 69737]]

Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii), 
rather than using a historical median or average of the index values. A 
trade association commenter indicated that: (1) The Bureau should give 
HELOC creditors and card issuers the option to either use a single date 
for purposes of the index values or use the median value of the 
difference between the two indices over a slightly longer period of 
time; and (2) such an approach would preserve flexibility and recognize 
that different indices will present different challenges with respect 
to evaluation on a single date.
    A trade association commenter representing reverse mortgage 
creditors indicated that the Bureau should require the use of the 
historical spread rather than the spread on a specific day in comparing 
rates to help ensure such rates are substantially similar to each 
other. This commenter: (1) Indicated that a historical median or 
average of the spread between the replacement index and LIBOR over the 
time period the historical data is available, or 5 years, whichever is 
shorter, should be used for purposes of determining whether a rate 
using the replacement index is substantially similar to the rate using 
the LIBOR index; and (2) raised concerns that the use of a single day 
to compare the rates of LIBOR and its replacement could be problematic 
if such dates happen to occur during a period of extreme volatility.
    Several consumer group commenters indicated that the Bureau should 
require HELOC creditors and card issuers to use a historical median 
value rather than the value from a single day when comparing the APR 
using a replacement index to the APR using the LIBOR index to determine 
if the two rates are substantially similar for purposes of proposed 
Sec.  1026.40(f)(3)(ii)(A) and (B) and Sec.  1026.55(b)(7)(i) and (ii). 
These commenters noted that the ARRC and the International Swaps and 
Derivatives Association (ISDA) have endorsed using a historical median 
to calculate the spread-adjustment between the LIBOR and SOFR (the 
historical median over a five-year lookback period). These commenters 
indicated that the Bureau should require HELOC creditors and card 
issuers to make a similar calculation for other replacement indices 
rather than comparing the original and replacement indices on a single 
day.
    With respect to the SOFR-based spread-adjusted indices recommended 
by the ARRC, a trade association commenter indicated that the Bureau 
should clarify that the APR calculated using a spread-adjusted SOFR 
index is substantially similar to the APR calculated using a 
corresponding LIBOR index, provided the HELOC creditor or card issuer 
uses the same margin in effect immediately prior to the transition.
    Determination that LIBOR index is no longer available. The Bureau 
received comments from industry and consumer groups in relation to 
determining when a LIBOR index is no longer available. Several trade 
associations commenters indicated that the Bureau should provide 
further guidance to HELOC creditors and card issuers to assist them in 
making the determination of whether LIBOR (or another index) is 
unavailable for purposes of Regulation Z. These commenters indicated 
that the Bureau should, for example, provide the triggers used in the 
ARRC's recommended contractual fallback language for new closed-end, 
residential ARMs as examples of when an index is unavailable, such as 
when an index administrator permanently or indefinitely stops providing 
the index to the general public, or when an index administrator or its 
regulator issues an official public statement that the index is no 
longer reliable or representative.\86\ These commenters stated their 
belief that such guidance would be beneficial to financial institutions 
and consumers and would help provide further certainty, not only for 
the upcoming LIBOR transition but for any transitions in the future as 
well.
---------------------------------------------------------------------------

    \86\ Alt. Reference Rates Comm., ARRC Recommendations Regarding 
More Robust LlBOR Fallback Contract Language for New Closed-End, 
Residential Adjustable Rate Mortgages (Nov. 15, 2019), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/ARM_Fallback_Language.pdf (LIBOR Fallback).
---------------------------------------------------------------------------

    Another trade association commenter that represents reverse 
mortgage creditors indicated that the Bureau should include language in 
the final rule clarifying when LIBOR is deemed to be no longer 
available. This commenter indicated that the Bureau should permit 
lenders to make the determination that a LIBOR index is no longer 
available when LIBOR is no longer widely used or supported in the 
industry at large (or is becoming less available as time goes on) as 
opposed to LIBOR being unavailable (since it is likely that it will 
take some time before LIBOR disappears completely), and that if 
creditors make this assessment in good faith and switch the index 
accordingly, the Bureau will not subject them to sanctions or other 
punitive measures.
    Another trade association commenter indicated that the Bureau 
should clarify the extent to which LIBOR would become unavailable in 
the event that it continued to be reported but became unreliable or 
that there was uncertainty about its ongoing status. Another trade 
association commenter indicated that the Bureau should make a 
determination that after year-end 2021, LIBOR is unavailable.
    Several trade associations commenters indicated that the Bureau 
should provide, applicable to all variable rate loan products, that a 
creditor may replace the LIBOR index before the publication of LIBOR is 
discontinued, even when the contract only provides for replacement upon 
the unavailability of LIBOR. In addition, these trade associations 
indicated that the Bureau should make clear that a creditor can replace 
both the index and the margin even in cases where the consumer credit 
agreement does not explicitly contemplate the replacement of the pre-
existing LIBOR index and margin.
    Several consumer group commenters indicated that the Bureau should 
either define ``unavailable'' or ban the use of LIBOR indices after 
December 2021 in any consumer credit product, including credit cards, 
student loans, and mortgages. These consumer group commenters stated 
their belief that defining ``unavailable'' would help avoid future 
ambiguity for index transitions. Nonetheless, these consumer group 
commenters indicated that their preferred approach is for the Bureau to 
ban the use of LIBOR indices after December 2021.
The Final Rule
    As discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A), this final rule adopts Sec.  1026.40(f)(3)(ii)(A) 
as proposed. As discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B), this final rule adopts Sec.  1026.40(f)(3)(ii)(B) 
generally as proposed with revisions to: (1) Set April 1, 2022, as the 
date on or after which HELOC creditors are permitted to replace the 
LIBOR index used under the plan pursuant to Sec.  1026.40(f)(3)(ii)(B) 
prior to LIBOR becoming unavailable; (2) set October 18, 2021, as the 
date creditors generally must use under Sec.  1026.40(f)(3)(ii)(B) for 
selecting indices values in determining whether the APRs using the 
LIBOR index and the replacement index are substantially similar; \87\ 
and (3) provide that if the replacement index is not published on 
October 18, 2021, the creditor generally must use the next calendar day 
for

[[Page 69738]]

which both the LIBOR index and the replacement index are published as 
the date for selecting indices values in determining whether the APR 
based on the replacement index is substantially similar to the rate 
based on the LIBOR index.\88\ Revisions to comment 40(f)(3)(ii)-1 as 
proposed are discussed in more detail below.\89\
---------------------------------------------------------------------------

    \87\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B) for the rationale for why the Bureau selected 
the October 18, 2021, date.
    \88\ As set forth in Sec.  1026.40(f)(3)(ii)(B), one exception 
is that if the replacement index is the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 
1-month, 3-month, 6-month, or 1-year USD LIBOR index, the creditor 
must use the index value on June 30, 2023, for the LIBOR index and, 
for the SOFR-based spread-adjusted index for consumer products, must 
use the index value on the first date that index is published, in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.
    \89\ Revisions to comments 40(f)(3)(ii)(A)-1 through -3 as 
proposed are discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A). Revisions to comments 40(f)(3)(ii)(B)-1 
through -3 as proposed are discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(B).
---------------------------------------------------------------------------

    This final rule adopts new LIBOR-specific provisions rather than 
interpreting when the LIBOR indices are unavailable. The Bureau 
declines to adopt the industry commenters' suggestions to provide 
further guidance to creditors to assist them in making the 
determination of whether LIBOR (or another index) is unavailable for 
purposes of Regulation Z. The Bureau also declines the consumer group 
commenters' suggestion to either define ``unavailable'' or ban the use 
of LIBOR indices after December 2021 in any consumer credit product, 
including credit cards, student loans, and mortgages. For several 
reasons discussed below, the Bureau determines that it is appropriate 
for this final rule to adopt new LIBOR-specific provisions under Sec.  
1026.40(f)(3)(ii)(B), rather than interpreting the LIBOR indices to be 
unavailable as of a certain date prior to LIBOR being discontinued 
under current Sec.  1026.40(f)(3)(ii) (as moved to Sec.  
1026.40(f)(3)(ii)(A)).
    The Bureau recognizes that the ARRC's recommended contractual 
fallback language for new closed-end, residential ARMs provides 
triggers for when an index is unavailable under the contract, including 
when an index administrator or its regulator issues an official public 
statement that the index is no longer reliable or representative.\90\ 
In March 2021, the FCA (the regulator of LIBOR) issued an official 
public statement that all USD LIBOR tenors (other than 1-week and 2-
month USD LIBOR) will either cease to be provided by any administrator 
or no longer be representative after June 30, 2023.\91\ The FCA also 
indicated that the FCA does not expect that USD LIBOR tenors (other 
than 1-week and 2-month USD LIBOR) will become unrepresentative before 
June 30, 2023.\92\ The June 30, 2023 date generally will be applicable 
to most USD LIBOR tenors used in existing HELOC contracts because the 
Bureau understands that HELOCs contracts generally do not use the 1-
week or 2-month USD LIBOR tenors. Given the June 30, 2023 date for when 
the FCA will consider most USD LIBOR tenors to be unrepresentative, the 
Bureau has concluded that it is not advisable to make a determination 
in this final rule that the LIBOR indices are unavailable or 
unrepresentative as of the effective date of this final rule (i.e., 
April 1, 2022) for Regulation Z purposes under current Sec.  
1026.40(f)(3)(ii) (as moved to Sec.  1026.40(f)(3)(ii)(A)). For similar 
reasons, the Bureau is not banning in this final rule use of a LIBOR 
index after December 2021 under Regulation Z.
---------------------------------------------------------------------------

    \90\ See LIBOR Fallback, supra note 86.
    \91\ The FCA stated that the 1-week and 2-month USD LIBOR will 
either cease to be provided by any administrator or no longer be 
representative after December 31, 2021. Press Release, Fin. Conduct 
Auth., FCA announcement on future cessation and loss of 
representativeness of the LIBOR benchmarks (Mar. 05, 2021), https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf.
    \92\ Press Release, Fin. Conduct Auth., Announcements on the end 
of LIBOR (May 03, 2021), https://www.fca.org.uk/news/press-releases/announcements-end-libor.
---------------------------------------------------------------------------

    The Bureau also is concerned that a determination in this final 
rule that the LIBOR indices are unavailable as of the effective date of 
this final rule (i.e., April 1, 2022) for purposes of current Sec.  
1026.40(f)(3)(ii) (as moved to Sec.  1026.40(f)(3)(ii)(A)) could have 
unintended consequences on other products or markets. For example, such 
a determination could unintentionally cause confusion for creditors for 
other products (e.g., ARMs) about whether the LIBOR indices are 
unavailable at this time for those products too and could possibly put 
pressure on those creditors to replace the LIBOR index used for those 
products before those creditors are ready for the change.
    Moreover, even if the Bureau interpreted unavailability under 
current Sec.  1026.40(f)(3)(ii) (as moved to Sec.  
1026.40(f)(3)(ii)(A)) in this final rule to indicate that the LIBOR 
indices are unavailable as of the effective date of this final rule 
(i.e., April 1, 2022) or as of June 30, 2023, (the date after which the 
FCA will consider most USD LIBOR tenors to be unrepresentative even if 
the rates are still being published), this interpretation would not 
completely solve the contractual issues for creditors whose contracts 
require them to wait until the LIBOR indices become unavailable before 
replacing the LIBOR index. As discussed below, this final rule does not 
override contractual provisions that require creditors to wait until 
LIBOR indices become unavailable for replacing the LIBOR index. 
Creditors still would need to decide for their specific contracts 
whether the LIBOR indices are unavailable. Thus, even if the Bureau 
decided that the LIBOR indices are unavailable under Regulation Z as 
described above, creditors whose contracts require them to wait until 
the LIBOR indices become unavailable before replacing the LIBOR index 
essentially would remain in the same position of interpreting their 
contracts as they would have been under the current rule.
    Thus, this final rule does not interpret when the LIBOR indices are 
unavailable for purposes of current Sec.  1026.40(f)(3)(ii) (as moved 
to Sec.  1026.40(f)(3)(ii)(A)).
    Interaction among Sec.  1026.40(f)(3)(ii)(A) and (B) and 
contractual provisions. Comment 40(f)(3)(ii)-1 provides detail on the 
interaction among the unavailability provisions in Sec.  
1026.40(f)(3)(ii)(A), the LIBOR-specific provisions in Sec.  
1026.40(f)(3)(ii)(B), and the contractual provisions that apply to a 
HELOC plan. This final rule adopts comment 40(f)(3)(ii)-1 generally as 
proposed, with several revisions consistent with the changes this final 
rule makes to proposed Sec.  1026.40(f)(3)(ii)(B). Specifically, this 
final rule revises comment 40(f)(3)(ii)-1 from the proposal to reflect 
that: (1) April 1, 2022, is the date on or after which a creditor may 
replace a LIBOR index under Sec.  1026.40(f)(3)(ii)(B) if certain 
conditions are met; (2) October 18, 2021, is the date that creditors 
generally must use for selecting indices values in determining whether 
the APRs using the LIBOR index and the replacement index are 
substantially similar under Sec.  1026.40(f)(3)(ii)(B); \93\ and (3) if 
the replacement index is not published on October 18, 2021, the 
creditor generally must use the next calendar day for which both the 
LIBOR index and the replacement index are published as the date for 
selecting indices values in determining whether the APR based on the 
replacement index is substantially similar to the rate based on the 
LIBOR index.\94\
---------------------------------------------------------------------------

    \93\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B) for the rationale for why the Bureau selected 
the October 18, 2021, date.
    \94\ The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the creditor must use the index value on June 
30, 2023, for the LIBOR index and, for the SOFR-based spread-
adjusted index for consumer products, must use the index value on 
the first date that index is published, in determining whether the 
APR based on the replacement index is substantially similar to the 
rate based on the LIBOR index.

---------------------------------------------------------------------------

[[Page 69739]]

    Specifically, comment 40(f)(3)(ii)-1 provides that a creditor may 
use either the provision in Sec.  1026.40(f)(3)(ii)(A) or Sec.  
1026.40(f)(3)(ii)(B) to replace a LIBOR index used under a HELOC plan 
subject to Sec.  1026.40 so long as the applicable conditions are met 
for the provision used. This comment makes clear, however, that neither 
provision excuses the creditor from noncompliance with contractual 
provisions. The Bureau does not find it appropriate for the provisions 
in the LIBOR-specific provisions in Sec.  1026.40(f)(3)(ii)(B) to 
override the consumer's contract with the creditor. TILA section 111(d) 
provides that, subject to certain exceptions, TILA and Regulation Z do 
not affect the validity or enforceability of any contract or obligation 
under State or Federal law.\95\ Further, Sec.  1026.28(a) generally 
provides that provisions of State law that are inconsistent with 
certain TILA provisions and the implementing Regulation Z provisions 
are preempted to the extent of the inconsistency.\96\ A State law is 
inconsistent if it requires a creditor to make disclosures or take 
actions that contradict the requirements of the Federal law. The Bureau 
believes that contractual provisions that require a creditor to wait to 
replace a LIBOR index used under the plan until LIBOR is unavailable 
are not inconsistent with Sec.  1026.40(f)(3)(ii)(B) and do not require 
a creditor to take action that contradicts Regulation Z. Section 
1026.40(f)(3)(ii)(B) permits a creditor to replace a LIBOR index used 
under a HELOC plan and adjust the margin on or after April 1, 2022, if 
certain conditions are met but does not require the creditor to do so. 
If a creditor's contract with the consumer requires the creditor to 
wait until the LIBOR index is unavailable before replacing the index, 
the creditor can still comply with the contract without violating 
Regulation Z. Thus, the Bureau believes that these contractual 
provisions are not inconsistent with, and should not be preempted by, 
Sec.  1026.40(f)(3)(ii)(B).
---------------------------------------------------------------------------

    \95\ 15 U.S.C. 1610(d).
    \96\ Section 1026.28 generally provides that State law 
requirements that are inconsistent with the requirements contained 
in chapter 1 (General Provisions), chapter 2 (Credit Transactions), 
or chapter 3 (Credit Advertising) of TILA and the implementing 
Regulation Z provisions are preempted to the extent of the 
inconsistency.
---------------------------------------------------------------------------

    To facilitate compliance, comment 40(f)(3)(ii)-1 also provides 
examples of the interaction among the unavailability provisions in 
Sec.  1026.40(f)(3)(ii)(A), the LIBOR-specific provisions in Sec.  
1026.40(f)(3)(ii)(B), and three types of contractual provisions for 
HELOCs. Each of these examples assumes that the LIBOR index used under 
the plan becomes unavailable after June 30, 2023. Specifically, comment 
40(f)(3)(ii)-1.i provides an example where a HELOC contract provides 
that a creditor may not replace an index unilaterally under a plan 
unless the original index becomes unavailable and provides that the 
replacement index and replacement margin will result in an APR 
substantially similar to a rate that is in effect when the original 
index becomes unavailable. In this case, comment 40(f)(3)(ii)-1.i 
explains that the creditor may use the unavailability provisions in 
Sec.  1026.40(f)(3)(ii)(A) to replace the LIBOR index used under the 
plan so long as the conditions of that provision are met. Comment 
40(f)(3)(ii)-1.i also explains that the LIBOR-specific provisions in 
Sec.  1026.40(f)(3)(ii)(B) generally provide that a creditor may 
replace the LIBOR index if the replacement index value in effect on 
October 18, 2021, and the replacement margin will produce an APR 
substantially similar to the rate calculated using the LIBOR index 
value in effect on October 18, 2021, and the margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR index 
used under the plan. If the replacement index is not published on 
October 18, 2021, the creditor generally must use the next calendar day 
for which both the LIBOR index and the replacement index are published 
as the date for selecting indices values in determining whether the APR 
based on the replacement index is substantially similar to the rate 
based on the LIBOR index. The one exception is that if the replacement 
index is the SOFR-based spread-adjusted index recommended by the ARRC 
for consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the creditor must use the index value on June 30, 
2023, for the LIBOR index and, for the SOFR-based spread-adjusted index 
for consumer products, must use the index value on the first date that 
index is published, in determining whether the APR based on the 
replacement index is substantially similar to the rate based on the 
LIBOR index. Comment 40(f)(3)(ii)-1.i notes, however, that the creditor 
in this example would be contractually prohibited from replacing the 
LIBOR index used under the plan unless the replacement index and 
replacement margin also will produce an APR substantially similar to a 
rate that is in effect when the LIBOR index becomes unavailable.
    Comment 40(f)(3)(ii)-1.ii provides an example of a HELOC contract 
under which a creditor may not replace an index unilaterally under a 
plan unless the original index becomes unavailable but does not require 
that the replacement index and replacement margin will result in an APR 
substantially similar to a rate that is in effect when the original 
index becomes unavailable. In this case, the creditor would be 
contractually prohibited from unilaterally replacing a LIBOR index used 
under the plan until it becomes unavailable. At that time, the creditor 
has the option of using Sec.  1026.40(f)(3)(ii)(A) or Sec.  
1026.40(f)(3)(ii)(B) to replace the LIBOR index if the conditions of 
the applicable provision are met.
    This final rule allows the creditor in this case to use either the 
unavailability provisions in Sec.  1026.40(f)(3)(ii)(A) or the LIBOR-
specific provisions in Sec.  1026.40(f)(3)(ii)(B). If the creditor uses 
the unavailability provisions in Sec.  1026.40(f)(3)(ii)(A), the 
creditor must use a replacement index and replacement margin that will 
produce an APR substantially similar to the rate in effect when the 
LIBOR index became unavailable. If the creditor uses the LIBOR-specific 
provisions in Sec.  1026.40(f)(3)(ii)(B), the creditor generally must 
use the replacement index value in effect on October 18, 2021, and the 
replacement margin that will produce an APR substantially similar to 
the rate calculated using the LIBOR index value in effect on October 
18, 2021, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan. If the 
replacement index is not published on October 18, 2021, the creditor 
generally must use the next calendar day for which both the LIBOR index 
and the replacement index are published as the date for selecting 
indices values in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR 
index.\97\
---------------------------------------------------------------------------

    \97\ The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the creditor must use the index value on June 
30, 2023, for the LIBOR index and, for the SOFR-based spread-
adjusted index for consumer products, must use the index value on 
the first date that index is published, in determining whether the 
APR based on the replacement index is substantially similar to the 
rate based on the LIBOR index.
---------------------------------------------------------------------------

    Provided that the replacement index is published on October 18, 
2021, this

[[Page 69740]]

final rule allows a creditor in this case to use the index values of 
the LIBOR index and replacement index on October 18, 2021, under Sec.  
1026.40(f)(3)(ii)(B) to meet the ``substantially similar'' standard 
with respect to the comparison of the rates even if the creditor is 
contractually prohibited from unilaterally replacing the LIBOR index 
used under the plan until it becomes unavailable. The Bureau recognizes 
that LIBOR may not be discontinued until June 30, 2023, which is more 
than a year and a half later than the October 18, 2021, date.\98\ 
Nonetheless, this final rule allows creditors that are restricted by 
their contracts to replace the LIBOR index used under the HELOC plans 
until the LIBOR index becomes unavailable to use generally the LIBOR 
index values and the replacement index values in effect on October 18, 
2021, (provided the replacement index is published on that day), under 
Sec.  1026.40(f)(3)(ii)(B), rather than the index values on the day 
that LIBOR becomes unavailable under Sec.  1026.40(f)(3)(ii)(A). This 
final rule allows those creditors to use consistent index values to 
those creditors that are not restricted by their contracts in replacing 
the LIBOR index prior to LIBOR becoming unavailable. This final rule 
promotes consistency for consumers in that these HELOC creditors would 
be permitted to use the same LIBOR values in comparing the rates.
---------------------------------------------------------------------------

    \98\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B) for the rationale for why the Bureau selected 
the October 18, 2021, date.
---------------------------------------------------------------------------

    Thus, this final rule provides creditors in the situation described 
in comment 40(f)(3)(ii)-1.ii with the flexibility to choose to compare 
the rates using the index values for the LIBOR index and the 
replacement index on October 18, 2021, (provided the replacement index 
is published on that day), by using the proposed LIBOR-specific 
provisions under Sec.  1026.40(f)(3)(ii)(B), rather than using the 
unavailability provisions in Sec.  1026.40(f)(3)(ii)(A).
    Comment 40(f)(3)(ii)-1.iii provides an example of a HELOC contract 
under which a creditor may change the terms of the contract (including 
the index) as permitted by law. Comment 40(f)(3)(ii)-1.iii explains in 
this case, if the creditor replaces a LIBOR index under a plan on or 
after April 1, 2022, but does not wait until the LIBOR index becomes 
unavailable to do so, the creditor may only use Sec.  
1026.40(f)(3)(ii)(B) to replace the LIBOR index if the conditions of 
that provision are met. In this case, the creditor may not use Sec.  
1026.40(f)(3)(ii)(A). Comment 40(f)(3)(ii)-1.iii also explains that if 
the creditor waits until the LIBOR index used under the plan becomes 
unavailable to replace the LIBOR index, the creditor has the option of 
using Sec.  1026.40(f)(3)(ii)(A) or Sec.  1026.40(f)(3)(ii)(B) to 
replace the LIBOR index if the conditions of the applicable provision 
are met.
    This final rule allows the creditor in this case to use either the 
unavailability provisions in Sec.  1026.40(f)(3)(ii)(A) or the LIBOR-
specific provisions in Sec.  1026.40(f)(3)(ii)(B) if the creditor waits 
until the LIBOR index used under the plan becomes unavailable to 
replace the LIBOR index. For the reasons explained above in the 
discussion of the example in comment 40(f)(3)(ii)-1.ii, this final rule 
in the situation described in comment 40(f)(3)(ii)-1.iii provides 
creditors with the flexibility to choose to use the index values of the 
LIBOR index and the replacement index on October 18, 2021 (provided the 
replacement index is published on that day), by using the LIBOR-
specific provisions under Sec.  1026.40(f)(3)(ii)(B), rather than using 
the unavailability provisions in Sec.  1026.40(f)(3)(ii)(A).
40(f)(3)(ii)(A)
    Current Sec.  1026.40(f)(3)(ii) provides that a creditor may change 
the index and margin used under a HELOC plan subject to Sec.  1026.40 
if the original index is no longer available, the new index has a 
historical movement substantially similar to that of the original 
index, and the new index and margin would have resulted in an APR 
substantially similar to the rate in effect at the time the original 
index became unavailable. Current comment 40(f)(3)(ii)-1 provides that 
a creditor may change the index and margin used under the plan if the 
original index becomes unavailable, as long as historical fluctuations 
in the original and replacement indices were substantially similar, and 
as long as the replacement index and margin will produce a rate similar 
to the rate that was in effect at the time the original index became 
unavailable. Current comment 40(f)(3)(ii)-1 also provides that if the 
replacement index is newly established and therefore does not have any 
rate history, it may be used if it produces a rate substantially 
similar to the rate in effect when the original index became 
unavailable.
The Bureau's Proposal
    The Bureau proposed to move the unavailability provisions in 
current Sec.  1026.40(f)(3)(ii) and current comment 40(f)(3)(ii)-1 to 
proposed Sec.  1026.40(f)(3)(ii)(A) and proposed comment 
40(f)(3)(ii)(A)-1 respectively and revise the moved provisions for 
clarity and consistency. In addition, the Bureau proposed to add detail 
in proposed comments 40(f)(3)(ii)(A)-2 and -3 on the conditions set 
forth in proposed Sec.  1026.40(f)(3)(ii)(A).
    Specifically, proposed Sec.  1026.40(f)(3)(ii)(A) provided that a 
creditor for a HELOC plan subject to Sec.  1026.40 may change the index 
and margin used under the plan if the original index is no longer 
available, the replacement index has historical fluctuations 
substantially similar to that of the original index, and the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the original 
index became unavailable. Proposed Sec.  1020.40(f)(3)(ii)(A) also 
provided that if the replacement index is newly established and 
therefore does not have any rate history, it may be used if it and the 
replacement margin will produce an APR substantially similar to the 
rate in effect when the original index became unavailable.
    Proposed Sec.  1026.40(f)(3)(ii)(A) differed from current Sec.  
1026.40(f)(3)(ii) in three ways. First, proposed Sec.  
1026.40(f)(3)(ii)(A) differed from current Sec.  1040(f)(3)(ii) by 
using the term ``historical fluctuations'' rather than the term 
``historical movement'' to refer to the original index and the 
replacement index. For clarity and consistency, the Bureau proposed to 
use ``historical fluctuations'' in both proposed Sec.  
1026.40(f)(3)(ii)(A) and proposed comment 40(f)(3)(ii)(A)-1, so that 
the proposed regulatory text and related commentary use the same term.
    Second, proposed Sec.  1026.40(f)(3)(ii)(A) differed from current 
Sec.  1026.40(f)(3)(ii) by including a provision regarding newly 
established indices that is not contained in current Sec.  
1026.40(f)(3)(ii). This proposed provision would have been similar to 
the sentence in current comment 40(f)(3)(ii)-1 on newly established 
indices except that the proposed provision in proposed Sec.  
1026.40(f)(3)(ii)(A) made clear that a creditor that is using a newly 
established index also may adjust the margin so that the newly 
established index and replacement margin will produce an APR 
substantially similar to the rate in effect when the original index 
became unavailable. The newly established index may not have the same 
index value as the original index, and the creditor may need to adjust 
the margin to meet the condition that the newly established index and 
replacement margin will produce an

[[Page 69741]]

APR substantially similar to the rate in effect when the original index 
became unavailable.
    Third, proposed Sec.  1026.40(f)(3)(ii)(A) differed from current 
Sec.  1026.40(f)(3)(ii) by using the terms ``replacement index'' and 
``replacement index and replacement margin'' instead of using ``new 
index'' and ``new index and margin,'' respectively as contained in 
current Sec.  1026.40(f)(3)(ii). These proposed changes were designed 
to avoid any confusion as to when the provision in proposed Sec.  
1026.40(f)(3)(ii)(A) is referring to a replacement index and 
replacement margin as opposed to a newly established index.
    The Bureau proposed to move current comment 40(f)(3)(ii)-1 to 
proposed comment 40(f)(3)(ii)(A)-1. The Bureau also proposed to revise 
this proposed moved comment in three ways for clarity and consistency 
with proposed Sec.  1026.40(f)(3)(ii)(A). First, proposed comment 
40(f)(3)(ii)(A)-1 differed from current comment 40(f)(3)(ii)-1 by 
providing that if an index that is not newly established is used to 
replace the original index, the replacement index and replacement 
margin will produce a rate ``substantially similar'' to the rate that 
was in effect at the time the original index became unavailable. 
Current comment 40(f)(3)(ii)-1 uses the term ``similar'' instead of 
``substantially similar'' for the comparison of these rates. 
Nonetheless, this use of the term ``similar'' in current comment 
40(f)(3)(ii)-1 is inconsistent with the use of ``substantially 
similar'' in current Sec.  1026.40(f)(3)(ii) for the comparison of 
these rates. To correct this inconsistency between the regulation text 
and the commentary provision that interprets it, the Bureau proposed to 
use ``substantially similar'' consistently in proposed Sec.  
1026.40(f)(3)(ii)(A) and proposed comment 40(f)(3)(ii)(A)-1 for the 
comparison of these rates.
    Second, consistent with the proposed new sentence in proposed Sec.  
1026.40(f)(3)(ii)(A) related to newly established indices, proposed 
comment 40(f)(3)(ii)(A)-1 differed from current comment 40(f)(3)(ii)-1 
by clarifying that a creditor that is using a newly established index 
may also adjust the margin so that the newly established index and 
replacement margin will produce an APR substantially similar to the 
rate in effect when the original index became unavailable.
    Third, proposed comment 40(f)(3)(ii)(A)-1 differed from current 
comment 40(f)(3)(ii)-1 by using the term ``the replacement index and 
replacement margin'' instead of ``the replacement index and margin'' to 
make clear when the proposed comment is referring to a replacement 
margin and not the original margin.
    Proposed comment 40(f)(3)(ii)(A)-2 provided detail on determining 
whether a replacement index that is not newly established has 
historical fluctuations that are substantially similar to those of the 
LIBOR index used under the plan for purposes of proposed Sec.  
1026.40(f)(3)(ii)(A). Specifically, proposed comment 40(f)(3)(ii)(A)-2 
provided that for purposes of replacing a LIBOR index used under a plan 
pursuant to proposed Sec.  1026.40(f)(3)(ii)(A), a replacement index 
that is not newly established must have historical fluctuations that 
are substantially similar to those of the LIBOR index used under the 
plan, considering the historical fluctuations up through when the LIBOR 
index becomes unavailable or up through the date indicated in a Bureau 
determination that the replacement index and the LIBOR index have 
historical fluctuations that are substantially similar, whichever is 
earlier. To reduce uncertainty with respect to selecting a replacement 
index that meets the standards under proposed Sec.  
1026.40(f)(3)(ii)(A), the Bureau proposed in proposed comment 
40(f)(3)(ii)(A)-2.i to determine that Prime is an example of an index 
that has historical fluctuations that are substantially similar to 
those of the 1-month and 3-month USD LIBOR indices. Proposed comment 
40(f)(3)(ii)(A)-2.i also provided that in order to use Prime as the 
replacement index for the 1-month or 3-month USD LIBOR index, the 
creditor also must comply with the condition in Sec.  
1026.40(f)(3)(ii)(A) that Prime and the replacement margin would have 
resulted in an APR substantially similar to the rate in effect at the 
time the LIBOR index became unavailable. The Bureau also proposed in 
proposed comment 40(f)(3)(ii)(A)-2.ii to determine that the SOFR-based 
spread-adjusted indices recommended by the ARRC for consumer products 
to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR indices 
have historical fluctuations that are substantially similar to those of 
the LIBOR indices that they are intended to replace. Proposed comment 
40(f)(3)(ii)(A)-2.ii also provided that in order to use a SOFR-based 
spread-adjusted index for consumer products described above as the 
replacement index for the applicable LIBOR index, the creditor also 
must comply with the condition in Sec.  1026.40(f)(3)(ii)(A) that the 
SOFR-based spread-adjusted index recommended by the ARRC for consumer 
products and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable.
    As discussed above, proposed Sec.  1026.40(f)(3)(ii)(A) provided 
that the replacement index and replacement margin must produce an APR 
substantially similar to the rate that was in effect based on the LIBOR 
index used under the plan when the LIBOR index became unavailable. 
Proposed comment 40(f)(3)(ii)(A)-3 also provided that for the 
comparison of the rates, a creditor must use the value of the 
replacement index and the LIBOR index on the day that the LIBOR index 
becomes unavailable. Proposed comment 40(f)(3)(ii)(A)-3 also provided 
that the replacement index and replacement margin are not required to 
produce an APR that is substantially similar on the day that the 
replacement index and replacement margin become effective on the plan. 
Proposed comment 40(f)(3)(ii)(A)-3.i provided an example to illustrate 
this comment.
Comments Received
    In response to the proposal, the industry commenters generally 
provided the same comments for both proposed Sec.  1026.40(f)(3)(ii) 
for HELOCs and Sec.  1026.55(b)(7) for credit card accounts under an 
open-end (not home-secured) consumer credit plan. Similarly, the 
consumer group commenters also provided the same comments for both 
proposed Sec.  1026.40(f)(3)(ii) for HELOCs and Sec.  1026.55(b)(7) for 
credit card accounts under an open-end (not home-secured) consumer 
credit plan. These comments from industry and consumer groups are 
described in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii).
The Final Rule
    This final rule adopts Sec.  1026.40(f)(3)(ii)(A) and comment 
40(f)(3)(ii)(A)-1 as proposed. This final rule adopts comments 
40(f)(3)(ii)(A)-2 and -3 generally as proposed with several revisions 
to provide additional detail on the Sec.  1026.40(f)(3)(ii)(A) 
provision, including providing (1) examples of the type of factors to 
be considered in whether a replacement index meets the Regulation Z 
``historical fluctuations are substantially similar'' standard with 
respect to a particular LIBOR index for HELOCs; and (2) if a creditor 
uses the SOFR-based spread-adjusted index recommended by ARRC for 
consumer products to replace the 1-month, 3-month, or 6-month USD LIBOR 
index as the replacement index

[[Page 69742]]

and uses as the replacement margin the same margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR index 
used under the plan, the creditor will be deemed to be in compliance 
with the condition in Sec.  1026.40(f)(3)(ii)(A) that the replacement 
index and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable. This final rule provides additional detail with 
respect to the unavailability provisions in Sec.  1026.40(f)(3)(ii)(A) 
because the Bureau understands that some HELOC creditors may use these 
unavailability provisions to replace a LIBOR index used under a HELOC 
plan, depending on the contractual provisions applicable to their HELOC 
plans, as discussed above in more detail in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii).
    Historical fluctuations substantially similar for the LIBOR index 
and replacement index. This final rule adopts comment 40(f)(3)(ii)(A)-2 
generally as proposed with several revisions as described below. 
Comment 40(f)(3)(ii)(A)-2 provides detail on determining whether a 
replacement index that is not newly established has historical 
fluctuations that are substantially similar to those of the LIBOR index 
used under the plan for purposes of Sec.  1026.40(f)(3)(ii)(A).
    Comment 40(f)(3)(ii)(A)-2 provides that for purposes of replacing a 
LIBOR index used under a plan pursuant to Sec.  1026.40(f)(3)(ii)(A), a 
replacement index that is not newly established must have historical 
fluctuations that are substantially similar to those of the LIBOR index 
used under the plan, considering the historical fluctuations up through 
when the LIBOR index becomes unavailable or up through the date 
indicated in a Bureau determination that the replacement index and the 
LIBOR index have historical fluctuations that are substantially 
similar, whichever is earlier.
    Prime has historical fluctuations that are substantially similar to 
those of certain USD LIBOR indices. To facilitate compliance, this 
final rule adopts comment 40(f)(3)(ii)(A)-2.i generally as proposed 
with one revision described below. Comment 40(f)(3)(ii)(A)-2.i provides 
a determination that Prime has historical fluctuations that are 
substantially similar to those of the 1-month and 3-month USD LIBOR 
indices. This final rule revises comment 40(f)(3)(ii)(A)-2.i from the 
proposal to provide that this determination is effective as of April 1, 
2022, which is when this final rule becomes effective as discussed in 
more detail in part VI.
    The Bureau made this determination after reviewing historical data 
from January 1986 through October 18, 2021, on 1-month USD LIBOR, 3-
month USD LIBOR, and Prime. The spread between 1-month USD LIBOR and 
Prime increased from roughly 142 basis points in 1986 to 281 basis 
points in 1993. The spread between 3-month USD LIBOR increased from 
roughly 151 basis points in 1986 to 270 basis points in 1993. Both 
spreads were fairly steady after 1993. Given that for the last 28 years 
of history the spreads have remained relatively stable, the data, 
analysis, and conclusion discussed below are restricted to the period 
beginning in 1993.
    While Prime has not always moved in tandem with 1-month USD LIBOR 
and 3-month USD LIBOR after 1993, the Bureau has determined that since 
1993 the historical fluctuations in 1-month USD LIBOR and Prime have 
been substantially similar and that the historical fluctuations in 3-
month USD LIBOR and Prime have been substantially similar.\99\
---------------------------------------------------------------------------

    \99\ There was a temporary but large difference in the movements 
of LIBOR rates and Prime for roughly a month after Lehman Brothers 
filed for bankruptcy on September 15, 2008, reflecting the effects 
this event had on the perception of risk in the interbank lending 
market. For example, 1-month USD LIBOR increased over 200 basis 
points in the month after September 15, 2008, even as Prime and many 
other interest rates fell. The numbers presented in this analysis 
include this time period.
---------------------------------------------------------------------------

    The historical correlation between 1-month USD LIBOR and Prime is 
.9957. The historical correlation between 3-month USD LIBOR and Prime 
is .9918. While the correlation between these rates is quite high, 
correlation is not the only statistical measure of similarity that may 
be relevant for comparing the historical fluctuations of these 
rates.\100\ The Bureau has reviewed other statistical characteristics 
of these rates, such as the variance, skewness, and kurtosis,\101\ and 
these characteristics imply that on average both the 1-month USD LIBOR 
and 3-month USD LIBOR tend to move closely with Prime and that the 1-
month USD LIBOR and 3-month USD LIBOR tend to present consumers and 
creditors with payment changes that are similar to that presented by 
Prime.\102\
---------------------------------------------------------------------------

    \100\ For example, consider two wagers on a series of coin 
flips. The first wins one cent for every heads and loses one cent 
for every tails. The second wins a million dollars for every heads 
and loses a million dollars for every tails. These wagers are 
perfectly correlated (i.e., they have a correlation of 1) but have 
very different statistical properties.
    \101\ Roughly, variance is a statistical measure of how much a 
random number tends to deviate from its average value. Skewness is a 
statistical measure of whether particularly large deviations in a 
random number from its average value tend to be below or above that 
average value. Kurtosis is a statistical measure of whether 
deviations of a random number from its average value tend to be 
small and frequent or rare and large.
    \102\ The variance, skewness, and kurtosis of Prime are 4.592, 
.4037, and 1.587 respectively. The variance, skewness, and kurtosis 
of 1-month USD LIBOR are 4.9567, .3622, and 1.5617 respectively. The 
variance, skewness, and kurtosis of 3-month USD LIBOR are 4.8725, 
.3487, and 1.5674, respectively.
---------------------------------------------------------------------------

    Theoretically, these statistical measures could mask important 
long-term differences in movements. However, as mentioned above, the 
spread between 1-month USD LIBOR and Prime and the spread between 3-
month USD LIBOR and Prime have remained fairly steady from January 1993 
to October 18, 2021. For example, the average spread between 1-month 
USD LIBOR and Prime was 281 basis points in 1993, and 303 basis points 
in 2020. The average spread between 3-month USD LIBOR and Prime was 270 
basis points in 1993, and 289 basis points in 2020.

[[Page 69743]]

    Finally, in performing its analysis, the Bureau also considered the 
impact different indices would have on consumer payments. To that end, 
the Bureau considered a specific example of a debt with a variable rate 
that resets monthly, and a balance that accumulates over time with 
interest but without further charges, payments, or fees. The Bureau 
used this example for HELOCs and credit card accounts because the 
Bureau understands that the rates for many of those accounts reset 
monthly. The example considers debt that accumulates interest over a 
period of ten years. The Bureau considered the consumer payments 
incurred by such debt over 17 distinct time periods; each time period 
begins in January of each year from 1994 to 2009 and then lasts for ten 
years, so the 17 time periods end between 2004 and 2020. For this 
example, the Bureau found that since 1994 historical fluctuations in 1-
month USD LIBOR and Prime, and 3-month USD LIBOR and Prime, produced 
substantially similar payment outcomes for consumers with debt similar 
to that considered.\103\ For example, if the initial balance in this 
example is $10,000, after ten years the debt outstanding under Prime is 
on average only about $102 greater than the debt outstanding under 
adjusted 1-month USD LIBOR. The Bureau also found similar results for 
Prime versus the adjusted 3-month USD LIBOR.
---------------------------------------------------------------------------

    \103\ In this example, for each starting year, three versions of 
debt are considered: (1) One with an interest rate equal to Prime; 
(2) one with an interest rate equal to the 1-month USD LIBOR plus 
the average spread between 1-month USD LIBOR and Prime for the 12 
months preceding the start date; and (3) one with an interest rate 
equal to 3-month USD LIBOR plus the average spread between 3-month 
USD LIBOR and Prime for the 12 months preceding the start date. For 
the 17 initial starting years considered, the average difference 
between the debt outstanding under Prime and the debt outstanding 
under the adjusted 1-month USD LIBOR after ten years is only around 
1.02 percent of the initial balance. The average absolute value of 
the difference in debt outstanding is around 1.6 percent of the 
initial balance. For the adjusted 3-month USD LIBOR, the average of 
the difference is around .99 percent of the initial balance, and the 
average of the absolute value of the difference is around 2.7 
percent of the initial balance.
    The average difference can be small if the difference is often 
far from zero, as long as it is sometimes well above zero and it is 
sometimes well below zero. The absolute value of the difference will 
be small only if the difference is usually close to zero. For 
example, suppose the difference is $1 million one year and -$1 
million the next year. The average difference these two years is 
zero, indicating that the difference is close to zero on average. 
But the average of the absolute value of the difference is $1 
million, indicating that the difference is typically far from zero. 
Consumers and creditors should care more about the average 
difference, and less about the average of the absolute value of the 
difference, if they have more liquidity and risk tolerance.
---------------------------------------------------------------------------

    This final rule adopts comment 40(f)(3)(ii)(A)-2.i as proposed to 
clarify that in order to use Prime as the replacement index for the 1-
month or 3-month USD LIBOR index, the creditor also must comply with 
the condition in Sec.  1026.40(f)(3)(ii)(A) that Prime and the 
replacement margin would have resulted in an APR substantially similar 
to the rate in effect at the time the LIBOR index became unavailable. 
This condition for comparing the rates under Sec.  1026.40(f)(3)(ii)(A) 
is discussed in more detail below.
    Certain SOFR-based spread-adjusted indices recommended by the ARRC 
for consumer products have historical fluctuations that are 
substantially similar to those of certain USD LIBOR indices. To 
facilitate compliance, this final rule adopts comment 40(f)(3)(ii)(A)-
2.ii generally as proposed with two revisions as discussed below. 
Comment 40(f)(3)(ii)(A)-2.ii provides a determination that the SOFR-
based spread-adjusted indices recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR indices 
have historical fluctuations that are substantially similar to those of 
the 1-month, 3-month, or 6-month USD LIBOR indices respectively. This 
final rule revises comment 40(f)(3)(ii)(A)-2.ii from the proposal to 
provide that this determination is effective as of April 1, 2022, when 
this final rule becomes effective as discussed in more detail in part 
VI. As discussed in more detail below, this final rule also revises 
comment 40(f)(3)(ii)(A)-2.ii from the proposal to not include 1-year 
USD LIBOR in the comment at this time pending the Bureau's receipt of 
additional information and further consideration by the Bureau.
    As discussed in the section-by-section analysis of Sec.  
1026.20(a), on July 29, 2021, the ARRC formally recommended the 1-
month, 3-month, and 6-month term spread-adjusted SOFR rates produced by 
the CME Group as the underlying SOFR rates for use in replacing the 1-
month, 3-month, and 6-month USD LIBOR tenors respectively for existing 
accounts. On October 6, 2021, with regards to consumer products, the 
ARRC indicated that for 1-year USD LIBOR, the ARRC's recommended 
replacement index will be to a spread-adjusted index based on the 1-
year term SOFR rate or to a spread-adjusted index based on the 6-month 
term SOFR rate using the same spread adjustment it would have for 
arriving at the replacement index based on the 1-year term SOFR 
rate.\104\ The ARRC indicated that it will make a recommendation on the 
spread-adjusted index to replace 1-year USD LIBOR and all other 
remaining details of its recommended replacement indices for consumer 
products no later than one year before the date when 1-year USD LIBOR 
is expected to cease (i.e., by June 30, 2022).\105\ The Bureau is 
reserving judgment about whether to include a reference to the 1-year 
USD LIBOR index in comment 40(f)(3)(ii)(A)-2.ii. until it obtains 
additional information. Once the Bureau knows which SOFR-based spread-
adjusted index the ARRC will recommend for consumer products to replace 
the 1-year USD LIBOR index, the Bureau may determine whether that index 
meets the ``historical fluctuations are substantially similar'' 
standard based on information available at that time. Assuming the 
Bureau determines that the index meets that standard, the Bureau will 
then consider whether to codify that determination by finalizing the 
proposed comment related to the 1-year USD LIBOR index in a 
supplemental final rule, or otherwise announce that determination.
---------------------------------------------------------------------------

    \104\ Summary of Fallback Recommendations, supra note 5, at 10.
    \105\ Id.
---------------------------------------------------------------------------

    With respect to this final rule, while the spread-adjusted term 
SOFR rates have not always moved in tandem with LIBOR, the Bureau has 
determined that: (1) The historical fluctuations of 6-month USD LIBOR 
are substantially similar to those of the 6-month spread-adjusted term 
SOFR rates; (2) the historical fluctuations of 3-month USD LIBOR are 
substantially similar to those of 3-month spread-adjusted term SOFR 
rates; and (3) the historical fluctuations of 1-month USD LIBOR are 
substantially similar to those of the 1-month spread-adjusted term SOFR 
rates.\106\
---------------------------------------------------------------------------

    \106\ Because the spread adjustments are static (except for the 
one-year transition period), they do not affect the historical 
fluctuations in the spread-adjusted term SOFR rates, nor do they 
affect any of the statistics studied in Tables 2 or 3.
---------------------------------------------------------------------------

    Statistics that have led the Bureau to make these determinations 
are in Tables 2 and 3.

[[Page 69744]]



                  Table 2--Correlations Between LIBOR and Spread-Adjusted Term SOFR Rates \107\
----------------------------------------------------------------------------------------------------------------
                         USD LIBOR tenor                           1-month SOFR    3-month SOFR    6-month SOFR
----------------------------------------------------------------------------------------------------------------
1-month.........................................................           .9917             N/A             N/A
3-month.........................................................             N/A           .9826             N/A
6-month.........................................................             N/A             N/A           .9861
----------------------------------------------------------------------------------------------------------------

    The historical correlations presented in Table 2 are high, 
suggesting that the given spread-adjusted term SOFR rates tend to move 
closely with the given LIBOR tenors.
---------------------------------------------------------------------------

    \107\ These correlations are for the period beginning June 11, 
2018, the first date for which indicative term SOFR rate data are 
available. These correlations are not directly comparable to those 
in Table 4, which uses data beginning August 22, 2014, the first 
date for which data for 30-day SOFR are available.
    \108\ Table 3 does not report a balance difference as Table 4 
does because data on the term SOFR rates are not available for a 
sufficiently long period.

                   Table 3--Statistics on USD LIBOR and Spread-Adjusted Term SOFR Rates \108\
----------------------------------------------------------------------------------------------------------------
                              Rate                                   Variance        Skewness        Kurtosis
----------------------------------------------------------------------------------------------------------------
1-month LIBOR...................................................          1.0349         -0.0023          1.1702
3-month LIBOR...................................................            1.11         -0.0146          1.2074
6-month LIBOR...................................................           1.147          0.0403          1.2548
1-month SOFR....................................................          1.0788          0.0605          1.1596
3-month SOFR....................................................          1.0696          0.0706          1.1645
6-month SOFR....................................................          1.0723          0.1042          1.1939
----------------------------------------------------------------------------------------------------------------

    The Bureau has reviewed other statistical characteristics of the 
LIBOR rates and the spread-adjusted term SOFR rates, such as the 
variance, skewness, and kurtosis, as shown in Table 3 and these imply 
that the spread-adjusted term SOFR rates tend to present consumers and 
creditors with payment changes that are similar to that presented by 
the LIBOR rates.
    As discussed in the section-by-section analysis of Sec.  
1026.20(a), the ARRC and the Bureau also have compared the rate history 
that is available for SOFR (to calculate compounded averages) with the 
rate history for the applicable LIBOR indices.\109\ In particular, the 
Bureau analyzed the spread-adjusted indices based on the 30-day SOFR. 
In determining whether the SOFR-based spread-adjusted indices have 
historical fluctuations substantially similar to those of the 
applicable LIBOR indices, the Bureau has reviewed the historical data 
on SOFR and historical data on 1-month, 3-month, and 6-month USD LIBOR 
from August 22, 2014, to October 18, 2021.\110\ The Bureau calculated 
the spread-adjusted 30-day SOFR rates by adding the long-term values of 
the spread-adjustments set forth in Table 1 contained in the section-
by-section analysis of Sec.  1026.20(a) to the historical data on 30-
day SOFR.
---------------------------------------------------------------------------

    \109\ See Historical SOFR, supra note 62.
    \110\ Prior to the start of official publication of SOFR in 
2018, the New York Fed released data from August 2014 to March 2018 
representing modeled, pre-production estimates of SOFR that are 
based on the same basic underlying transaction data and methodology 
that now underlie the official publication. The New York Fed has 
published indicative SOFR averages going back only to May 2, 2018. 
See Fed. Rsrv. Bank of N.Y., SOFR Averages and Index Data, https://apps.newyorkfed.org/markets/autorates/sofr-avg-ind. Therefore, the 
Bureau has used the estimated SOFR data going back to 2014 to 
estimate its own 30-day compound average of SOFR since 2014. The 
methodology to calculate compound averages of SOFR from daily data 
is described in Fed. Rsrv. Bank of N.Y., Statement Regarding 
Publication of SOFR Averages and a SOFR Index, (Feb. 12, 2020) 
https://www.newyorkfed.org/markets/opolicy/operating_policy_200212.
---------------------------------------------------------------------------

    As discussed in more detail below, the Bureau also has determined 
that the historical fluctuations in the spread-adjusted 30-day SOFR are 
substantially similar to those of 1-month, 3-month, and 6-month USD 
LIBOR. The Bureau has reviewed the correlation and other statistical 
characteristics of these rates, such as the variance, skewness, and 
kurtosis (all reported in Table 4), and these imply that spread-
adjusted 30-day SOFR tends to present consumers and creditors with 
payment changes that are similar to 1-month, 3-month, and 6-month USD 
LIBOR.\111\
---------------------------------------------------------------------------

    \111\ Although generally spread-adjusted 30-day SOFR tends to 
move quite closely with 1-month, 3-month, and 6-month LIBOR, it does 
so with a lag because 30-day SOFR is backwards looking whereas the 
LIBOR rates are forward-looking. See supra note 65.
---------------------------------------------------------------------------

    Finally, in performing this analysis, the Bureau also considered 
the impact different indices would have on consumer payments. To that 
end, the Bureau considered a specific example of a debt with a variable 
rate that resets monthly, and a balance that accumulates over time with 
interest but without further charges, payments, or fees. The Bureau 
used this example for HELOCs and credit card accounts because the 
Bureau understands that the rates for many of those accounts reset 
monthly. The example considers debt that accumulates interest over the 
period of five years, beginning in January of 2016 and ending in 
January 2021. In this analysis, the Bureau used 30-day SOFR instead of 
the spread-adjusted 30-day SOFR.\112\ For this example, the Bureau 
found historical fluctuations in 30-day SOFR and 1-month, 3-month, and 
6-month USD LIBOR produced substantially similar payment outcomes for 
consumers with debt similar to that considered. For example, if the 
initial balance in this example is $10,000, the debt outstanding after 
five years under 30-

[[Page 69745]]

day SOFR is $48 less than the debt outstanding under 6-month USD LIBOR.
---------------------------------------------------------------------------

    \112\ The goal of this exercise is to try to determine if 
spread-adjusted 30-day SOFR and 1-month, 3-month, and 6-month USD 
LIBOR are likely to produce similar payments for consumers in the 
future. The spread adjustment for SOFR will not precisely align 
spread-adjusted SOFR and 1-month, 3-month, and 6-month USD LIBOR in 
the future, but it was calculated by the ARRC specifically to align 
spread-adjusted SOFR and 1-month, 3-month, and 6-month USD LIBOR in 
the past which is clearly when our data is from. Thus, using the 
spread adjustment calculated by the ARRC in this exercise could 
artificially minimize differences between 30-day SOFR and 1-month, 
3-month, and 6-month USD LIBOR. Therefore, we calculate our own 
spread adjustment for this exercise as the average spread between 
30-day SOFR and each of the LIBOR tenors for the 12 months preceding 
January 2016.
    \113\ The data in Table 4 generally are calculated using the 
spread-adjusted 30-day SOFR, except that the 5-year balance 
differences are calculated using 30-day SOFR rather than the spread-
adjusted 30-day SOFR. See id.

      Table 4--Comparison of Historical Fluctuations in Different Tenors of USD LIBOR and 30-Day SOFR \113\
----------------------------------------------------------------------------------------------------------------
                                    Correlation                                                       5-Year
              Rate                  with 30-day      Variance        Skewness        Kurtosis         balance
                                       SOFR                                                         difference
----------------------------------------------------------------------------------------------------------------
30-day SOFR.....................             N/A          0.7154          0.7218          2.0014             N/A
1-month LIBOR...................           .9868          0.7112          0.5843          1.7971             $26
3-month LIBOR...................           .9709          0.7638          0.5152          1.7902              62
6-month LIBOR...................           .9412          0.7566           0.386          1.8155              48
----------------------------------------------------------------------------------------------------------------

    The Bureau notes that the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products are not yet being 
published and will not be published by April 1, 2022, the effective 
date of this final rule. Nonetheless, the Bureau believes that it is 
appropriate to consider the underlying SOFR data that is available in 
the determinations that the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, or 6-month USD LIBOR indices have historical fluctuations that 
are substantially similar to those of the 1-month, 3-month, or 6-month 
USD LIBOR indices respectively.
    Comment 40(f)(3)(ii)(A)-2.ii clarifies that in order to use a SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products described above as the replacement index for the applicable 
LIBOR index, the creditor also must comply with the condition in Sec.  
1026.40(f)(3)(ii)(A) that the SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products and replacement margin 
would have resulted in an APR substantially similar to the rate in 
effect at the time the LIBOR index became unavailable. Nonetheless, for 
the reasons discussed below, this final rule revises comment 
40(f)(3)(ii)(A)-3 from the proposal to provide that for purposes of 
Sec.  1026.40(f)(3)(ii)(A), if a creditor uses the SOFR-based spread-
adjusted index recommended by the ARRC for consumer products to replace 
the 1-month, 3-month, or 6-month USD LIBOR index as the replacement 
index and uses as the replacement margin the same margin that applied 
to the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan, the creditor will be deemed to be in 
compliance with the condition in Sec.  1026.40(f)(3)(ii)(A) that the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable. Thus, a creditor that uses the SOFR-based spread-
adjusted index recommended by the ARRC for consumer products to replace 
the 1-month, 3-month, or 6-month USD LIBOR index as the replacement 
index still must comply with the condition in Sec.  
1026.40(f)(3)(ii)(A) that the replacement index and replacement margin 
would have resulted in an APR substantially similar to the rate in 
effect at the time the LIBOR index became unavailable, but the creditor 
will be deemed to be in compliance with this condition if the creditor 
uses as the replacement margin the same margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR index 
used under the plan. This condition under Sec.  1026.40(f)(3)(ii)(A) 
and the related comment 40(f)(3)(ii)(A)-3 are discussed in more detail 
below.
    Additional examples of indices that have historical fluctuations 
that are substantially similar to those of certain USD LIBOR indices. 
As discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii), many industry commenters generally urged the Bureau 
to provide additional examples of indices that have historical 
fluctuations that are substantially similar to those of particular 
LIBOR indices. Specifically, the Bureau received comments from industry 
requesting that the Bureau provide safe harbors for the following 
indices specifying that these indices have historical fluctuations that 
are substantially similar to those of certain LIBOR indices: (1) 
AMERIBOR[supreg] rates; (2) the EFFR; and (3) the CMT rates.
    This final rule does not set forth safe harbors indicating that the 
AMERIBOR[supreg] rates, the EFFR, or the CMT rates meet the Regulation 
Z ``historical fluctuations are substantially similar'' standard for 
appropriate replacement indices for a particular LIBOR index. As 
discussed in more detail below, the Bureau notes that the 
determinations of whether replacement indices have historical 
fluctuations that are substantially similar to those of a particular 
LIBOR index are fact-specific, and they depend on the replacement index 
being considered and the LIBOR tenor being replaced. Industry 
commenters did not identify which tenor of LIBOR they use or which 
version of AMERIBOR[supreg], EFFR, and CMT rates they would use to 
replace the tenor of LIBOR they use.
    Second, the Bureau understands that the vast majority of the 
impacted industry participants will use the indices for which this 
final rule already provides a safe harbor (i.e., Prime and certain 
SOFR-based spread-adjusted indices recommended by the ARRC for consumer 
products) as replacement indices for HELOCs. The Bureau notes that this 
final rule does not disallow the use of other replacement indices if 
they comply with Regulation Z.
    Additional guidance on determining whether a replacement index has 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. As discussed in more detail in the section-
by-section analysis of Sec.  1026.40(f)(3)(ii), several industry 
commenters asked the Bureau to provide additional guidance on how to 
determine whether a replacement index has historical fluctuations that 
are substantially similar to those of a particular LIBOR index, 
including providing a principles-based standard for determining when a 
replacement index has historical fluctuations that are substantially 
similar to those of LIBOR.
    To facilitate compliance with Regulation Z, this final rule adds 
new comment 40(f)(3)(ii)(A)-2.iii to provide a non-exhaustive list of 
factors to be considered in whether a replacement index meets the 
Regulation Z ``historical fluctuations are substantially similar'' 
standard with respect to a particular LIBOR index. Specifically, new 
comment 40(f)(3)(ii)(A)-2.iii provides that the relevant factors to be 
considered

[[Page 69746]]

in determining whether a replacement index has historical fluctuations 
substantially similar to those of a particular LIBOR index depends on 
the replacement index being considered and the LIBOR index being 
replaced. New comment 40(f)(3)(ii)(A)-2.iii also provides that the 
types of relevant factors to establish if a replacement index would 
meet the ``historical fluctuations are substantially similar'' standard 
with respect to a particular LIBOR index using historical data, include 
but are not limited to, whether: (1) The movements over time are 
substantially similar; and (2) the consumers' payments using the 
replacement index compared to payments using the LIBOR index are 
substantially similar if there is sufficient historical data for this 
analysis. These factors are important to help minimize the financial 
impact on consumers, including the payments they must make, when a 
LIBOR index is replaced with another index. As discussed above, the 
Bureau has considered these factors in determining that (1) Prime has 
historical fluctuations that are substantially similar to those of the 
1-month and 3-month USD LIBOR; and (2) the SOFR-based spread-adjusted 
indices recommended by the ARRC for consumer products to replace the 1-
month, 3-month, or 6-month USD LIBOR indices have historical 
fluctuations that are substantially similar to those of the 1-month, 3-
month, or 6-month USD LIBOR indices respectively.
    The Bureau notes that this final rule does not set forth a 
principles-based standard for determining whether a replacement index 
has historical fluctuations that are substantially similar to those of 
a particular LIBOR tenor. The Bureau notes that these determinations 
are fact-specific, and they depend on the replacement index being 
considered and the LIBOR tenor being replaced. For example, these 
determinations may need to consider certain aspects of the historical 
data itself for a particular replacement index, such as (1) the length 
of time the data has been available and how much of the available data 
to consider in the analysis of whether the Regulation Z standards have 
been satisfied; (2) the quality of the historical data, including the 
methodology of how the rate is determined and whether it sufficiently 
represents a market rate; and (3) whether the replacement index is a 
backward-looking rate (e.g., historical average of rates) such that 
timing aspects of the data may need to be adjusted to match up with the 
particular forward-looking LIBOR term-rate being replaced. These 
considerations will vary depending on the replacement index being 
considered and the LIBOR tenor that is being replaced. Thus, this final 
rule does not provide a principles-based standard for determining 
whether a replacement index has historical fluctuations that are 
substantially similar to those of a particular LIBOR index.
    Newly established index as replacement for a LIBOR index. Section 
1026.40(f)(3)(ii)(A) provides that if the replacement index is newly 
established and therefore does not have any rate history, it may be 
used if it and the replacement margin will produce an APR substantially 
similar to the rate in effect when the original index became 
unavailable.
    This final rule adopts Sec.  1026.40(f)(3)(ii)(A) as proposed to 
provide the flexibility for creditors to use newly established indices 
if certain conditions are met. This flexibility is consistent with 
existing comment 40(f)(3)(ii)-1.
    The Bureau declines to adopt industry commenters' suggestions that 
the Bureau should provide greater detail to creditors regarding the 
factors or considerations that should be taken into account to 
determine that an index is newly established. Current comment 
40(f)(3)(ii)-1 uses the term newly established without additional 
details on the factors or considerations that should be taken into 
account to determine that an index is newly established. The Bureau 
finds that whether a replacement index is newly established and does 
not have any rate history is fact-specific and depends on the 
replacement index being considered. For example, although the SOFR-
based spread-adjusted indices recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR 
index have not yet been published, these indices will be based on an 
underlying SOFR rate and the Bureau believes that it is appropriate not 
to consider the SOFR-based spread-adjusted indices recommended by the 
ARRC for consumer products to replace the 1-month, 3-month, 6-month, or 
1-year USD LIBOR index as newly established because of the SOFR rate 
history. Also, commenters did not provide any specific indices that 
they believed are newly established with respect to the replacement of 
LIBOR and thus, the Bureau does not believe that additional details in 
this final rule are needed with respect to whether a particular index 
is newly established in relation to the LIBOR replacement.
    The Bureau also declines to adopt consumer groups' suggestion that 
the Bureau should restrict the use of new indices that lack historical 
data. The Bureau finds that it is appropriate to maintain in Sec.  
1026.40(f)(3)(ii)(A) the flexibility for creditors generally to use 
newly established indices as a replacement index if certain conditions 
are met, given that it is not known what indices will be available in 
the future when an index needs to be replaced.
    Substantially similar rate when LIBOR becomes unavailable. Under 
Sec.  1026.40(f)(3)(ii)(A), the replacement index and replacement 
margin must produce an APR substantially similar to the rate that was 
in effect based on the LIBOR index used under the plan when the LIBOR 
index became unavailable. Comment 40(f)(3)(ii)(A)-3 generally provides 
detail on this condition. This final rule adopts comment 
40(f)(3)(ii)(A)-3 generally as proposed with several revisions as 
described below to provide more clarity on this condition. Comment 
40(f)(3)(ii)(A)-3 provides that a creditor generally must use the value 
of the replacement index and the LIBOR index on the day that the LIBOR 
index becomes unavailable. To facilitate compliance, this final rule 
revises comment 40(f)(3)(ii)(A)-3 from the proposal to address the 
situation where the replacement index is not published on the day that 
LIBOR becomes unavailable. Specifically, comment 40(f)(3)(ii)(A)-3 
provides that if the replacement index is not published on the day that 
the LIBOR index becomes unavailable, the creditor generally must use 
the previous calendar day that both indices are published as the date 
for selecting indices values in determining whether the APR based on 
the replacement index is substantially similar to the rate based on the 
LIBOR index. The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR 
index, the creditor must use the index value on June 30, 2023, for the 
LIBOR index and, for the SOFR-based spread-adjusted index for consumer 
products, must use the index value on the first date that index is 
published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index.
    This final rule adopts Sec.  1026.40(f)(3)(ii)(A) as proposed to 
use a single day to compare the rates. The Bureau declines to adopt 
industry commenters' suggestions that the Bureau should (1) give 
creditors the

[[Page 69747]]

option to either use a single date for purposes of the index values or 
use the median value of the difference between the two indices over a 
slightly longer period of time; or (2) require the use of the 
historical spread rather than the spread on a specific day in comparing 
rates to help ensure such rates are substantially similar to each 
other. The Bureau also declines to adopt consumer group commenters' 
suggestion that the Bureau should require creditors to use a historical 
median value rather than the value from a single day when comparing a 
potential replacement to the original index rate.
    This final rule is consistent with the condition in the 
unavailability provision in current Sec.  1026.40(f)(3)(ii), in the 
sense that it provides that the new index and margin must result in an 
APR that is substantially similar to the rate in effect on a single 
day. Nonetheless, the Bureau recognizes that there is a possibility 
that the spread between the replacement index and the original index 
could differ significantly on a particular day from the historical 
spread in certain unusual circumstances. To mitigate this concern, this 
final rule generally provides creditors with the flexibility to choose 
to compare the rates using the index values for the LIBOR index and the 
replacement index on October 18, 2021, (provided the replacement index 
is published on that day), by using the proposed LIBOR-specific 
provisions under Sec.  1026.40(f)(3)(ii)(B), rather than using the 
unavailability provisions in Sec.  1026.40(f)(3)(ii)(A).\114\
---------------------------------------------------------------------------

    \114\ See below for a more detailed rationale for why the Bureau 
selected the October 18, 2021, date.
---------------------------------------------------------------------------

    Nonetheless, the Bureau recognizes that it is possible that in some 
instances the contract may require that the creditor use the index 
values of LIBOR and the replacement index on the day that the LIBOR 
index becomes unavailable. As discussed above in relation to comment 
40(f)(3)(ii)-1, in this case, the Bureau does not intend to override 
that contractual provision. Thus, in those cases, the creditor would be 
required to use the index values of the replacement index and the LIBOR 
index on the day that the LIBOR index becomes unavailable. The Bureau 
recognizes that in those cases, the spread between the LIBOR rates and 
potential replacement rates may differ significantly from the 
historical spreads on the day that LIBOR becomes unavailable. 
Nonetheless, the Bureau does not believe it is appropriate to add 
complexity to this final rule to address this possibility. Thus, the 
Bureau determines that the approach set forth in this final rule 
properly minimizes the concerns that the replacement index and the 
original index could differ significantly on a particular day from the 
historical spread in certain circumstances discussed above without 
adding additional complexity to the rule.
    Comment 40(f)(3)(ii)(A)-3 clarifies that the replacement index and 
replacement margin are not required to produce an APR that is 
substantially similar on the day that the replacement index and 
replacement margin become effective on the plan. Comment 
40(f)(3)(ii)(A)-3.i provides an example to illustrate this comment. 
This final rule adopts these details in comment 40(f)(3)(ii)(A)-3 
generally as proposed with revisions to clarify the references to the 
prime rate and the LIBOR index used in the example and to revise the 
dates used in the example to be consistent with the June 30, 2023, date 
that most USD LIBOR tenors are expected to be discontinued. The Bureau 
believes that it would raise compliance issues if the rate calculated 
using the replacement index and replacement margin at the time the 
replacement index and replacement margin became effective had to be 
substantially similar to the rate in effect calculated using the LIBOR 
index on the date that the LIBOR index became unavailable. 
Specifically, under Sec.  1026.9(c)(1), the creditor must provide a 
change-in-terms notice of the replacement index and replacement margin 
(including disclosing any reduced margin in change-in-terms notices 
provided on or after October 1, 2022, as would be required by Sec.  
1026.9(c)(1)(ii)) at least 15 days prior to the effective date of the 
changes. The Bureau believes that this advance notice is important to 
consumers to inform them of how variable rates will be determined going 
forward after the LIBOR index is replaced. Because advance notice of 
the changes must be given prior to the changes becoming effective, a 
creditor would not be able to ensure that the rate based on the 
replacement index and margin at the time the change-in-terms notice 
becomes effective will be substantially similar to the rate in effect 
calculated using the LIBOR index at the time the LIBOR index becomes 
unavailable. The value of the replacement index may change after the 
LIBOR index becomes unavailable and before the change-in-terms notice 
becomes effective.
    This final rule does not provide additional details on the 
``substantially similar'' standard in comparing the rates for purposes 
of Sec.  1026.40(f)(3)(ii)(A). The Bureau declines to adopt industry 
commenters' suggestions that the Bureau should provide greater detail 
as to the process creditors must use to determine whether an APR 
calculated using a replacement index is substantially similar to the 
APR using the LIBOR index for purposes of Sec. Sec.  
1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii). The Bureau 
also declines to adopt consumer group commenters' suggestion that the 
Bureau should interpret substantially similar to require creditors to 
minimize any value transfer when selecting a replacement index and 
setting a new margin for purposes of Sec. Sec.  1026.40(f)(3)(ii)(A) 
and (B) and 1026.55(b)(7)(i) and (ii).
    The Bureau finds that it is not appropriate to provide a definitive 
list of factors that a creditor must meet for the two APRs to be 
considered substantially similar. The Bureau finds that whether an APR 
calculated using the replacement index is substantially similar to the 
APR calculated using the LIBOR index when LIBOR becomes unavailable is 
fact-specific and will depend on the two indices used for the 
calculations and the two rates being compared. The Bureau determines 
that it is appropriate to provide flexibility with respect to the 
factors that may be considered in determining whether the two APRs are 
substantially similar.
    As discussed above, comment 40(f)(3)(ii)(A)-2.ii clarifies that in 
order to use the SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products as the replacement index for the applicable 
LIBOR index, the creditor must comply with the condition in Sec.  
1026.40(f)(3)(ii)(A) that the SOFR-based spread-adjusted index for 
consumer products and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable. A trade association commenter indicated that the 
Bureau should clarify that the APR calculated using a SOFR-based 
spread-adjusted index recommended by ARRC for consumer products is 
substantially similar to the APR calculated using a corresponding LIBOR 
index, provided the creditor uses the same margin in effect immediately 
prior to the transition.
    This final rule revises comment 40(f)(3)(ii)(A)-3 from the proposal 
to provide that for purposes of Sec.  1026.40(f)(3)(ii)(A), if a 
creditor uses the SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products to replace the 1-month, 3-month, or 6-month 
USD LIBOR index as the replacement index and uses as the replacement 
margin the same margin that applied to the variable

[[Page 69748]]

rate immediately prior to the replacement of the LIBOR index used under 
the plan, the creditor will be deemed to be in compliance with the 
condition in Sec.  1026.40(f)(3)(ii)(A) that the replacement index and 
replacement margin would have resulted in an APR substantially similar 
to the rate in effect at the time the LIBOR index became unavailable. 
Thus, a creditor that uses the SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, or 6-month USD LIBOR index as the replacement index still must 
comply with the condition in Sec.  1026.40(f)(3)(ii)(A) that the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable, but the creditor will be deemed to be in compliance 
with this condition if the creditor uses as the replacement margin the 
same margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan.
    The Bureau has reviewed the methodology to compute the spread 
adjustments that the ARRC will use, and based on this review, the 
Bureau has determined that the SOFR-based spread adjusted indices that 
have been recommended by the ARRC for consumer products to replace the 
1-month, 3-month, or 6-month USD LIBOR index will produce rates that 
are substantially similar to those of the LIBOR indices they are 
designed to replace. Thus, to facilitate compliance, the Bureau finds 
that it is appropriate to provide for purposes of Sec.  
1026.40(f)(3)(ii)(A) that a creditor complies with the ``substantially 
similar'' standard for comparing the rates when the creditor replaces 
the LIBOR index used under the plan with the applicable SOFR-based 
spread-adjusted index recommended by the ARRC for consumer products to 
replace the 1-month, 3-month, or 6-month USD LIBOR index and uses as 
the replacement margin the same margin that applied to the variable 
rate immediately prior to the replacement of the LIBOR index used under 
the plan.
    The Bureau is reserving judgment about whether to include a 
reference to the 1-year USD LIBOR index in comment 40(f)(3)(ii)(A)-3 
until it obtains additional information. Once the Bureau knows which 
SOFR-based spread-adjusted index the ARRC will recommend to replace the 
1-year USD LIBOR index for consumer products, the Bureau may determine 
whether the replacement index and replacement margin would have 
resulted in an APR substantially similar to the rate calculated using 
the LIBOR index. Assuming the Bureau determines that the index meets 
that standard, the Bureau will then consider whether to codify that 
determination in a supplemental final rule, or otherwise announce that 
determination.
40(f)(3)(ii)(B)
The Bureau's Proposal
    For the reasons discussed below and in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii), the Bureau proposed to add new 
LIBOR-specific provisions to Sec.  1026.40(f)(3)(ii)(B) that would 
permit creditors for HELOC plans subject to Sec.  1026.40 that use a 
LIBOR index for calculating variable rates to replace the LIBOR index 
and change the margins for calculating the variable rates on or after 
March 15, 2021, in certain circumstances. The Bureau also proposed to 
add detail in proposed comments 40(f)(3)(ii)(B)-1 through -3 on the 
conditions set forth in proposed Sec.  1026.40(f)(3)(ii)(B).
    Specifically, proposed Sec.  1026.40(f)(3)(ii)(B) provided that if 
a variable rate on a HELOC subject to Sec.  1026.40 is calculated using 
a LIBOR index, a creditor may replace the LIBOR index and change the 
margin for calculating the variable rate on or after March 15, 2021, as 
long as: (1) The historical fluctuations in the LIBOR index and 
replacement index were substantially similar; and (2) the replacement 
index value in effect on December 31, 2020, and replacement margin will 
produce an APR substantially similar to the rate calculated using the 
LIBOR index value in effect on December 31, 2020, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. Proposed Sec.  
1026.40(f)(3)(ii)(B) also provided that if the replacement index is 
newly established and therefore does not have any rate history, it may 
be used if the replacement index value in effect on December 31, 2020, 
and replacement margin will produce an APR substantially similar to the 
rate calculated using the LIBOR index value in effect on December 31, 
2020, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan.
    In addition, proposed Sec.  1026.40(f)(3)(ii)(B) provided that if 
either the LIBOR index or the replacement index is not published on 
December 31, 2020, the creditor must use the next calendar day that 
both indices are published as the date on which the APR based on the 
replacement index must be substantially similar to the rate based on 
the LIBOR index.
    Proposed comment 40(f)(3)(ii)(B)-1 provided detail on determining 
whether a replacement index that is not newly established has 
historical fluctuations that are substantially similar to those of the 
LIBOR index used under the plan for purposes of proposed Sec.  
1026.40(f)(3)(ii)(B). Specifically, proposed comment 40(f)(3)(ii)(B)-1 
provided that for purposes of replacing a LIBOR index used under a plan 
pursuant to proposed Sec.  1026.40(f)(3)(ii)(B), a replacement index 
that is not newly established must have historical fluctuations that 
are substantially similar to those of the LIBOR index used under the 
plan, considering the historical fluctuations up through December 31, 
2020, or up through the date indicated in a Bureau determination that 
the replacement index and the LIBOR index have historical fluctuations 
that are substantially similar, whichever is earlier. The Bureau 
proposed the December 31, 2020, date to be consistent with the date 
that creditors generally would have been required to use for selecting 
the index values in comparing the rates under proposed Sec.  
1026.40(f)(3)(ii)(B). In addition, to reduce uncertainty with respect 
to selecting a replacement index that meets the standards in proposed 
Sec.  1026.40(f)(3)(ii)(B), the Bureau proposed in proposed comment 
40(f)(3)(ii)(B)-1.i to determine that Prime is an example of an index 
that has historical fluctuations that are substantially similar to 
those of the 1-month and 3-month USD LIBOR indices. Proposed comment 
40(f)(3)(ii)(B)-1.i also provided that in order to use Prime as the 
replacement index for the 1-month or 3-month USD LIBOR index, the 
creditor also must comply with the condition in proposed Sec.  
1026.40(f)(3)(ii)(B) that the Prime index value in effect on December 
31, 2020, and replacement margin will produce an APR substantially 
similar to the rate calculated using the LIBOR index value in effect on 
December 31, 2020, and the margin that applied to the variable rate 
immediately prior to the replacement of the LIBOR index used under the 
plan. Proposed comment 40(f)(3)(ii)(B)-1 provided that if either the 
LIBOR index or the Prime index is not published on December 31, 2020, 
the creditor must use the next calendar day that both indices are 
published as the date on which the APR based on the Prime index must be 
substantially

[[Page 69749]]

similar to the rate based on the LIBOR index.
    The Bureau also proposed in proposed comment 40(f)(3)(ii)(B)-1.ii 
to determine that the SOFR-based spread-adjusted indices recommended by 
the ARRC for consumer products to replace the 1-month, 3-month, 6-
month, or 1-year USD LIBOR indices have historical fluctuations that 
are substantially similar to those of the LIBOR indices that they are 
intended to replace. Proposed comment 40(f)(3)(ii)(B)-1.ii also 
provided that in order to use this SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products as the replacement index 
for the applicable LIBOR index, the creditor also must comply with the 
condition in Sec.  1026.40(f)(3)(ii)(B) that the SOFR-based spread-
adjusted index recommended by the ARRC for consumer products' value in 
effect on December 31, 2020, and replacement margin will produce an APR 
substantially similar to the rate calculated using the LIBOR index 
value in effect on December 31, 2020, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan. Proposed comment 40(f)(3)(ii)(B)-1.ii 
provided that if either the LIBOR index or the SOFR-based spread-
adjusted index recommended by the ARRC for consumer products is not 
published on December 31, 2020, the creditor must use the next calendar 
day that both indices are published as the date on which the APR based 
on the SOFR-based spread-adjusted index must be substantially similar 
to the rate based on the LIBOR index.
    As discussed above, proposed Sec.  1026.40(f)(3)(ii)(B) provided 
that if both the replacement index and LIBOR index used under the plan 
are published on December 31, 2020, the replacement index value in 
effect on December 31, 2020, and the replacement margin must produce an 
APR substantially similar to the rate calculated using the LIBOR index 
value in effect on December 31, 2020, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan. Proposed comment 40(f)(3)(ii)(B)-2 provided 
that the margin that applied to the variable rate immediately prior to 
the replacement of the LIBOR index used under the plan is the margin 
that applied to the variable rate immediately prior to when the 
creditor provides the change-in-terms notice disclosing the replacement 
index for the variable rate. Proposed comment 40(f)(3)(ii)(B)-2.i 
provided an example to illustrate this comment, when the margin used to 
calculate the variable rate is increased pursuant to a written 
agreement under Sec.  1026.40(f)(3)(iii), and this change in the margin 
occurs after December 31, 2020, but prior to the date that the creditor 
provides a change-in-term notice under Sec.  1026.9(c)(1) disclosing 
the replacement index for the variable rate.
    Proposed comment 40(f)(3)(ii)(B)-3 provided that the replacement 
index and replacement margin are not required to produce an APR that is 
substantially similar on the day that the replacement index and 
replacement margin become effective on the plan. Proposed comment 
40(f)(3)(ii)(B)-3.i provided an example to illustrate this comment.
Comments Received
    In response to the proposal, industry commenters generally provided 
the same comments for both proposed Sec.  1026.40(f)(3)(ii) for HELOCs 
and Sec.  1026.55(b)(7) for credit card accounts under an open-end (not 
home-secured) consumer credit plan. Similarly, consumer group 
commenters also provided the same comments for both proposed Sec.  
1026.40(f)(3)(ii) for HELOCs and Sec.  1026.55(b)(7) for credit card 
accounts under an open-end (not home-secured) consumer credit plan. 
These comments from industry and consumer groups are described in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii).
The Final Rule
    This final rule adopts Sec.  1026.40(f)(3)(ii)(B) generally as 
proposed with the following three revisions: (1) Sets April 1, 2022, as 
the date on or after which HELOC creditors are permitted to replace the 
LIBOR index used under the plan pursuant to Sec.  1026.40(f)(3)(ii)(B) 
prior to LIBOR becoming unavailable; (2) sets October 18, 2021, as the 
date creditors generally must use for selecting indices values in 
determining whether the APRs using the LIBOR index and the replacement 
index are substantially similar; and (3) provides that if the 
replacement index is not published on October 18, 2021, the creditor 
generally must use the next calendar day for which both the LIBOR index 
and the replacement index are published as the date for selecting 
indices values in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR 
index.\115\ This final rule adopts comments 40(f)(3)(ii)(B)-1 through -
3 generally as proposed with several revisions to provide additional 
detail on the Sec.  1026.40(f)(3)(ii)(B) provision, including providing 
(1) examples of the type of factors to be considered in whether a 
replacement index meets the Regulation Z ``historical fluctuations are 
substantially similar'' standard with respect to a particular LIBOR 
index for HELOCs; and (2) if a creditor uses the SOFR-based spread-
adjusted index recommended by the ARRC for consumer products to replace 
the 1-month, 3-month, or 6-month USD LIBOR index as the replacement 
index and uses as the replacement margin the same margin that applied 
to the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan, the creditor will be deemed to be in 
compliance with the condition in Sec.  1026.40(f)(3)(ii)(B) that the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate calculated using the LIBOR index.
---------------------------------------------------------------------------

    \115\ As set forth in Sec.  1026.40(f)(3)(ii)(B), one exception 
is that if the replacement index is the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 
1-month, 3-month, 6-month, or 1-year USD LIBOR index, the creditor 
must use the index value on June 30, 2023, for the LIBOR index and, 
for the SOFR-based spread-adjusted index for consumer products, must 
use the index value on the first date that index is published, in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.
---------------------------------------------------------------------------

    To effectuate the purposes of TILA and to facilitate compliance, 
the Bureau is using its TILA section 105(a) authority to provide the 
new LIBOR-specific provisions under Sec.  1026.40(f)(3)(ii)(B). TILA 
section 105(a) \116\ directs the Bureau to prescribe regulations to 
carry out the purposes of TILA, and provides that such regulations may 
contain additional requirements, classifications, differentiations, or 
other provisions, and may provide for such adjustments and exceptions 
for all or any class of transactions, that, in the judgment of the 
Bureau, are necessary or proper to effectuate the purposes of TILA, to 
prevent circumvention or evasion thereof, or to facilitate compliance. 
In this final rule, the Bureau is adopting these LIBOR-specific 
provisions to facilitate compliance with TILA and effectuate its 
purposes. Specifically, the Bureau interprets ``facilitate compliance'' 
to include enabling or fostering continued operation of variable-rate 
accounts in conformity with the law.
---------------------------------------------------------------------------

    \116\ 15 U.S.C. 1604(a).
---------------------------------------------------------------------------

    As a practical matter, Sec.  1026.40(f)(3)(ii)(B) will allow 
creditors for HELOCs to provide the 15-day change-in-terms notices 
required under Sec.  1026.9(c)(1) prior to the LIBOR indices becoming 
unavailable, and thus will allow those creditors to avoid being left

[[Page 69750]]

without a LIBOR index to use in calculating the variable rate before 
the replacement index and margin become effective. Also, Sec.  
1026.40(f)(3)(ii)(B) will allow HELOC creditors to provide the change-
in-terms notices, and replace the LIBOR index used under the plans, on 
accounts on a rolling basis, rather than having to provide the change-
in-terms notices, and replace the LIBOR index, for all its accounts at 
the same time as the LIBOR index used under the plan becomes 
unavailable.
    The ARRC has indicated that the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, 6-month, or 1-year USD LIBOR index will not be published until 
Monday, July 3, 2023, which is the first weekday after Friday, June 30, 
2023, when LIBOR is currently anticipated to sunset for these USD LIBOR 
tenors. However, the Bureau wishes to facilitate an earlier transition 
for those creditors who may want to transition to an index other than 
the SOFR-based spread-adjusted indices recommended by the ARRC for 
consumer products. Accordingly, the Bureau is making this rule 
effective on April 1, 2022.
    Without the LIBOR-specific provisions in Sec.  
1026.40(f)(3)(ii)(B), as a practical matter, HELOC creditors would need 
to wait until the LIBOR index becomes unavailable to provide the 15-day 
change-in-terms notice under Sec.  1026.9(c)(1), disclosing the 
replacement index, the replacement margin if the margin is changing 
(including disclosing any reduced margin in change-in-terms notices 
provided on or after October 1, 2022, as required by revised Sec.  
1026.9(c)(1)(ii)), and any increase in the periodic rate or APR as 
calculated using the replacement index.\117\ The Bureau believes that 
this advance notice of the replacement index and any change in the 
margin is important to consumers to inform them of how variable rates 
will be determined going forward after the LIBOR index is replaced.
---------------------------------------------------------------------------

    \117\ See new comment 9(c)(1)-4 for additional details on how a 
creditor may disclose information about the periodic rate and APR in 
a change-in-terms notice for HELOCs when the creditor is replacing a 
LIBOR index with the SOFR-based spread-adjusted index recommended by 
the ARRC for consumer products in certain circumstances.
---------------------------------------------------------------------------

    HELOC creditors generally would not be able to send out change-in-
terms notices disclosing the replacement index, and any change in the 
replacement margin prior to LIBOR becoming unavailable.\118\ HELOC 
creditors generally would need to know the index values of the LIBOR 
index and the replacement index prior to sending out the change-in-
terms notice so that they could disclose the replacement margin in the 
change-in-terms notice. HELOC creditors will not know these index 
values until the day that LIBOR becomes unavailable. Thus, HELOC 
creditors generally would need to wait until LIBOR becomes unavailable 
before the creditors could send the 15-day change-in-terms notices 
under Sec.  1026.9(c)(1) to replace the LIBOR index with a replacement 
index. Some creditors could be left without a LIBOR index value to use 
during the 15-day period before the replacement index and replacement 
margin become effective, depending on their existing contractual terms. 
The Bureau believes this could cause compliance and systems issues.
---------------------------------------------------------------------------

    \118\ One exception is when a creditor is replacing the LIBOR 
index with the SOFR-based spread-adjusted index recommended by ARRC 
for consumer products as described in new comment 9(c)(1)-4. See the 
section-by-section analysis of Sec.  1026.9(c)(1) for a discussion 
of this comment.
---------------------------------------------------------------------------

    A trade association commenter representing reverse mortgage 
creditors requested that the Bureau coordinate with both HUD and Ginnie 
Mae with respect to the March 15, 2021, date in proposed Sec.  
1026.40(f)(3)(ii)(B). This commenter was concerned that if HUD decides 
to switch the HECM index to a SOFR index as of January 1, 2021, 
creditors would need to comply with that in order to make FHA-insured 
HECM loans. On October 5, 2021, HUD published in the Federal Register 
an Advance Notice of Proposed Rulemaking (ANPR) on a rule it is 
considering that would address a HUD-approved replacement index for 
existing FHA-insured loans that use LIBOR as an index and provide for a 
transition date consistent with the cessation of the LIBOR index.\119\ 
HUD is also considering replacing the LIBOR index with the SOFR 
interest rate index, with a compatible spread adjustment to minimize 
the impact of the replacement index for legacy ARMs. Based on this ANPR 
and outreach with HUD, the Bureau understands that there is not likely 
to be a conflict between the April 1, 2022, date set forth in Sec.  
1026.40(f)(3)(ii)(B) on or after which creditors are permitted to 
transition away from a LIBOR index in certain conditions, and any HUD 
actions with respect to the replacement of a LIBOR index in relation to 
HECMs. Further, the ARRC has indicated that the SOFR-based spread-
adjusted indices recommended by the ARRC for consumer products to 
replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR index will 
not be published until Monday, July 3, 2023.
---------------------------------------------------------------------------

    \119\ 86 FR 54876 (Oct. 5, 2021).
---------------------------------------------------------------------------

    Consistent conditions with Sec.  1026.40(f)(3)(ii)(A). This final 
rule adopts conditions in the LIBOR-specific provisions in Sec.  
1026.40(f)(3)(ii)(B) for how a creditor must select a replacement index 
and compare rates that are consistent with the conditions set forth in 
the unavailability provisions set forth in Sec.  1026.40(f)(3)(ii)(A). 
For example, the availability provisions in Sec.  1026.40(f)(3)(ii)(A) 
and the LIBOR-specific provisions in Sec.  1026.40(f)(3)(ii)(B) contain 
a consistent requirement that the APR calculated using the replacement 
index must be substantially similar to the rate calculated using the 
LIBOR index.\120\ In addition, both Sec.  1026.40(f)(3)(ii)(A) and (B) 
contain consistent conditions for how a creditor must select a 
replacement index.
---------------------------------------------------------------------------

    \120\ The conditions in Sec.  1026.40(f)(3)(ii)(A) and (B) are 
consistent, but they are not the same. For example, although both 
provisions use the ``substantially similar'' standard to compare the 
rates, they use different dates for selecting the index values in 
calculating the rates. The provisions in Sec.  1026.40(f)(3)(ii)(A) 
and (B) differ in the timing of when creditors are permitted to 
transition away from LIBOR, which creates some differences in how 
the conditions apply.
---------------------------------------------------------------------------

    For several reasons, this final rule adopts consistent conditions 
for these two provisions. First, as discussed above in the section-by-
section analysis of Sec.  1026.40(f)(3)(ii), some HELOC creditors may 
need to wait until LIBOR becomes unavailable to transition to a 
replacement index because of contractual reasons. The Bureau believes 
that keeping the conditions consistent in the unavailability provisions 
in Sec.  1026.40(f)(3)(ii)(A) and the LIBOR-specific provisions in 
Sec.  1026.40(f)(3)(ii)(B) will help ensure that creditors must meet 
consistent conditions in selecting a replacement index and setting the 
rates, regardless of whether they are using the unavailability 
provisions in Sec.  1026.40(f)(3)(ii)(A), or the LIBOR-specific 
provisions in Sec.  1026.40(f)(3)(ii)(B).
    Second, some creditors may have the ability to choose between the 
unavailability provisions and LIBOR-specific provisions to switch away 
from using a LIBOR index, and if the conditions between those two 
provisions are inconsistent, these differences could undercut the 
purpose of the LIBOR-specific provisions to allow creditors to switch 
out earlier. For example, if the conditions for selecting a replacement 
index or setting the rates were stricter in the LIBOR-specific 
provisions than in the unavailability provisions, this may cause a 
creditor to

[[Page 69751]]

wait until LIBOR becomes unavailable to switch to a replacement index, 
which would undercut the purpose of the LIBOR-specific provisions to 
allow creditors to switch out earlier and prevent these creditors from 
having the time to transition from using a LIBOR index.
    Historical fluctuations substantially similar for the LIBOR index 
and replacement index. This final rule adopts comment 40(f)(3)(ii)(B)-1 
generally as proposed with several revisions as described below. 
Comment 40(f)(3)(ii)(B)-1 provides detail on determining whether a 
replacement index that is not newly established has historical 
fluctuations that are substantially similar to those of the LIBOR index 
used under the plan for purposes of Sec.  1026.40(f)(3)(ii)(B).
    Proposed comment 40(f)(3)(ii)(B)-1 provided that for purposes of 
replacing a LIBOR index used under a plan pursuant to proposed Sec.  
1026.40(f)(3)(ii)(B), a replacement index that is not newly established 
must have historical fluctuations that are substantially similar to 
those of the LIBOR index used under the plan, considering the 
historical fluctuations up through December 31, 2020, or up through the 
date indicated in a Bureau determination that the replacement index and 
the LIBOR index have historical fluctuations that are substantially 
similar, whichever is earlier.
    Comment 40(f)(3)(ii)(B)-1 is revised from the proposal to provide 
that for purposes of replacing a LIBOR index used under a plan pursuant 
to Sec.  1026.40(f)(3)(ii)(B), a replacement index that is not newly 
established must have historical fluctuations that are substantially 
similar to those of the LIBOR index used under the plan, considering 
the historical fluctuations up through the relevant date. If the Bureau 
has made a determination that the replacement index and the LIBOR index 
have historical fluctuations that are substantially similar, the 
relevant date is the date indicated in that determination by the 
Bureau. If the Bureau has not made a determination that the replacement 
index and the LIBOR index have historical fluctuations that are 
substantially similar, the relevant date is the later of April 1, 2022, 
or the date no more than 30 days before the creditor makes a 
determination that the replacement index and the LIBOR index have 
historical fluctuations that are substantially similar.
    For the determinations discussed below related to Prime and certain 
SOFR-based spread-adjusted indices recommended by the ARRC for consumer 
products, the Bureau has considered data through October 18, 2021, and 
indicates that October 18, 2021, is the relevant date for those 
determinations. Nonetheless, for any future determinations that the 
Bureau might make with respect to replacement indices other than Prime 
or certain SOFR-based spread-adjusted indices recommended by the ARRC 
for consumer products, this revised comment would ensure that the 
Bureau could consider data after October 18, 2021, for those 
determinations.
    Likewise, this revised comment also would ensure that a creditor 
must consider data after October 18, 2021, for any determination it 
makes for a replacement index that the replacement index has historical 
fluctuations that are substantially similar to those of a LIBOR index 
(if the Bureau has not made such a determination). Specifically, 
revised comment 40(f)(3)(ii)(B)-1 requires a creditor to consider the 
data for the two indices up through April 1, 2022, (the effective date 
of this final rule) or 30 days prior to when the determination is made, 
whichever is later. To facilitate compliance, this revised comment does 
not require that creditors consider data for the replacement index and 
the LIBOR index up to when the determination is made because the Bureau 
recognizes that rates may be changing up to the date of the 
determination and there may be some time needed after the data analysis 
is completed for the creditor to make the determination. The Bureau 
arrived at a 30-day period for selecting the end date for which 
creditors must consider rate data related to the determination in part 
because a 30-day period is used in a somewhat analogous circumstance 
addressed in Sec.  1026.6(b)(4)(ii)(G) for when variable rates will be 
considered accurate in account-opening disclosures for open-end (not 
home-secured) credit. Specifically, variable rates in account-opening 
disclosures for open-end (not home-secured) credit generally will be 
considered accurate if the rate disclosed was in effect within the last 
30 days before the disclosures are provided. The Bureau concludes that 
the 30-day period for selecting the end date for which creditors must 
consider rate data related to the determination that the historical 
fluctuations are substantially similar to those of the LIBOR index will 
ensure that creditors are considering recent data as part of the 
determination, while providing a reasonable cut-off time period for the 
data that creditors must consider to facilitate compliance for 
creditors.
    Prime has historical fluctuations that are substantially similar to 
those of certain USD LIBOR indices. To facilitate compliance, comment 
40(f)(3)(ii)(B)-1.i includes a determination that Prime has historical 
fluctuations that are substantially similar to those of the 1-month and 
3-month USD LIBOR indices. This final rule revises comment 
40(f)(3)(ii)(B)-1.i from the proposal to provide that this 
determination is effective as of April 1, 2022, the date on which this 
final rule becomes effective.\121\ Comment 40(f)(3)(ii)(B)-1.i also 
clarifies that in order to use Prime as the replacement index for the 
1-month or 3-month USD LIBOR index, the creditor also must comply with 
the condition in Sec.  1026.40(f)(3)(ii)(B) that the Prime index value 
in effect on October 18, 2021, and replacement margin will produce an 
APR substantially similar to the rate calculated using the LIBOR index 
value in effect on October 18, 2021, and the margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR index 
used under the plan. This final rule revises comment 40(f)(3)(ii)(B)-
1.i from the proposal to delete the reference to the exception in Sec.  
1026.40(f)(3)(ii)(B) from using the index values on October 18, 2021. 
This exception is inapplicable because Prime and the LIBOR indices were 
both published on October 18, 2021. This condition for comparing the 
rates under Sec.  1026.40(f)(3)(ii)(B) is discussed in more detail 
below.
---------------------------------------------------------------------------

    \121\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) for a discussion of the rationale for the 
Bureau making this determination.
---------------------------------------------------------------------------

    Certain SOFR-based spread-adjusted indices recommended by the ARRC 
for consumer products have historical fluctuations that are 
substantially similar to those of certain USD LIBOR indices. To 
facilitate compliance, comment 40(f)(3)(ii)(B)-1.ii provides a 
determination that the SOFR-based spread-adjusted indices recommended 
by the ARRC for consumer products to replace the 1-month, 3-month, or 
6-month USD LIBOR indices have historical fluctuations that are 
substantially similar to those of the 1-month, 3-month, or 6-month USD 
LIBOR indices respectively. The Bureau is making the determination now 
to facilitate compliance with the rule. The determination provides 
greater certainty to creditors to enable them to plan sooner about 
which replacement index to use and how and when to transition to the 
replacement index.
    This final rule revises comment 40(f)(3)(ii)(B)-1.ii from the 
proposal to provide that this determination is

[[Page 69752]]

effective as of April 1, 2022, when this final rule becomes effective 
as discussed in more detail in part VI.\122\ For the same reasons as 
discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) with respect to comment 40(f)(3)(ii)(A)-2.ii, this 
final rule also revises comment 40(f)(3)(ii)(B)-1.ii from the proposal 
to not include 1-year USD LIBOR in the comment at this time pending the 
Bureau's receipt of additional information and further consideration by 
the Bureau.
---------------------------------------------------------------------------

    \122\ Id.
---------------------------------------------------------------------------

    Comment 40(f)(3)(ii)(B)-1.ii also clarifies that in order to use 
the SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products discussed above as the replacement index for the 
applicable LIBOR index, the creditor also must comply with the 
condition in Sec.  1026.40(f)(3)(ii)(B) that the SOFR-based spread-
adjusted index for consumer products and replacement margin will 
produce an APR substantially similar to the rate calculated using the 
LIBOR index and the margin that applied to the variable rate 
immediately prior to the replacement of the LIBOR index used under the 
plan. This final rule revises comment 40(f)(3)(ii)(B)-1.ii from the 
proposal to clarify that, because of the exception in Sec.  
1026.40(f)(3)(ii)(B), the creditor must use the index value on June 30, 
2023, for the LIBOR index and, for the SOFR-based spread-adjusted index 
for consumer products, must use the index value on the first date that 
index is published, in determining whether the APR based on the 
replacement index is substantially similar to the rate based on the 
LIBOR index.
    Nonetheless, for the reasons discussed below, this final rule 
revises comment 40(f)(3)(ii)(B)-3 from the proposal to provide that for 
purposes of Sec.  1026.40(f)(3)(ii)(B), if a creditor uses the SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index as 
the replacement index and uses as the replacement margin the margin it 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan, the creditor will be deemed to be 
in compliance with the condition in Sec.  1026.40(f)(3)(ii)(B) that the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate calculated using the LIBOR index. 
Thus, a creditor that uses the SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, or 6-month USD LIBOR index as the replacement index still must 
comply with the condition in Sec.  1026.40(f)(3)(ii)(B) that the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate calculated using the LIBOR index, but 
the creditor will be deemed to be in compliance with this condition if 
the creditor uses as the replacement margin, the same margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. This condition under Sec.  
1026.40(f)(3)(ii)(B) and the related comment 40(f)(3)(ii)(B)-3 are 
discussed in more detail below.
    Additional examples of indices that have historical fluctuations 
that are substantially similar to those of certain USD LIBOR indices. 
As discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii), many industry commenters generally urged the Bureau 
to provide additional examples of indices that have historical 
fluctuations that are substantially similar to those of particular 
LIBOR indices. Specifically, the Bureau received comments from industry 
requesting that the Bureau provide safe harbors for the following 
indices specifying that these indices have historical fluctuations that 
are substantially similar to those of certain LIBOR indices: (1) 
AMERIBOR[supreg] rates; (2) the EFFR; and (3) the CMT rates. For the 
reasons discussed above in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A), this final rule does not provide safe harbors 
indicating that the AMERIBOR[supreg] rates, the EFFR, or the CMT rates 
meet the Regulation Z ``historical fluctuations are substantially 
similar'' standard for appropriate replacement indices for a particular 
LIBOR index.
    Additional guidance on determining whether a replacement index has 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. As discussed in more detail in the section-
by-section analysis of Sec.  1026.40(f)(3)(ii), several industry 
commenters asked the Bureau to provide additional guidance on how to 
determine whether a replacement index has historical fluctuations that 
are substantially similar to those of a particular LIBOR index, 
including providing a principles-based standard for determining when a 
replacement index has historical fluctuations that are substantially 
similar to those of LIBOR. For the same reasons discussed above in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A) for adopting 
new comment 40(f)(3)(ii)(A)-2.iii, this final rule adopts new comment 
40(f)(3)(ii)(B)-1.iii to provide a non-exhaustive list of factors to be 
considered in whether a replacement index meets the Regulation Z 
``historical fluctuations are substantially similar'' standard with 
respect to a particular LIBOR index. For the same reasons discussed 
above in the section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A), 
this final rule does not set forth a principles-based standard for 
determining whether a replacement index has historical fluctuations 
that are substantially similar to those of the LIBOR index that is 
being replaced.
    Newly established index as replacement for the LIBOR index. Section 
1026.40(f)(3)(ii)(B) provides if the replacement index is newly 
established and therefore does not have any rate history, it may be 
used if the replacement index value in effect on October 18, 2021, and 
the replacement margin will produce an APR substantially similar to the 
rate calculated using the LIBOR index value in effect on October 18, 
2021, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan. If the 
replacement index is not published on October 18, 2021, the creditor 
generally must use the next calendar day for which both the LIBOR index 
and the replacement index are published as the date for selecting 
indices values in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR 
index.\123\
---------------------------------------------------------------------------

    \123\ The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the creditor must use the index value on June 
30, 2023, for the LIBOR index and, for the SOFR-based spread-
adjusted index for consumer products, must use the index value on 
the first date that index is published, in determining whether the 
APR based on the replacement index is substantially similar to the 
rate based on the LIBOR index.
---------------------------------------------------------------------------

    This final rule adopts Sec.  1026.40(f)(3)(ii)(B) as proposed to 
provide the flexibility for creditors to use newly established indices 
if certain conditions are met. The Bureau declines to adopt industry 
commenters' suggestions that the Bureau should provide greater detail 
to creditors regarding the factors or considerations that should be 
taken into account to determine that an index is newly established. The 
Bureau also declines to adopt consumer groups' suggestion that the 
Bureau should restrict the use of new indices that lack historical 
data.

[[Page 69753]]

For the reasons discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A), the Bureau: (1) Determines it is appropriate to 
provide flexibility in Sec.  1026.40(f)(3)(ii)(B) for creditors to use 
a newly established index to replace a LIBOR index if certain 
conditions are met, and (2) is not providing additional details in this 
final rule on the factors or considerations that must be taken into 
account to determine that an index is newly established.
    Substantially similar rate using index values in effect on October 
18, 2021, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan. 
Section 1026.40(f)(3)(ii)(B) provides that, if the replacement index 
under the plan is published on October 18, 2021, the replacement index 
value in effect on October 18, 2021, and the replacement margin must 
produce an APR substantially similar to the rate calculated using the 
LIBOR index value in effect on October 18, 2021, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. If the replacement index is not 
published on October 18, 2021, the creditor generally must use the next 
calendar day for which both the LIBOR index and the replacement index 
are published as the date for selecting indices values in determining 
whether the APR based on the replacement index is substantially similar 
to the rate based on the LIBOR index.\124\
---------------------------------------------------------------------------

    \124\ Id.
---------------------------------------------------------------------------

    Comment 40(f)(3)(ii)(B)-2 provides details on this condition. This 
final rule adopts comment 40(f)(3)(ii)(B)-2 as proposed with several 
revisions consistent with the revisions to Sec.  1026.40(f)(3)(ii)(B) 
to: (1) Set April 1, 2022, as the date on or after which HELOC 
creditors are permitted to replace the LIBOR index used under the plan 
pursuant to Sec.  1026.40(f)(3)(ii)(B) prior to LIBOR becoming 
unavailable; (2) set October 18, 2021, as the date creditors generally 
must use for selecting indices values in determining whether the APRs 
using the LIBOR index and the replacement index are substantially 
similar; and (3) provide that if the replacement index is not published 
on October 18, 2021, the creditor generally must use the next calendar 
day for which both the LIBOR index and the replacement index are 
published as the date for selecting indices values in determining 
whether the APR based on the replacement index is substantially similar 
to the rate based on the LIBOR index.\125\
---------------------------------------------------------------------------

    \125\ Id.
---------------------------------------------------------------------------

    In calculating the comparison rates using the replacement index and 
the LIBOR index used under the HELOC plan, Sec.  1026.40(f)(3)(ii)(B) 
generally requires creditors to use the index values for the 
replacement index and the LIBOR index in effect on October 18, 2021. To 
replace a LIBOR index under Sec.  1026.40(f)(3)(ii)(B), a creditor is 
to use these index values to promote consistency for creditors and 
consumers in which index values are used to compare the two rates. 
Under Sec.  1026.40(f)(3)(ii)(B), HELOC creditors are permitted to 
replace the LIBOR index used under the plan and adjust the margin used 
in calculating the variable rate used under the plan on or after April 
1, 2022, but creditors may vary in the timing of when they provide 
change-in-terms notices to replace the LIBOR index used on their HELOC 
accounts and when these replacements become effective.
    For example, one HELOC creditor may replace the LIBOR index used 
under its HELOC plans in April 2022, while another HELOC creditor may 
replace the LIBOR index used under its HELOC plans in October 2022. In 
addition, a HELOC creditor may not replace the LIBOR index used under 
all of its HELOC plans at the same time. For example, a HELOC creditor 
may replace the LIBOR index used under some of its HELOC plans in April 
2022 but replace the LIBOR index used under other of its HELOC plans in 
May 2022.
    Nonetheless, regardless of when a particular creditor replaces the 
LIBOR index used under its HELOC plans, Sec.  1026.40(f)(3)(ii)(B) 
generally requires that all creditors for HELOCs use October 18, 2021, 
(provided the replacement index is published on that day), as the day 
for determining the index values for the replacement index and the 
LIBOR index, to promote consistency for creditors and consumers with 
respect to which index values are used to compare the two rates.
    Section 1026.40(f)(3)(ii)(B) provides exceptions to the general 
requirement to use the index values for the replacement index and the 
LIBOR index used under the plan in effect on October 18, 2021. Section 
1026.40(f)(3)(ii)(B) provides that if the replacement index is not 
published on October 18, 2021, the creditor generally must use the next 
calendar day that both the LIBOR index and the replacement index are 
published as the date for selecting indices values in determining 
whether the APR based on the replacement index is substantially similar 
to the rate based on the LIBOR index. However, if the replacement index 
is the SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, or 6-month USD LIBOR 
index, the creditor must use the index value on June 30, 2023, for the 
LIBOR index and, for the SOFR-based spread-adjusted index for consumer 
products, must use the index value on the first date that index is 
published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index.
    This final rule adopts Sec.  1026.40(f)(3)(ii)(B) as proposed to 
use a single day to compare the rates. The Bureau declines to adopt 
industry commenters' suggestions that the Bureau should (1) give 
creditors the option to either use a single date for purposes of the 
index values or use the median value of the difference between the two 
indices over a slightly longer period of time; or (2) require the use 
of the historical spread rather than the spread on a specific day in 
comparing rates to help ensure such rates are substantially similar to 
each other. The Bureau also declines to adopt consumer group 
commenters' suggestion that the Bureau should require creditors to use 
a historical median value rather than the value from a single day when 
comparing a potential replacement to the original index rate.
    This final rule is consistent with the condition in the 
unavailability provision in current Sec.  1026.40(f)(3)(ii), in the 
sense that it provides that the new index and margin must result in an 
APR that is substantially similar to the rate in effect on a single 
day. Nonetheless, the Bureau recognizes that there is a possibility 
that the spread between the replacement index and the original index 
could differ significantly on a particular day from the historical 
spread in certain unusual circumstances.
    Nonetheless, generally using the October 18, 2021 date allowed the 
Bureau sufficient time before issuing this final rule to analyze the 
LIBOR indices on that date with the publicly available data for 
potential replacement rates that existed as of October 18, 2021, to 
ensure that the spreads on that day were not outliers to the historical 
spreads between the rates. The Bureau believes that the spread between 
the LIBOR rates and potential replacement rates that were published on 
October 18, 2021, generally do not differ significantly from the 5-year 
median historical spreads on October 18, 2021. For example, between 
October 17, 2017,

[[Page 69754]]

and October 17, 2021, the median spread between Prime and 1-month LIBOR 
was 306 basis points. On October 18, 2021, the spread between Prime and 
1-month LIBOR was 316 basis points.
    The Bureau notes that the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products to replace 1-month, 3-
month, 6-month, or 1-year USD LIBOR were not being published as of 
October 18, 2021, and the ARRC has indicated that these SOFR-based 
spread-adjusted indices for consumer products will not be published 
until Monday, July 3, 2023. Accordingly, the Bureau has included an 
exception in Sec.  1026.40(f)(3)(ii)(B), which provides that the 
creditor must use the index value on June 30, 2023, for the LIBOR index 
and, for the SOFR-based spread-adjusted index recommended by the ARRC 
for consumer products to replace 1-month, 3-month, 6-month, or 1-year 
USD LIBOR, must use the index value on the first date that index is 
published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index. As 
discussed in the section-by-section analysis of Sec.  1026.20(a), for 
consumer products, the ARRC is recommending a 1-year transition period 
to the five-year median spread adjustment methodology used to develop 
the long-term spread-adjustment values as shown in Table 1, contained 
in the section-by-section analysis of Sec.  1026.20(a). The initial 
short-term spread adjustment will be the 2-week average of the LIBOR-
SOFR spread up to July 3, 2023. For these indices, over the first 
``transition'' year following July 3, 2023, the daily published short-
term spread adjustment will move linearly toward the longer-term fixed 
spread adjustment.\126\ After the initial transition year, the spread 
adjustment will be permanently set at the longer-term fixed rate 
spread.\127\
---------------------------------------------------------------------------

    \126\ Summary of Fallback Recommendations, supra note 5, at 11.
    \127\ Id.
---------------------------------------------------------------------------

    The Bureau believes that the approach in this final rule properly 
minimizes the concerns the replacement index and the LIBOR index could 
differ significantly on a particular day from the historical spread in 
certain unusual circumstances discussed above without adding additional 
complexity to the rule.
    Under Sec.  1026.40(f)(3)(ii)(B), in calculating the comparison 
rates using the replacement index and the LIBOR index used under the 
HELOC plan, the creditor must use the margin that applied to the 
variable rate immediately prior to when the creditor provides the 
change-in-terms notice disclosing the replacement index for the 
variable rate. This final rule adopts Sec.  1026.40(f)(3)(ii)(B) as 
proposed to require that creditors must use this margin.
    Comment 40(f)(3)(ii)(B)-2 explains that the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan is the margin that applied to the variable 
rate immediately prior to when the creditor provides the change-in-
terms notice disclosing the replacement index for the variable rate. 
Comment 40(f)(3)(ii)(B)-2.i provides an example to illustrate this 
comment, when the margin used to calculate the variable rate is 
increased pursuant to a written agreement under Sec.  
1026.40(f)(3)(iii), and this change in the margin occurs after October 
18, 2021, but prior to the date that the creditor provides a change-in-
terms notice under Sec.  1026.9(c)(1) disclosing the replacement index 
for the variable rate. This final rule adopts this example in comment 
40(f)(3)(ii)(B)-2.i generally as proposed with revisions consistent 
with the revisions to Sec.  1026.40(f)(3)(ii)(B) and to clarify the 
references to the prime rate and the LIBOR index used in the example.
    The Bureau recognizes that creditors for HELOCs in certain 
instances may change the margin that is used to calculate the LIBOR 
variable rate after October 18, 2021, but prior to when the creditor 
provides a change-in-terms notice to replace the LIBOR index used under 
the plan. If the Bureau were to require that the creditor use the 
margin in effect on October 18, 2021, this would undo any margin 
changes that occurred after October 18, 2021, but prior to the creditor 
providing a change-in-terms notice of the replacement of the LIBOR 
index used under the plan, which would be inconsistent with the purpose 
of the comparisons of the rates under Sec.  1026.40(f)(3)(ii)(B).
    Comment 40(f)(3)(ii)(B)-3 clarifies that the replacement index and 
replacement margin are not required to produce an APR that is 
substantially similar on the day that the replacement index and 
replacement margin become effective on the plan. Comment 
40(f)(3)(ii)(B)-3.i also provides an example to illustrate this 
comment. This final rule adopts comment 40(f)(3)(ii)(B)-3 generally as 
proposed with several revisions consistent with the revisions to Sec.  
1026.40(f)(3)(ii)(B) to: (1) Set April 1, 2022, as the date on or after 
which HELOC creditors are permitted to replace the LIBOR index used 
under the plan pursuant to Sec.  1026.40(f)(3)(ii)(B) prior to LIBOR 
becoming unavailable; (2) set October 18, 2021, as the date creditors 
generally must use for selecting indices values in determining whether 
the APRs using the LIBOR index and the replacement index are 
substantially similar; and (3) provide that if the replacement index is 
not published on October 18, 2021, the creditor generally must use the 
next calendar day for which both the LIBOR index and the replacement 
index are published as the date for selecting indices values in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.\128\ This 
final rule also revises the example set forth in proposed comment 
40(f)(3)(ii)(B)-3 to clarify the prime index and LIBOR index used in 
the example. As discussed in more detail below, this final rule also 
revises proposed comment 40(f)(3)(ii)(B)-3 to provide additional detail 
on how the condition in Sec.  1026.40(f)(3)(ii)(B) that the replacement 
index and replacement margin would have resulted in an APR 
substantially similar to the rate calculated using the LIBOR index 
applies to the SOFR-based spread-adjusted indices recommended by the 
ARRC for consumer products to replace the 1-month, 3-month, or 6-month 
USD LIBOR index.
---------------------------------------------------------------------------

    \128\ The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the creditor must use the index value on June 
30, 2023, for the LIBOR index and, for the SOFR-based spread-
adjusted index for consumer products, must use the index value on 
the first date that index is published, in determining whether the 
APR based on the replacement index is substantially similar to the 
rate based on the LIBOR index.
---------------------------------------------------------------------------

    The Bureau believes that it would raise compliance issues if the 
rate calculated using the replacement index and replacement margin at 
the time the replacement index and replacement margin became effective 
had to be substantially similar to the rate calculated using the LIBOR 
index in effect on October 18, 2021. Under Sec.  1026.9(c)(1), the 
creditor must provide a change-in-terms notice of the replacement index 
and replacement margin (including a reduced margin in a change-in-terms 
notice provided on or after October 1, 2022, as required by revised 
Sec.  1026.9(c)(1)(ii)) at least 15 days prior to the effective date of 
the changes. The Bureau believes that this advance notice is important 
to consumers to inform them of how variable rates will be determined 
going forward after the LIBOR index is replaced. Because advance notice 
of the changes must be given prior to the

[[Page 69755]]

changes becoming effective, a creditor would not be able to ensure that 
the rate based on the replacement index and replacement margin at the 
time the change-in-terms notice becomes effective will be substantially 
similar to the rate calculated using the LIBOR index in effect on 
October 18, 2021. The value of the replacement index may change after 
October 18, 2021, and before the change-in-terms notice becomes 
effective.
    This final rule does not provide additional details on the 
``substantially similar'' standard in comparing the rates for purposes 
of Sec.  1026.40(f)(3)(ii)(B). For the reasons discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A), the Bureau 
declines to adopt industry commenters' suggestions that the Bureau 
should provide greater detail as to the process creditors must use to 
determine whether an APR calculated using a replacement index is 
substantially similar to the APR using the LIBOR index for purposes of 
Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii). 
The Bureau also declines to adopt consumer group commenters' suggestion 
that the Bureau should interpret ``substantially similar'' to require 
creditors to minimize any value transfer when selecting a replacement 
index and setting a new margin for purposes of Sec. Sec.  
1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii).
    As discussed above, comment 40(f)(3)(ii)(B)-1.ii clarifies that in 
order to use the SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products as the replacement index for the applicable 
LIBOR index, the creditor must comply with the condition in Sec.  
1026.40(f)(3)(ii)(B) that the SOFR-based spread-adjusted index for 
consumer products and replacement margin will produce an APR 
substantially similar to the rate calculated using the LIBOR and the 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. This final rule 
revises comment 40(f)(3)(ii)(B)-1.ii from the proposal to provide that 
because of the exception in Sec.  1026.40(f)(3)(ii)(B), the creditor 
must use the index value on June 30, 2023, for the LIBOR index and, for 
the SOFR-based spread-adjusted index for consumer products, must use 
the index value on the first date that index is published, in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.
    For the same reasons discussed in the section-by-section analysis 
of Sec.  1026.40(f)(3)(ii)(A) for adopting comment 40(f)(3)(ii)(A)-3, 
this final rule revises comment 40(f)(3)(ii)(B)-3 from the proposal to 
provide that for purposes of Sec.  1026.40(f)(3)(ii)(B), if a creditor 
uses the SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, or 6-month USD LIBOR 
index as the replacement index and uses as the replacement margin the 
same margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan, the creditor will 
be deemed to be in compliance with the condition in Sec.  
1026.40(f)(3)(ii)(B) that the replacement index and replacement margin 
would have resulted in an APR substantially similar to the rate 
calculated using the LIBOR index. Thus, a creditor that uses the SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index as 
the replacement index still must comply with the condition in Sec.  
1026.40(f)(3)(ii)(B) that the replacement index and replacement margin 
would have resulted in an APR substantially similar to the rate 
calculated using the LIBOR index, but the creditor will be deemed to be 
in compliance with this condition if the creditor uses as the 
replacement margin the same margin that applied to the variable rate 
immediately prior to the replacement of the LIBOR index used under the 
plan. For the same reasons discussed in the section-by-section analysis 
of Sec.  1026.40(f)(3)(ii)(A) in relation to comment 40(f)(3)(ii)(A)-3, 
the Bureau is reserving judgment about whether to include a reference 
to the 1-year USD LIBOR index in comment 40(f)(3)(ii)(B)-3 until it 
obtains additional information.

Section 1026.55 Limitations on Increasing Annual Percentage Rates, 
Fees, and Charges

55(b) Exceptions
55(b)(7) Index Replacement and Margin Change Exception
    TILA section 171(a), which was added by the Credit CARD Act, 
provides that in the case of a credit card account under an open-end 
consumer credit plan, no creditor may increase any APR, fee, or finance 
charge applicable to any outstanding balance, except as permitted under 
TILA section 171(b).\129\ TILA section 171(b)(2) provides that the 
prohibition under TILA section 171(a) does not apply to an increase in 
a variable APR in accordance with a credit card agreement that provides 
for changes in the rate according to the operation of an index that is 
not under the control of the creditor and is available to the general 
public.\130\
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 1666i-1(a).
    \130\ 15 U.S.C. 1666i-1(b)(2).
---------------------------------------------------------------------------

    In implementing these provisions of TILA section 171, Sec.  
1026.55(a) prohibits a card issuer from increasing an APR or certain 
enumerated fees or charges set forth in Sec.  1026.55(a) on a credit 
card account under an open-end (not home-secured) consumer credit plan, 
except as provided in Sec.  1026.55(b). Section 1026.55(b)(2) provides 
that a card issuer may increase an APR when: (1) The APR varies 
according to an index that is not under the card issuer's control and 
is available to the general public; and (2) the increase in the APR is 
due to an increase in the index.
    Comment 55(b)(2)-6 provides that a card issuer may change the index 
and margin used to determine the APR under Sec.  1026.55(b)(2) if the 
original index becomes unavailable, as long as historical fluctuations 
in the original and replacement indices were substantially similar, and 
as long as the replacement index and margin will produce a rate similar 
to the rate that was in effect at the time the original index became 
unavailable. If the replacement index is newly established and 
therefore does not have any rate history, it may be used if it produces 
a rate substantially similar to the rate in effect when the original 
index became unavailable.
The Bureau's Proposal
    As discussed in part III, the industry has requested that the 
Bureau permit card issuers to replace the LIBOR index used in setting 
the variable rates on existing accounts prior to when the LIBOR indices 
become unavailable to facilitate compliance. Among other things, the 
industry is concerned that if card issuers must wait until LIBOR 
becomes unavailable to replace the LIBOR index used on existing 
accounts, card issuers would not have sufficient time to inform 
consumers of the replacement index and update their systems to 
implement the change. To reduce uncertainty with respect to selecting a 
replacement index, the industry also has requested that the Bureau 
determine that Prime has historical fluctuations that are substantially 
similar to those of the LIBOR indices.
    To address these concerns, as discussed in more detail in the 
section-by-section analysis of Sec.  1026.55(b)(7)(ii), the Bureau 
proposed to add new LIBOR-specific provisions to proposed

[[Page 69756]]

Sec.  1026.55(b)(7)(ii) that would permit card issuers for a credit 
card account under an open-end (not home-secured) consumer credit plan 
that uses a LIBOR index under the plan to replace LIBOR and change the 
margin on such plans on or after March 15, 2021, in certain 
circumstances.
    Specifically, proposed Sec.  1026.55(b)(7)(ii) provided that if a 
variable rate on a credit card account under an open-end (not home-
secured) consumer credit plan is calculated using a LIBOR index, a card 
issuer may replace the LIBOR index and change the margin for 
calculating the variable rate on or after March 15, 2021, as long as: 
(1) The historical fluctuations in the LIBOR index and replacement 
index were substantially similar; and (2) the replacement index value 
in effect on December 31, 2020, and replacement margin will produce an 
APR substantially similar to the rate calculated using the LIBOR index 
value in effect on December 31, 2020, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan. The proposed rule also provided that if the 
replacement index is newly established and therefore does not have any 
rate history, it may be used if the replacement index value in effect 
on December 31, 2020, and the replacement margin will produce an APR 
substantially similar to the rate calculated using the LIBOR index 
value in effect on December 31, 2020, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan.
    Also, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.55(b)(7)(ii), to reduce uncertainty with respect 
to selecting a replacement index that meets the standards in proposed 
Sec.  1026.55(b)(7)(ii), the Bureau proposed to determine that Prime is 
an example of an index that has historical fluctuations that are 
substantially similar to those of the 1-month and 3-month USD LIBOR 
indices. The Bureau also proposed to determine that the SOFR-based 
spread-adjusted indices recommended by the ARRC for consumer products 
to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR indices 
have historical fluctuations that are substantially similar to those of 
the LIBOR indices that they are intended to replace. The Bureau also 
proposed additional detail in comments 55(b)(7)(ii)-1 through -3 with 
respect to proposed Sec.  1026.55(b)(7)(ii).
    In addition, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.55(b)(7)(i), the Bureau proposed to move the 
unavailability provisions in current comment 55(b)(2)-6 to proposed 
Sec.  1026.55(b)(7)(i) and to revise the proposed moved provisions for 
clarity and consistency. The Bureau also proposed additional detail in 
comments 55(b)(7)(i)-1 and -2 with respect to proposed Sec.  
1026.55(b)(7)(i). For example, to reduce uncertainty with respect to 
selecting a replacement index that meets the standards under proposed 
Sec.  1026.55(b)(7)(i), the Bureau proposed to make the same 
determinations discussed above related to Prime and the SOFR-based 
spread-adjusted indices recommended by the ARRC for consumer products 
in relation to proposed Sec.  1026.55(b)(7)(i). The Bureau proposed to 
make these revisions and provide additional detail in case card issuers 
use the unavailability provision in proposed Sec.  1026.55(b)(7)(i) to 
replace a LIBOR index used for their credit card accounts, as discussed 
in more detail below.
    Proposed comment 55(b)(7)-1 addressed the interaction among the 
unavailability provisions in proposed Sec.  1026.55(b)(7)(i), the 
LIBOR-specific provisions in proposed Sec.  1026.55(b)(7)(ii), and the 
contractual provisions applicable to the credit card account. 
Specifically, proposed comment 55(b)(7)-1 provided that a card issuer 
may use either the provision in proposed Sec.  1026.55(b)(7)(i) or 
Sec.  1026.55(b)(7)(ii) to replace a LIBOR index used under a credit 
card account under an open-end (not home-secured) consumer credit plan 
so long as the applicable conditions are met for the provision used. 
This proposed comment made clear, however, that neither proposed 
provision excuses the card issuer from noncompliance with contractual 
provisions.
    To facilitate compliance, proposed comment 55(b)(7)-1 also provided 
examples of the interaction among the unavailability provisions in 
proposed Sec.  1026.55(b)(7)(i), the LIBOR-specific provisions in 
proposed Sec.  1026.55(b)(7)(ii), and three types of contractual 
provisions for credit card accounts. The Bureau understands that credit 
card contracts generally allow a card issuer to change the terms of the 
contract (including the index) as permitted by law. Proposed comment 
55(b)(7)-1 provided detail where this contract language applies. In 
addition, consistent with the detail proposed in relation to HELOCs 
subject to Sec.  1026.40 in proposed comment 40(f)(3)(ii)-1, proposed 
comment 55(b)(7)-1 also provided detail on two other types of contract 
language, in case any credit card contracts include such language. 
Specifically, proposed comment 55(b)(7)-1 also provided detail for 
credit card contracts that contain language providing that: (1) A card 
issuer can replace the LIBOR index and the margin for calculating the 
variable rate unilaterally only if the original index is no longer 
available or becomes unavailable; and (2) the replacement index and 
replacement margin will result in an APR substantially similar to a 
rate that is in effect when the original index becomes unavailable. 
Proposed comment 55(b)(7)-1 also provided details for credit card 
contracts that include language providing that the card issuer can 
replace the original index and the margin for calculating the variable 
rate unilaterally only if the original index is no longer available or 
becomes unavailable, but does not require that the replacement index 
and replacement margin will result in an APR substantially similar to a 
rate that is in effect when the original index becomes unavailable.
Comments Received
    In response to the proposal, the industry commenters generally 
provided the same comments for both proposed Sec. Sec.  
1026.40(f)(3)(ii) for HELOCs and 1026.55(b)(7) for credit card accounts 
under an open-end (not home-secured) consumer credit plan. Similarly, 
the consumer group commenters also provided the same comments for both 
proposed Sec. Sec.  1026.40(f)(3)(ii) for HELOCs and 1026.55(b)(7) for 
credit card accounts under an open-end (not home-secured) consumer 
credit plan. These comments from industry and consumer groups are 
described in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii).
The Final Rule
    As discussed in the section-by-section analysis of Sec.  
1026.55(b)(7)(i), this final rule adopts Sec.  1026.55(b)(7)(i) as 
proposed. As discussed in the section-by-section analysis of Sec.  
1026.55(b)(7)(ii), this final rule adopts Sec.  1026.55(b)(7)(ii) 
generally as proposed with revisions to: (1) Set April 1, 2022, as the 
date on or after which card issuers are permitted to replace the LIBOR 
index used under the plan pursuant to Sec.  1026.55(b)(7)(ii) prior to 
LIBOR becoming unavailable; (2) set October 18, 2021, as the date card 
issuers generally must use for selecting indices values in determining 
whether the APRs using the LIBOR index and the replacement index are 
substantially similar; and (3) provide that if the replacement index is 
not published on October 18, 2021, the card issuer generally must use 
the next calendar day for which both the LIBOR index and

[[Page 69757]]

the replacement index are published as the date for selecting indices 
values in determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.\131\ 
Revisions to comment 55(b)(7)-1 as proposed are discussed in more 
detail below.\132\
---------------------------------------------------------------------------

    \131\ As set forth in Sec.  1026.55(b)(7)(ii), one exception is 
that if the replacement index is the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 
1-month, 3-month, 6-month, or 1-year USD LIBOR index, the card 
issuer must use the index value on June 30, 2023, for the LIBOR 
index and, for the SOFR-based spread-adjusted index for consumer 
products, must use the index value on the first date that index is 
published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index.
    \132\ Revisions to comments 55(b)(7)(i)-1 through -2 as proposed 
are discussed in the section-by-section analysis of Sec.  
1026.55(b)(7)(i). Revisions to comments 55(b)(7)(ii)-1 through -3 as 
proposed are discussed in the section-by-section analysis of Sec.  
1026.55(b)(7)(ii).
---------------------------------------------------------------------------

    This final rule adopts new LIBOR-specific provisions rather than 
interpreting when LIBOR is unavailable. For the same reasons that the 
Bureau is adopting LIBOR-specific provisions for HELOCs under Sec.  
1026.40(f)(3)(ii)(B), this final rule adopts new LIBOR-specific 
provisions under Sec.  1026.55(b)(7)(ii), rather than interpreting 
LIBOR indices to be unavailable as of a certain date prior to LIBOR 
being discontinued under current comment 55(b)(2)-6 (as moved to Sec.  
1026.55(b)(7)(i)).
    Interaction among Sec.  1026.55(b)(7)(i) and (ii) and contractual 
provisions. Comment 55(b)(7)-1 addresses the interaction among the 
unavailability provisions in Sec.  1026.55(b)(7)(i), the LIBOR-specific 
provisions in Sec.  1026.55(b)(7)(ii), and the contractual provisions 
applicable to the credit card account. This final rule adopts comment 
55(b)(7)-1 generally as proposed, with several revisions consistent 
with the changes this final rule makes to proposed Sec.  
1026.55(b)(7)(ii). Specifically, this final rule revises comment 
55(b)(7)-1 from the proposal to reflect that: (1) April 1, 2022, is the 
date on or after which card issuers may replace a LIBOR index under 
Sec.  1026.55(b)(7)(ii) if certain conditions are met; (2) October 18, 
2021, is the date that card issuers generally must use for selecting 
indices values in determining whether the APRs using the LIBOR index 
and the replacement index are substantially similar under Sec.  
1026.55(b)(7)(ii); \133\ and (3) if the replacement index is not 
published on October 18, 2021, the card issuer generally must use the 
next calendar day for which both the LIBOR index and the replacement 
index are published as the date for selecting indices values in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.\134\
---------------------------------------------------------------------------

    \133\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B) for the rationale for why the Bureau selected 
the October 18, 2021, date.
    \134\ The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the card issuer must use the index value on 
June 30, 2023, for the LIBOR index and, for the SOFR-based spread-
adjusted index for consumer products, must use the index value on 
the first date that index is published, in determining whether the 
APR based on the replacement index is substantially similar to the 
rate based on the LIBOR index.
---------------------------------------------------------------------------

    Specifically, comment 55(b)(7)-1 provides that a card issuer may 
use either the provision in Sec.  1026.55(b)(7)(i) or Sec.  
1026.55(b)(7)(ii) to replace a LIBOR index used under a credit card 
account under an open-end (not home-secured) consumer credit plan so 
long as the applicable conditions are met for the provision used. This 
comment makes clear, however, that neither provision excuses the card 
issuer from noncompliance with contractual provisions. For the same 
reasons discussed in Sec.  1026.40(f)(3)(ii) for HELOC accounts, the 
Bureau does not believe that it is appropriate for the LIBOR-specific 
provisions in Sec.  1026.55(b)(7)(ii) to override the consumer's 
contract with the card issuer.
    To facilitate compliance, comment 55(b)(7)-1 also provides examples 
of the interaction among the unavailability provisions in Sec.  
1026.55(b)(7)(i), the LIBOR-specific provisions in Sec.  
1026.55(b)(7)(ii), and three types of contractual provisions for credit 
card accounts. Each of these examples assumes that the LIBOR index used 
under the plan becomes unavailable after June 30, 2023.
    Specifically, comment 55(b)(7)-1.i provides an example where a 
contract for a credit card account under an open-end (not home-secured) 
consumer credit plan provides that a card issuer may not unilaterally 
replace an index under a plan unless the original index becomes 
unavailable and provides that the replacement index and replacement 
margin will result in an APR substantially similar to a rate that is in 
effect when the original index becomes unavailable. In this case, 
comment 55(b)(7)-1.i explains that the card issuer may use the 
unavailability provisions in Sec.  1026.55(b)(7)(i) to replace the 
LIBOR index used under the plan so long as the conditions of that 
provision are met. Comment 55(b)(7)-1.i also explains that the LIBOR-
specific provisions in Sec.  1026.55(b)(7)(ii) provide that a card 
issuer may replace the LIBOR index if the replacement index value in 
effect on October 18, 2021, and replacement margin will produce an APR 
substantially similar to the rate calculated using the LIBOR index 
value in effect on October 18, 2021, and the margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR index 
used under the plan. If the replacement index is not published on 
October 18, 2021, the card issuer generally must use the next calendar 
day for which both the LIBOR index and the replacement index are 
published as the date for selecting indices values in determining 
whether the APR based on the replacement index is substantially similar 
to the rate based on the LIBOR index. The one exception is that if the 
replacement index is the SOFR-based spread-adjusted index recommended 
by the ARRC for consumer products to replace the 1-month, 3-month, 6-
month, or 1-year USD LIBOR index, the card issuer must use the index 
value on June 30, 2023, for the LIBOR index and, for the SOFR-based 
spread-adjusted index for consumer products, must use the index value 
on the first date that index is published, in determining whether the 
APR based on the replacement index is substantially similar to the rate 
based on the LIBOR index. Comment 55(b)(7)-1.i notes, however, that the 
card issuer in this example would be contractually prohibited from 
replacing the LIBOR index used under the plan unless the replacement 
index and replacement margin also will produce an APR substantially 
similar to a rate that is in effect when the LIBOR index becomes 
unavailable.
    Comment 55(b)(7)-1.ii provides an example of a contract for a 
credit card account under an open-end (not home-secured) consumer 
credit plan under which a card issuer may not replace an index 
unilaterally under a plan unless the original index becomes unavailable 
but does not require that the replacement index and replacement margin 
will result in an APR substantially similar to a rate that is in effect 
when the original index becomes unavailable. In this case, the card 
issuer would be contractually prohibited from unilaterally replacing a 
LIBOR index used under the plan until it becomes unavailable. At that 
time, the card issuer has the option of using Sec.  1026.55(b)(7)(i) or 
Sec.  1026.55(b)(7)(ii) to replace the LIBOR index if the conditions of 
the applicable provision are met. For the same reasons discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)

[[Page 69758]]

for HELOC accounts, this final rule allows the card issuer in this case 
to use either the unavailability provisions in Sec.  1026.55(b)(7)(i) 
or the LIBOR-specific provisions in Sec.  1026.55(b)(7)(ii).
    Comment 55(b)(7)-1.iii provides an example of a contract for a 
credit card account under an open-end (not home-secured) consumer 
credit plan under which a card issuer may change the terms of the 
contract (including the index) as permitted by law. Comment 55(b)(7)-
1.iii explains in this case, if the card issuer replaces a LIBOR index 
under a plan on or after April 1, 2022, but does not wait until LIBOR 
becomes unavailable to do so, the card issuer may only use Sec.  
1026.55(b)(7)(ii) to replace the LIBOR index if the conditions of that 
provision are met. In this case, the card issuer may not use Sec.  
1026.55(b)(7)(i). Comment 55(b)(7)-1.iii also explains that if the card 
issuer waits until the LIBOR index used under the plan becomes 
unavailable to replace the LIBOR index, the card issuer has the option 
of using Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii) to replace 
the LIBOR index if the conditions of the applicable provision are met. 
For the same reasons discussed in the section-by-section analysis of 
Sec.  1026.40(f)(3)(ii) for HELOC accounts, this final rule allows the 
card issuer, in this case, to use either the unavailability provisions 
in Sec.  1026.55(b)(7)(i) or the LIBOR-specific provisions in Sec.  
1026.55(b)(7)(ii) if the card issuer waits until the LIBOR index used 
under the plan becomes unavailable to replace the LIBOR index.
55(b)(7)(i)
    Section 1026.55(a) prohibits a card issuer from increasing an APR 
or certain enumerated fees or charges set forth in Sec.  1026.55(a) on 
a credit card account under an open-end (not home-secured) consumer 
credit plan, except as provided in Sec.  1026.55(b). Section 
1026.55(b)(2) provides that a card issuer may increase an APR when: (1) 
The APR varies according to an index that is not under the card 
issuer's control and is available to the general public; and (2) the 
increase in the APR is due to an increase in the index. Comment 
55(b)(2)-6 provides that a card issuer may change the index and margin 
used to determine the APR under Sec.  1026.55(b)(2) if the original 
index becomes unavailable, as long as historical fluctuations in the 
original and replacement indices were substantially similar, and as 
long as the replacement index and margin will produce a rate similar to 
the rate that was in effect at the time the original index became 
unavailable. If the replacement index is newly established and 
therefore does not have any rate history, it may be used if it produces 
a rate substantially similar to the rate in effect when the original 
index became unavailable.
The Bureau's Proposal
    The Bureau proposed to move the unavailability provisions in 
current comment 55(b)(2)-6 to proposed Sec.  1026.55(b)(7)(i) and to 
revise the proposed moved provisions for clarity and consistency. The 
Bureau also proposed comments 55(b)(7)(i)-1 through -2 with respect to 
proposed Sec.  1026.55(b)(7)(i).
    Specifically, proposed Sec.  1026.55(b)(7)(i) provided that a card 
issuer may increase an APR when the card issuer changes the index and 
margin used to determine the APR if the original index becomes 
unavailable, as long as: (1) The historical fluctuations in the 
original and replacement indices were substantially similar; and (2) 
the replacement index and replacement margin will produce a rate 
substantially similar to the rate that was in effect at the time the 
original index became unavailable. Proposed Sec.  1026.55(b)(7)(i) 
provided that if the replacement index is newly established and 
therefore does not have any rate history, it may be used if it and the 
replacement margin will produce a rate substantially similar to the 
rate in effect when the original index became unavailable.
    Proposed Sec.  1026.55(b)(7)(i) differed from current comment 
55(b)(2)-6 in three ways. First, proposed Sec.  1026.55(b)(7)(i) 
provided that if an index that is not newly established is used to 
replace the original index, the replacement index and replacement 
margin will produce a rate ``substantially similar'' to the rate that 
was in effect at the time the original index became unavailable. 
Currently, comment 55(b)(2)-6 uses the term ``similar'' instead of 
``substantially similar'' for the comparison of these rates. 
Nonetheless, comment 55(b)(2)-6 provides that if the replacement index 
is newly established and therefore does not have any rate history, it 
may be used if it produces a rate ``substantially similar'' to the rate 
in effect when the original index became unavailable. To correct this 
inconsistency between the comparison of rates when an existing 
replacement index is used and when a newly established index is used, 
the Bureau proposed to use ``substantially similar'' consistently in 
proposed Sec.  1026.55(b)(7)(i) for the comparison of rates. As 
discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A), the Bureau also proposed to use ``substantially 
similar'' as the standard for the comparison of rates for HELOC plans 
when the LIBOR index used under the plan becomes unavailable.
    Second, proposed Sec.  1026.55(b)(7)(i) differed from current 
comment 55(b)(2)-6 in that the proposed provision would have made clear 
that a card issuer that is using a newly established index may also 
adjust the margin so that the newly established index and replacement 
margin will produce an APR substantially similar to the rate in effect 
when the original index became unavailable. The newly established index 
may not have the same index value as the original index, and the card 
issuer may need to adjust the margin to meet the condition that the 
newly established index and replacement margin will produce an APR 
substantially similar to the rate in effect when the original index 
became unavailable.
    Third, proposed Sec.  1026.55(b)(7)(i) differed from current 
comment 55(b)(2)-6 in that the proposed provision used the term ``the 
replacement index and replacement margin'' instead of ``the replacement 
index and margin'' to make clear when proposed Sec.  1026.55(b)(7)(i) 
is referring to a replacement margin and not the original margin.
    Proposed comment 55(b)(7)(i)-1 provided detail on determining 
whether a replacement index that is not newly established has 
historical fluctuations that are substantially similar to those of the 
LIBOR index used under the plan for purposes of proposed Sec.  
1026.55(b)(7)(i). Specifically, proposed comment 55(b)(7)(i)-1 provided 
that for purposes of replacing a LIBOR index used under a plan pursuant 
to Sec.  1026.55(b)(7)(i), a replacement index that is not newly 
established must have historical fluctuations that are substantially 
similar to those of the LIBOR index used under the plan, considering 
the historical fluctuations up through when the LIBOR index becomes 
unavailable or up through the date indicated in a Bureau determination 
that the replacement index and the LIBOR index have historical 
fluctuations that are substantially similar, whichever is earlier. To 
facilitate compliance, proposed comment 55(b)(7)(i)-1.i included a 
proposed determination that Prime has historical fluctuations that are 
substantially similar to those of the 1-month and 3-month USD LIBOR 
indices and includes a placeholder for the date when this proposed 
determination would be effective, if adopted in the final rule. The 
Bureau understands that some card issuers may choose to replace a LIBOR 
index with Prime. Proposed comment 55(b)(7)(i)-1.i also provided

[[Page 69759]]

that in order to use Prime as the replacement index for the 1-month or 
3-month USD LIBOR index, the card issuer also must comply with the 
condition in Sec.  1026.55(b)(7)(i) that Prime and the replacement 
margin will produce a rate substantially similar to the rate that was 
in effect at the time the LIBOR index became unavailable. This 
condition for comparing the rates under proposed Sec.  1026.55(b)(7)(i) 
is discussed in more detail below.
    To facilitate compliance, proposed comment 55(b)(7)(i)-1.ii 
provided a proposed determination that the SOFR-based spread-adjusted 
indices recommended by the ARRC for consumer products to replace the 1-
month, 3-month, 6-month, or 1-year USD LIBOR indices have historical 
fluctuations that are substantially similar to those of the 1-month, 3-
month, 6-month, or 1-year USD LIBOR indices respectively. The proposed 
comment provided a placeholder for the date when this proposed 
determination would be effective, if adopted in the final rule. The 
Bureau proposed this determination in case some card issuers choose to 
replace a LIBOR index with the SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products.
    Proposed comment 55(b)(7)(i)-1.ii also provided that in order to 
use this SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products as the replacement index for the applicable LIBOR 
index, the card issuer also must comply with the condition in Sec.  
1026.55(b)(7)(i) that the SOFR-based spread-adjusted index for consumer 
products and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable. This condition under proposed Sec.  
1026.55(b)(7)(i) is discussed in more detail below.
    As discussed above, proposed Sec.  1026.55(b)(7)(i) provided that 
the replacement index and replacement margin must produce an APR 
substantially similar to the rate that was in effect based on the LIBOR 
index used under the plan when the LIBOR index became unavailable. 
Proposed comment 55(b)(7)(i)-2 provided that for the comparison of the 
rates, a card issuer must use the value of the replacement index and 
the LIBOR index on the day that LIBOR becomes unavailable. Proposed 
comment 55(b)(7)(i)-2 also provided that the replacement index and 
replacement margin are not required to produce an APR that is 
substantially similar on the day that the replacement index and 
replacement margin become effective on the plan. Proposed comment 
55(b)(7)(i)-2.i provided an example to illustrate this comment.
Comments Received
    In response to the proposal, the industry commenters generally 
provided the same comments for both proposed Sec.  1026.40(f)(3)(ii) 
for HELOCs and Sec.  1026.55(b)(7) for credit card accounts under an 
open-end (not home-secured) consumer credit plan. Similarly, the 
consumer group commenters also provided the same comments for both 
proposed Sec.  1026.40(f)(3)(ii) for HELOCs and Sec.  1026.55(b)(7) for 
credit card accounts under an open-end (not home-secured) consumer 
credit plan. These comments from industry and consumer groups are 
described in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii).
The Final Rule
    This final rule adopts Sec.  1026.55(b)(7)(i) as proposed. This 
final rule adopts comments 55(b)(7)(i)-1 through -2 generally as 
proposed with several revisions to provide additional detail on the 
Sec.  1026.55(b)(7)(i) provision, including providing (1) examples of 
the type of factors to be considered in whether a replacement index 
meets the Regulation Z ``historical fluctuations are substantially 
similar'' standard with respect to a particular LIBOR index for credit 
card accounts; and (2) if a card issuer uses the SOFR-based spread-
adjusted index recommended by the ARRC for consumer products to replace 
the 1-month, 3-month, or 6-month USD LIBOR index as the replacement 
index and uses as the replacement margin the same margin that applied 
to the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan, the card issuer will be deemed to be in 
compliance with the condition in Sec.  1026.55(b)(7)(i) that the 
replacement index and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable.
    To effectuate the purposes of TILA and to facilitate compliance, 
the Bureau is using its TILA section 105(a) authority to adopt Sec.  
1026.55(b)(7)(i). TILA section 105(a) \135\ directs the Bureau to 
prescribe regulations to carry out the purposes of TILA, and provides 
that such regulations may contain additional requirements, 
classifications, differentiations, or other provisions, and may provide 
for such adjustments and exceptions for all or any class of 
transactions, that, in the judgment of the Bureau, are necessary or 
proper to effectuate the purposes of TILA, to prevent circumvention or 
evasion thereof, or to facilitate compliance. The Bureau is adopting 
this exception to facilitate compliance with TILA and effectuate its 
purposes. Specifically, the Bureau interprets ``facilitate compliance'' 
to include enabling or fostering continued operation of variable-rate 
accounts in conformity with the law.
---------------------------------------------------------------------------

    \135\ 15 U.S.C. 1604(a).
---------------------------------------------------------------------------

    This final rule moves comment 55(b)(2)-6 to Sec.  1026.55(b)(7)(i) 
as an exception to the general rule in current Sec.  1026.55(a) 
restricting rate increases. The Bureau believes that an index change 
could produce a rate increase at the time of the replacement or in the 
future. The Bureau provides this exception to the general rule in Sec.  
1026.55(a) in the circumstances in which an index becomes unavailable 
in the limited conditions set forth in Sec.  1026.55(b)(7)(i) to enable 
or foster continued operation in conformity with the law. If the index 
that is used under a credit card account under an open-end (not home-
secured) consumer credit plan becomes unavailable, the card issuer 
would need to replace the index with another index, so the rate remains 
a variable rate under the plan. The Bureau is adopting this exception 
to facilitate compliance with the rule by allowing the card issuer to 
maintain the rate as a variable rate, which is also likely to be 
consistent with the consumer's expectation that the rate on the account 
will be a variable rate. As noted in the preamble to the 2020 Proposal, 
the Bureau is not aware of legislative history suggesting that Congress 
intended card issuers, in this case, to be required to convert 
variable-rate plans to a non-variable-rate plans when the index becomes 
unavailable; commenters did not identify any such legislative history.
    Historical fluctuations substantially similar for the LIBOR index 
and replacement index. This final rule adopts comment 55(b)(7)(i)-1 
generally as proposed with several revisions as discussed below. 
Comment 55(b)(7)(i)-1 provides detail on determining whether a 
replacement index that is not newly established has historical 
fluctuations that are substantially similar to those of the LIBOR index 
used under the plan for purposes of Sec.  1026.55(b)(7)(i). 
Specifically, comment 55(b)(7)(i)-1 provides that for purposes of 
replacing a LIBOR index used under a plan pursuant to Sec.  
1026.55(b)(7)(i), a replacement index that is not newly established 
must have historical fluctuations that are substantially

[[Page 69760]]

similar to those of the LIBOR index used under the plan, considering 
the historical fluctuations up through when the LIBOR index becomes 
unavailable or up through the date indicated in a Bureau determination 
that the replacement index and the LIBOR index have historical 
fluctuations that are substantially similar, whichever is earlier.
    Prime has historical fluctuations that are substantially similar to 
those of certain USD LIBOR indices. To facilitate compliance, comment 
55(b)(7)(i)-1.i includes a determination that Prime has historical 
fluctuations that are substantially similar to those of the 1-month and 
3-month USD LIBOR indices.\136\ This final rule revises comment 
55(b)(7)(i)-1.i from the proposal to provide that this determination is 
effective as of April 1, 2022, the date on which this final rule 
becomes effective. The Bureau understands that some card issuers may 
choose to replace a LIBOR index with Prime. Comment 55(b)(7)(i)-1.i 
also clarifies that in order to use Prime as the replacement index for 
the 1-month or 3-month USD LIBOR index, the card issuer also must 
comply with the condition in Sec.  1026.55(b)(7)(i) that Prime and the 
replacement margin will produce a rate substantially similar to the 
rate that was in effect at the time the LIBOR index became unavailable. 
This condition for comparing the rates under Sec.  1026.55(b)(7)(i) is 
discussed in more detail below.
---------------------------------------------------------------------------

    \136\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) for a discussion of the rationale for the 
Bureau making this determination.
---------------------------------------------------------------------------

    Certain SOFR-based spread-adjusted indices recommended by the ARRC 
for consumer products have historical fluctuations that are 
substantially similar to those of certain USD LIBOR indices. To 
facilitate compliance, comment 55(b)(7)(i)-1.ii provides a 
determination that the SOFR-based spread-adjusted indices recommended 
by the ARRC for consumer products to replace the 1-month, 3-month, or 
6-month USD LIBOR indices have historical fluctuations that are 
substantially similar to those of the 1-month, 3-month, or 6-month USD 
LIBOR indices respectively.\137\ The Bureau makes this determination in 
case some card issuers choose to replace a LIBOR index with the SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products. This final rule revises comment 55(b)(7)(i)-1.ii from the 
proposal to provide that this determination is effective as of April 1, 
2022, when this final rule becomes effective as discussed in more 
detail in part VI.\138\ For the same reasons as discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A) with respect 
to comment 40(f)(3)(ii)(A)-2.ii, this final rule also revises comment 
55(b)(7)(i)-1.ii from the proposal to not include 1-year USD LIBOR in 
the comment at this time pending the Bureau's receipt of additional 
information and further consideration by the Bureau.
---------------------------------------------------------------------------

    \137\ Id.
    \138\ Id.
---------------------------------------------------------------------------

    Comment 55(b)(7)(i)-1.ii also clarifies that in order to use the 
SOFR-based spread-adjusted index recommended by the ARRC for consumer 
products discussed above as the replacement index for the applicable 
LIBOR index, the card issuer also must comply with the condition in 
Sec.  1026.55(b)(7)(i) that the SOFR-based spread-adjusted index for 
consumer products and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable. Nonetheless, for the same reasons discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A), this final 
rule revises comment 55(b)(7)(i)-2 from the proposal to provide that 
for purposes of Sec.  1026.55(b)(7)(i), if a card issuer uses the SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index as 
the replacement index and uses as the replacement margin the same 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan, the card issuer 
will be deemed to be in compliance with the condition in Sec.  
1026.55(b)(7)(i) that the replacement index and replacement margin 
would have resulted in an APR substantially similar to the rate in 
effect at the time the LIBOR index became unavailable. Thus, a card 
issuer that uses the SOFR-based spread-adjusted index recommended by 
the ARRC for consumer products to replace the 1-month, 3-month, or 6-
month USD LIBOR index as the replacement index still must comply with 
the condition in Sec.  1026.55(b)(7)(i) that the replacement index and 
replacement margin would have resulted in an APR substantially similar 
to the rate in effect at the time the LIBOR index became unavailable, 
but the card issuer will be deemed to be in compliance with this 
condition if the card issuer uses as the replacement margin the same 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. This condition 
under Sec.  1026.55(b)(7)(i) and the related comment 55(b)(7)(i)-2 are 
discussed in more detail below.
    Additional examples of indices that have historical fluctuations 
that are substantially similar to those of certain USD LIBOR indices. 
As discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii), many industry commenters generally urged the Bureau 
to provide additional examples of indices that have historical 
fluctuations that are substantially similar to those of particular 
LIBOR indices. Specifically, the Bureau received comments from industry 
requesting that the Bureau provide safe harbors for the following 
indices specifying that these indices have historical fluctuations that 
are substantially similar to those of certain LIBOR indices: (1) 
AMERIBOR[supreg] rates; (2) the EFFR; and (3) the CMT rates. For the 
reasons discussed above in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A), this final rule does not provide safe harbors 
indicating that the AMERIBOR[supreg] rates, the EFFR, or the CMT rates 
meet the Regulation Z ``historical fluctuations are substantially 
similar'' standard for appropriate replacement indices for a particular 
LIBOR index.
    Additional guidance on determining whether a replacement index has 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. As discussed in more detail in the section-
by-section analysis of Sec.  1026.40(f)(3)(ii), several industry 
commenters asked the Bureau to provide additional guidance on how to 
determine whether a replacement index has historical fluctuations that 
are substantially similar to those of a particular LIBOR index, 
including providing a principles-based standard for determining when a 
replacement index has historical fluctuations that are substantially 
similar to those of LIBOR. For the same reasons discussed above in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A) for adopting 
new comment 40(f)(3)(ii)(A)-2.iii, this final rule adopts new comment 
55(b)(7)(i)-1.iii to provide a non-exhaustive list of factors to be 
considered in whether a replacement index meets the Regulation Z 
``historical fluctuations are substantially similar'' standard with 
respect to a particular LIBOR index. For the same reasons discussed 
above in the section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A), 
this final rule does not set forth a principles-based standard for 
determining whether a replacement index has historical fluctuations 
that are substantially similar to those of the LIBOR index that is 
being replaced.

[[Page 69761]]

    Newly established index as replacement for a LIBOR index. Section 
1026.55(b)(7)(i) provides that if the replacement index is newly 
established and therefore does not have any rate history, it may be 
used if it and the replacement margin will produce an APR substantially 
similar to the rate in effect when the original index became 
unavailable. This final rule adopts Sec.  1026.55(b)(7)(i) as proposed 
to provide the flexibility for card issuers to use newly established 
indices if certain conditions are met. The Bureau declines to adopt 
industry commenters' suggestions that the Bureau should provide greater 
detail to card issuers regarding the factors or considerations that 
should be taken into account to determine that an index is newly 
established. The Bureau also declines to adopt consumer groups' 
suggestion that the Bureau should restrict the use of new indices that 
lack historical data. For the reasons discussed in the section-by-
section analysis of Sec.  1026.40(f)(3)(ii)(A), the Bureau: (1) 
Believes it is appropriate to provide flexibility in Sec.  
1026.55(b)(7)(i) for card issuers to use a newly established index to 
replace a LIBOR index if certain conditions are met; and (2) is not 
providing additional details in this final rule on the factors or 
considerations that must be taken into account to determine that an 
index is newly established.
    Substantially similar rate when LIBOR becomes unavailable. Under 
Sec.  1026.55(b)(7)(i), the replacement index and replacement margin 
must produce an APR substantially similar to the rate that was in 
effect based on the LIBOR index used under the plan when the LIBOR 
index became unavailable. Comment 55(b)(7)(i)-2 generally provides 
detail on this condition. This final rule adopts comment 55(b)(7)(i)-2 
generally as proposed with several revisions to provide more clarity on 
this condition. Comment 55(b)(7)(i)-2 provides that a card issuer 
generally must use the value of the replacement index and the LIBOR 
index on the day that the LIBOR index becomes unavailable. To 
facilitate compliance, this final rule revises comment 55(b)(7)(i)-2 
from the proposal to address the situation where the replacement index 
is not published on the day that LIBOR becomes unavailable. 
Specifically, comment 55(b)(7)(i)-2 provides that if the replacement 
index is not published on the day that the LIBOR index becomes 
unavailable, the card issuer generally must use the previous calendar 
day that both indices are published as the date for selecting indices 
values in determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR. The one exception 
is that if the replacement index is the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 1-
month, 3-month, 6-month, or 1-year USD LIBOR index, the card issuer 
must use the index value on June 30, 2023, for the LIBOR index and, for 
the SOFR-based spread-adjusted index for consumer products, must use 
the index value on the first date that index is published, in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.
    This final rule adopts Sec.  1026.55(b)(7)(i) as proposed to use a 
single day to compare the rates. The Bureau declines to adopt industry 
commenters' suggestions that the Bureau should (1) give card issuers 
the option to either use a single date for purposes of the index values 
or use the median value of the difference between the two indices over 
a slightly longer period of time; or (2) require the use of the 
historical spread rather than the spread on a specific day in comparing 
rates to help ensure such rates are substantially similar to each 
other. The Bureau also declines to adopt consumer group commenters' 
suggestion that the Bureau should require card issuers to use a 
historical median value rather than the value from a single day when 
comparing a potential replacement to the original index rate.
    This final rule is consistent with the condition in the 
unavailability provision in current comment 55(b)(2)-6, in the sense 
that it provides that the new index and margin must result in an APR 
that is substantially similar to the rate in effect on a single day. 
Nonetheless, the Bureau recognizes that there is a possibility that the 
spread between the replacement index and the original index could 
differ significantly on a particular day from the historical spread in 
certain unusual circumstances. For the same reasons set forth in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A) for HELOC 
accounts, to mitigate this concern, this final rule provides card 
issuers with the flexibility generally to choose to compare the rates 
using the index values for the LIBOR index and the replacement index on 
October 18, 2021, (provided the replacement index is published on that 
day), by using the LIBOR-specific provisions under Sec.  
1026.55(b)(7)(ii), rather than using the unavailability provisions in 
Sec.  1026.55(b)(7)(i).
    Comment 55(b)(7)(i)-2 also clarifies that the replacement index and 
replacement margin are not required to produce an APR that is 
substantially similar on the day that the replacement index and 
replacement margin become effective on the plan. Comment 55(b)(7)(i)-
2.i provides an example to illustrate this comment. This final rule 
adopts these details in comment 55(b)(7)(i)-2 generally as proposed 
with revisions to clarify the references to the prime rate and the 
LIBOR index used in the example and to revise the dates used in the 
example to be consistent with the June 30, 2023 date that most USD 
LIBOR tenors are expected to be discontinued. The Bureau believes that 
it would raise compliance issues if the rate calculated using the 
replacement index and replacement margin at the time the replacement 
index and replacement margin became effective had to be substantially 
similar to the rate in effect calculated using the LIBOR index on the 
date that the LIBOR index became unavailable. Specifically, under Sec.  
1026.9(c)(2), the creditor must provide a change-in-terms notice of the 
replacement index and replacement margin (including disclosing any 
reduced margin in change-in-terms notices provided on or after October 
1, 2022, as required by Sec.  1026.9(c)(2)(v)(A)) at least 45 days 
prior to the effective date of the changes. The Bureau believes that 
this advance notice is important to consumers to inform them of how 
variable rates will be determined going forward after the LIBOR index 
is replaced. Because advance notice of the changes must be given prior 
to the changes becoming effective, a creditor would not be able to 
ensure that the rate based on the replacement index and margin at the 
time the change-in-terms notice becomes effective will be substantially 
similar to the rate in effect calculated using the LIBOR index at the 
time the LIBOR index becomes unavailable. The value of the replacement 
index may change after the LIBOR index becomes unavailable and before 
the change-in-terms notice becomes effective.
    This final rule does not provide additional details on the 
``substantially similar'' standard in comparing the rates for purposes 
of Sec.  1026.55(b)(7)(i). For the reasons discussed in the section-by-
section analysis of Sec.  1026.40(f)(3)(ii)(A) for HELOC accounts, the 
Bureau declines to adopt industry commenters' suggestions that the 
Bureau should provide greater detail as to the process card issuers 
must use to determine whether an APR calculated using a replacement 
index is substantially

[[Page 69762]]

similar to the APR using the LIBOR index for purposes of Sec. Sec.  
1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii). The Bureau 
also declines to adopt consumer group commenters' suggestion that the 
Bureau should interpret substantially similar to require card issuers 
to minimize any value transfer when selecting a replacement index and 
setting a new margin for purposes of proposed Sec. Sec.  
1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii).
    As discussed above, comment 55(b)(7)(i)-1.ii clarifies that in 
order to use the SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products as the replacement index for the applicable 
LIBOR index, the card issuer must comply with the condition in Sec.  
1026.55(b)(7)(i) that the SOFR-based spread-adjusted index for consumer 
products and replacement margin would have resulted in an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable.
    For the same reasons discussed in the section-by-section analysis 
of Sec.  1026.40(f)(3)(ii)(A) for adopting comment 40(f)(3)(ii)(A)-3, 
this final rule revises comment 55(b)(7)(i)-2 from the proposal to 
provide that for purposes of Sec.  1026.55(b)(7)(i), if a card issuer 
uses the SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, or 6-month USD LIBOR 
index as the replacement index and uses as the replacement margin the 
same margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan, the card issuer 
will be deemed to be in compliance with the condition in Sec.  
1026.55(b)(7)(i) that the replacement index and replacement margin 
would have resulted in an APR substantially similar to the rate in 
effect at the time the LIBOR index became unavailable.\139\ Thus, a 
card issuer that uses the SOFR-based spread-adjusted index recommended 
by the ARRC for consumer products to replace the 1-month, 3-month, or 
6-month USD LIBOR index as the replacement index still must comply with 
the condition in Sec.  1026.55(b)(7)(i) that the replacement index and 
replacement margin would have resulted in an APR substantially similar 
to the rate in effect at the time the LIBOR index became unavailable, 
but the card issuer will be deemed to be in compliance with this 
condition if the card issuer uses as the replacement margin the same 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. For the same 
reasons discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) in relation to comment 40(f)(3)(ii)(A)-3, the 
Bureau is reserving judgment about whether to include a reference to 
the 1-year USD LIBOR index in comment 55(b)(7)(i)-2 until it obtains 
additional information.
---------------------------------------------------------------------------

    \139\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) for a discussion of the rationale for the 
Bureau making this determination.
---------------------------------------------------------------------------

55(b)(7)(ii)
The Bureau's Proposal
    For the reasons discussed below and in the section-by-section 
analysis of Sec.  1026.55(b)(7), the Bureau proposed to add new LIBOR-
specific provisions to proposed Sec.  1026.55(b)(7)(ii) that would 
permit card issuers for a credit card account under an open-end (not 
home-secured) consumer credit plan that uses a LIBOR index under the 
plan for calculating variable rates to replace the LIBOR index and 
change the margins for calculating the variable rates on or after March 
15, 2021, in certain circumstances. In addition, the Bureau proposed to 
add detail in proposed comments 55(b)(7)(ii)-1 through -3 on the 
conditions set forth in proposed Sec.  1026.55(b)(7)(ii).
    Specifically, proposed Sec.  1026.55(b)(7)(ii) provided that if a 
variable rate on a credit card account under an open-end (not home-
secured) consumer credit plan is calculated using a LIBOR index, a card 
issuer may replace the LIBOR index and change the margin for 
calculating the variable rate on or after March 15, 2021, as long as: 
(1) The historical fluctuations in the LIBOR index and replacement 
index were substantially similar; and (2) the replacement index value 
in effect on December 31, 2020, and replacement margin will produce an 
APR substantially similar to the rate calculated using the LIBOR index 
value in effect on December 31, 2020, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan. Proposed Sec.  1026.55(b)(7)(ii) also 
provided that if the replacement index is newly established and 
therefore does not have any rate history, it may be used if the 
replacement index value in effect on December 31, 2020, and replacement 
margin will produce an APR substantially similar to the rate calculated 
using the LIBOR index value in effect on December 31, 2020, and the 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. In addition, 
proposed Sec.  1026.55(b)(7)(ii) provided that if either the LIBOR 
index or the replacement index is not published on December 31, 2020, 
the card issuer must use the next calendar day that both indices are 
published as the date on which the APR based on the replacement index 
must be substantially similar to the rate based on the LIBOR index.
    Proposed comment 55(b)(7)(ii)-1 provided detail on determining 
whether a replacement index that is not newly established has 
historical fluctuations that are substantially similar to those of the 
LIBOR index used under the plan for purposes of proposed Sec.  
1026.55(b)(7)(ii). Specifically, proposed comment 55(b)(7)(ii)-1 
provided that for purposes of replacing a LIBOR index used under a plan 
pursuant to proposed Sec.  1026.55(b)(7)(ii), a replacement index that 
is not newly established must have historical fluctuations that are 
substantially similar to those of the LIBOR index used under the plan, 
considering the historical fluctuations up through December 31, 2020, 
or up through the date indicated in a Bureau determination that the 
replacement index and the LIBOR index have historical fluctuations that 
are substantially similar, whichever is earlier. The Bureau proposed 
the December 31, 2020, date to be consistent with the date that card 
issuers generally would have been required to use for selecting the 
index values in comparing the rates under proposed Sec.  
1026.55(b)(7)(ii).
    To facilitate compliance, proposed comment 55(b)(7)(ii)-1.i 
included a proposed determination that Prime has historical 
fluctuations that are substantially similar to those of the 1-month and 
3-month USD LIBOR indices and included a placeholder for the date when 
this proposed determination would be effective, if adopted in the final 
rule. The Bureau understands some card issuers may choose to replace a 
LIBOR index with Prime. Proposed comment 55(b)(7)(ii)-1.i also provided 
that in order to use Prime as the replacement index for the 1-month or 
3-month USD LIBOR index, the card issuer also must comply with the 
condition in Sec.  1026.55(b)(7)(ii) that the Prime index value in 
effect on December 31, 2020, and replacement margin will produce an APR 
substantially similar to the rate calculated using the LIBOR index 
value in effect on December 31, 2020, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan. Proposed comment 55(b)(7)(ii)-1 provided 
that if either the LIBOR index or Prime is not published

[[Page 69763]]

on December 31, 2020, the card issuer must use the next calendar day 
that both indices are published as the date on which the APR based on 
Prime must be substantially similar to the rate based on the LIBOR 
index. This condition for comparing the rates under proposed Sec.  
1026.55(b)(7)(ii) is discussed in more detail below.
    To facilitate compliance, proposed comment 55(b)(7)(ii)-1.ii 
provided a proposed determination that the SOFR-based spread-adjusted 
indices recommended by the ARRC for consumer products to replace the 1-
month, 3-month, 6-month, or 1-year USD LIBOR indices have historical 
fluctuations that are substantially similar to those of the 1-month, 3-
month, 6-month, or 1-year USD LIBOR indices respectively. The proposed 
comment provided a placeholder for the date when this proposed 
determination would be effective, if adopted in the final rule. The 
Bureau made this proposed determination in case some card issuers 
choose to replace a LIBOR index with the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products. Proposed comment 
55(b)(7)(ii)-1.ii also provided that in order to use this SOFR-based 
spread-adjusted index recommended by the ARRC for consumer products as 
the replacement index for the applicable LIBOR index, the card issuer 
also must comply with the condition in Sec.  1026.55(b)(7)(ii) that the 
SOFR-based spread-adjusted index for consumer products' value in effect 
on December 31, 2020, and replacement margin will produce an APR 
substantially similar to the rate calculated using the LIBOR index 
value in effect on December 31, 2020, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan. Proposed comment 55(b)(7)(ii)-1.ii also 
provided that if either the LIBOR index or the SOFR-based spread-
adjusted index recommended by the ARRC for consumer products is not 
published on December 31, 2020, the card issuer must use the next 
calendar day that both indices are published as the date on which the 
APR based on the SOFR-based spread-adjusted index for consumer products 
must be substantially similar to the rate based on the LIBOR index. 
This condition for comparing the rates under proposed Sec.  
1026.55(b)(7)(ii) is discussed in more detail below.
    As discussed above, proposed Sec.  1026.55(b)(7)(ii) provided that 
if both the replacement index and LIBOR index used under the plan are 
published on December 31, 2020, the replacement index value in effect 
on December 31, 2020, and replacement margin must produce an APR 
substantially similar to the rate calculated using the LIBOR index 
value in effect on December 31, 2020, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan. Proposed comment 55(b)(7)(ii)-2 provided 
that the margin that applied to the variable rate immediately prior to 
the replacement of the LIBOR index used under the plan is the margin 
that applied to the variable rate immediately prior to when the card 
issuer provides the change-in-terms notice disclosing the replacement 
index for the variable rate. Proposed comment 55(b)(7)(ii)-2.i and ii 
provided examples to illustrate this comment for the following two 
different scenarios: (1) When the margin used to calculate the variable 
rate is increased pursuant to Sec.  1026.55(b)(3) for new transactions; 
and (2) when the margin used to calculate the variable rate is 
increased for the outstanding balances and new transactions pursuant to 
Sec.  1026.55(b)(4) because the consumer pays the minimum payment more 
than 60 days late. In both these proposed examples, the change in the 
margin occurs after December 31, 2020, but prior to the date that the 
card issuer provides a change-in-terms notice under Sec.  1026.9(c)(2), 
disclosing the replacement index for the variable rates.
    Proposed comment 55(b)(7)(ii)-3 provided that the replacement index 
and replacement margin are not required to produce an APR that is 
substantially similar on the day that the replacement index and 
replacement margin become effective on the plan. Proposed comment 
55(b)(7)(ii)-3.i provided an example to illustrate this comment.
Comments Received
    In response to the proposal, the industry commenters generally 
provided the same comments for both proposed Sec. Sec.  
1026.40(f)(3)(ii) for HELOCs and 1026.55(b)(7) for credit card accounts 
under an open-end (not home-secured) consumer credit plan. Similarly, 
the consumer group commenters also provided the same comments for both 
proposed Sec. Sec.  1026.40(f)(3)(ii) for HELOCs and 1026.55(b)(7) for 
credit card accounts under an open-end (not home-secured) consumer 
credit plan. These comments from industry and consumer groups are 
described in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii).
The Final Rule
    This final rule adopts Sec.  1026.55(b)(7)(ii) generally as 
proposed with the following three revisions: (1) Sets April 1, 2022, as 
the date on or after which card issuers are permitted to replace the 
LIBOR index used under the plan pursuant to Sec.  1026.55(b)(7)(ii) 
prior to LIBOR becoming unavailable; (2) sets October 18, 2021, as the 
date card issuers generally must use for selecting indices values in 
determining whether the APRs using the LIBOR index and the replacement 
index are substantially similar; and (3) provides that if the 
replacement index is not published on October 18, 2021, the card issuer 
generally must use the next calendar day for which both the LIBOR index 
and the replacement index are published as the date for selecting 
indices values in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR 
index.\140\ This final rule adopts comments 55(b)(7)(ii)-1 through -3 
generally as proposed with several revisions to provide additional 
detail on the Sec.  1026.55(b)(7)(ii) provision, including providing 
(1) examples of the type of factors to be considered in whether a 
replacement index meets the Regulation Z ``historical fluctuations are 
substantially similar'' standard with respect to a particular LIBOR 
index for credit card accounts; and (2) if a card issuer uses the SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index as 
the replacement index and uses as the replacement margin the same 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan, the card issuer 
will be deemed to be in compliance with the condition in Sec.  
1026.55(b)(7)(ii) that the replacement index and replacement margin 
would have resulted in an APR substantially similar to the rate 
calculated using the LIBOR index.
---------------------------------------------------------------------------

    \140\ As set forth in Sec.  1026.55(b)(7)(ii), one exception is 
that if the replacement index is the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 
1-month, 3-month, 6-month, or 1-year USD LIBOR index, the card 
issuer must use the index value on June 30, 2023, for the LIBOR 
index and, for the SOFR-based spread-adjusted index for consumer 
products, must use the index value on the first date that index is 
published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index.
---------------------------------------------------------------------------

    To effectuate the purposes of TILA and to facilitate compliance, 
the Bureau is using its TILA section 105(a) authority to adopt new 
LIBOR-specific provisions under Sec.  1026.55(b)(7)(ii).

[[Page 69764]]

TILA section 105(a) \141\ directs the Bureau to prescribe regulations 
to carry out the purposes of TILA, and provides that such regulations 
may contain additional requirements, classifications, differentiations, 
or other provisions, and may provide for such adjustments and 
exceptions for all or any class of transactions, that, in the judgment 
of the Bureau, are necessary or proper to effectuate the purposes of 
TILA, to prevent circumvention or evasion thereof, or to facilitate 
compliance. In this final rule, the Bureau is adopting these LIBOR-
specific provisions to facilitate compliance with TILA and effectuate 
its purposes. Specifically, the Bureau interprets ``facilitate 
compliance'' to include enabling or fostering continued operation of 
variable-rate accounts in conformity with the law.
---------------------------------------------------------------------------

    \141\ 15 U.S.C. 1604(a).
---------------------------------------------------------------------------

    As a practical matter, Sec.  1026.55(b)(7)(ii) will allow card 
issuers to provide the 45-day change-in-terms notices required under 
Sec.  1026.9(c)(2) prior to the LIBOR indices becoming unavailable, and 
thus will allow those card issuers to avoid being left without a LIBOR 
index to use in calculating the variable rate before the replacement 
index and margin become effective. Also, Sec.  1026.55(b)(7)(ii) will 
allow card issuers to provide the change-in-terms notices, and replace 
the LIBOR index used under the plans, on accounts on a rolling basis, 
rather than having to provide the change-in-terms notices, and replace 
the LIBOR index, for all its accounts at the same time as the LIBOR 
index used under the plan becomes unavailable.
    The ARRC has indicated that the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products to replace 1-month, 3-
month, 6-month, or 1-year USD LIBOR index will not be published until 
Monday, July 3, 2023, which is the first weekday after Friday, June 30, 
2023, when LIBOR is currently anticipated to sunset for those USD LIBOR 
tenors. However, the Bureau wishes to facilitate an earlier transition 
for those card issuers who may want to transition to an index other 
than the SOFR-based spread-adjusted indices recommended by the ARRC for 
consumer products. Accordingly, the Bureau is making this rule 
effective on April 1, 2022.
    Without the LIBOR-specific provisions in Sec.  1026.55(b)(7)(ii), 
as a practical matter, card issuers would need to wait until the LIBOR 
index becomes unavailable to provide the 45-day change-in-terms notice 
under Sec.  1026.9(c)(2), disclosing the replacement index and 
replacement margin if the margin is changing (including disclosing any 
reduced margin in change-in-terms notices provided on or after October 
1, 2022, as required by revised Sec.  1026.9(c)(2)(v)(A)), and any 
increase in the periodic rate or APR as calculated using the 
replacement index \142\ The Bureau believes that this advance notice of 
the replacement index and any change in the margin is important to 
consumers to inform them of how variable rates will be determined going 
forward after the LIBOR index is replaced.
---------------------------------------------------------------------------

    \142\ See new comment 9(c)(2)(iv)-2.ii for additional details on 
how a card issuer may disclose information about the periodic rate 
and APR in a change-in-terms notice for credit card accounts when 
the card issuer is replacing a LIBOR index with the SOFR-based 
spread-adjusted index recommended by the ARRC for consumer products 
in certain circumstances.
---------------------------------------------------------------------------

    Card issuers generally would not be able to send out change-in-
terms notices disclosing the replacement index and replacement margin 
prior to LIBOR becoming unavailable.\143\ Card issuers generally would 
need to know the index values of the LIBOR index and the replacement 
index prior to sending out the change-in-terms notice so that they 
could disclose the replacement margin in the change-in-terms notice. 
Card issuers generally will not know these index values until the day 
that LIBOR becomes unavailable. Thus, card issuers generally would need 
to wait until LIBOR becomes unavailable before they could send the 45-
day change-in-terms notices under Sec.  1026.9(c)(2) to replace the 
LIBOR index with a replacement index. Some card issuers could be left 
without a LIBOR index value to use during the 45-day period before the 
replacement index and replacement margin become effective, depending on 
their existing contractual terms. The Bureau believes this could cause 
compliance and systems issues.
---------------------------------------------------------------------------

    \143\ One exception is when a card issuer is replacing the LIBOR 
index with the SOFR-based spread-adjusted index recommended by ARRC 
for consumer products as described in new comment 9(c)(2)(iv)-2.ii. 
See the section-by-section analysis of Sec.  1026.9(c)(2)(iv) for a 
discussion of this comment.
---------------------------------------------------------------------------

    Consistent conditions with Sec.  1026.55(b)(7)(i). For the same 
reasons discussed above in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B) for HELOC accounts, this final rule adopts 
conditions in the LIBOR-specific provisions in Sec.  1026.55(b)(7)(ii) 
for how a card issuer must select a replacement index and compare rates 
that are consistent with the conditions set forth in the unavailability 
provisions in Sec.  1026.55(b)(7)(i). For example, the availability 
provisions in Sec.  1026.55(b)(7)(i) and the LIBOR-specific provisions 
in Sec.  1026.55(b)(7)(ii) contain a consistent requirement that the 
APR calculated using the replacement index must be substantially 
similar to the rate calculated using the LIBOR index.\144\ In addition, 
both Sec.  1026.55(b)(7)(i) and (ii) contain consistent conditions for 
how a card issuer must select a replacement index.
---------------------------------------------------------------------------

    \144\ The conditions in Sec.  1026.55(b)(7)(i) and (ii) are 
consistent, but they are not the same. For example, although both 
provisions use the ``substantially similar'' standard to compare the 
rates, they use different dates for selecting the index values in 
calculating the rates. The provisions in Sec.  1026.55(b)(7)(i) and 
(ii) differ in the timing of when card issuers are permitted to 
transition away from LIBOR, which creates some differences in how 
the conditions apply.
---------------------------------------------------------------------------

    Historical fluctuations substantially similar for the LIBOR index 
and replacement index. This final rule adopts comment 55(b)(7)(ii)-1 
generally as proposed with several revisions as described below. 
Comment 55(b)(7)(ii)-1 provides detail on determining whether a 
replacement index that is not newly established has historical 
fluctuations that are substantially similar to those of the LIBOR index 
used under the plan for purposes of Sec.  1026.55(b)(7)(ii).
    Proposed comment 55(b)(7)(ii)-1 provided that for purposes of 
replacing a LIBOR index used under a plan pursuant to proposed Sec.  
1026.55(b)(7)(ii), a replacement index that is not newly established 
must have historical fluctuations that are substantially similar to 
those of the LIBOR index used under the plan, considering the 
historical fluctuations up through December 31, 2020, or up through the 
date indicated in a Bureau determination that the replacement index and 
the LIBOR index have historical fluctuations that are substantially 
similar, whichever is earlier.
    For the same reasons discussed in the section-by-section analysis 
of Sec.  1026.40(f)(3)(ii)(B) for HELOC accounts, this final rule 
revised comment 55(b)(7)(ii)-1 from the proposal to provide that for 
purposes of replacing a LIBOR index used under a plan pursuant to Sec.  
1026.55(b)(7)(ii), a replacement index that is not newly established 
must have historical fluctuations that are substantially similar to 
those of the LIBOR index used under the plan, considering the 
historical fluctuations up through the relevant date. If the Bureau has 
made a determination that the replacement index and the LIBOR index 
have historical fluctuations that are substantially similar, the 
relevant date is the date indicated in that determination

[[Page 69765]]

by the Bureau. If the Bureau has not made a determination that the 
replacement index and the LIBOR index have historical fluctuations that 
are substantially similar, the relevant date is the later of April 1, 
2022, or the date no more than 30 days before the card issuer makes a 
determination that the replacement index and the LIBOR index have 
historical fluctuations that are substantially similar.
    Prime has historical fluctuations that are substantially similar to 
those of certain USD LIBOR indices. To facilitate compliance, comment 
55(b)(7)(ii)-1.i includes a determination that Prime has historical 
fluctuations that are substantially similar to those of the 1-month and 
3-month USD LIBOR indices.\145\ This final rule revises comment 
55(b)(7)(ii)-1.i from the proposal to provide that this determination 
is effective as of April 1, 2022, the date on which this final rule 
becomes effective. The Bureau understands that some card issuers may 
choose to replace a LIBOR index with Prime. Comment 55(b)(7)(ii)-1.i 
also clarifies that in order to use Prime as the replacement index for 
the 1-month or 3-month USD LIBOR index, the card issuer also must 
comply with the condition in Sec.  1026.55(b)(7)(ii) that the Prime 
index value in effect on October 18, 2021, and replacement margin will 
produce an APR substantially similar to the rate calculated using the 
LIBOR index value in effect on October 18, 2021, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. This final rule revises 
55(b)(7)(ii)-1 from the proposal to delete the reference to the 
exception in Sec.  1026.55(b)(7)(ii) from using the index values on 
October 18, 2021. This exception is inapplicable because Prime and the 
LIBOR indices were published on October 18, 2021. This condition for 
comparing the rates under Sec.  1026.55(b)(7)(ii) is discussed in more 
detail below.
---------------------------------------------------------------------------

    \145\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) for a discussion of the rationale for the 
Bureau making this determination.
---------------------------------------------------------------------------

    Certain SOFR-based spread-adjusted indices recommended by the ARRC 
for consumer products have historical fluctuations that are 
substantially similar to those of certain USD LIBOR indices. To 
facilitate compliance, comment 55(b)(7)(ii)-1.ii provides a 
determination that the SOFR-based spread-adjusted indices recommended 
by the ARRC for consumer products to replace the 1-month, 3-month, or 
6-month USD LIBOR indices have historical fluctuations that are 
substantially similar to those of the 1-month, 3-month, or 6-month USD 
LIBOR indices respectively.\146\ The Bureau makes this determination in 
case some card issuers choose to replace a LIBOR index with the SOFR-
based spread-adjusted index recommended by the ARRC for consumer 
products.
---------------------------------------------------------------------------

    \146\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) for a discussion of the rationale for the 
Bureau making this determination.
---------------------------------------------------------------------------

    This final rule revises comment 55(b)(7)(ii)-1.ii from the proposal 
to provide that this determination is effective as of April 1, 2022, 
when this final rule becomes effective as discussed in more detail in 
part VI. For the same reasons as discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(A) with respect to comment 
40(f)(3)(ii)(A)-2.ii, this final rule also revises comment 
55(b)(7)(ii)-1.ii from the proposal to not include 1-year USD LIBOR in 
the comment at this time pending the Bureau's receipt of additional 
information and further consideration by the Bureau.
    Comment 55(b)(7)(ii)-1.ii also clarifies that in order to use the 
SOFR-based spread-adjusted index recommended by the ARRC for consumer 
products discussed above as the replacement index for the applicable 
LIBOR index, the card issuer also must comply with the condition in 
Sec.  1026.55(b)(7)(ii) that the SOFR-based spread-adjusted index for 
consumer products and replacement margin will produce an APR 
substantially similar to the rate calculated using the LIBOR index and 
the margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. This final rule 
revises comment 55(b)(7)(ii)-1.ii from the proposal to clarify that 
because of the exception in Sec.  1026.55(b)(7)(ii), the card issuer 
must use the index value on June 30, 2023, for the LIBOR index and, for 
the SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-year 
USD LIBOR index, must use the index value on the first date that index 
is published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index. 
Nonetheless, for the reasons discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(B), this final rule revises comment 
55(b)(7)(ii)-3 from the proposal to provide that for purposes of Sec.  
1026.55(b)(7)(ii), if a card issuer uses the SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 1-
month, 3-month, or 6-month USD index as the replacement index and uses 
as the replacement margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan, the 
card issuer will be deemed to be in compliance with the condition in 
Sec.  1026.55(b)(7)(ii) that the replacement index and replacement 
margin would have resulted in an APR substantially similar to the rate 
calculated using the LIBOR index. Thus, a card issuer that uses the 
SOFR-based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index as 
the replacement index still must comply with the condition in Sec.  
1026.55(b)(7)(ii) that the replacement index and replacement margin 
would have resulted in an APR substantially similar to the rate 
calculated using the LIBOR index, but the card issuer will be deemed to 
be in compliance with this condition if it uses as the replacement 
margin the same margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan. This 
condition under Sec.  1026.55(b)(7)(ii) and the related comment 
55(b)(7)(ii)-3 are discussed in more detail below.
    Additional examples of indices that have historical fluctuations 
that are substantially similar to those of certain USD LIBOR indices. 
As discussed in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii), many industry commenters generally urged the Bureau 
to provide additional examples of indices that have historical 
fluctuations that are substantially similar to those of particular 
LIBOR indices. Specifically, the Bureau received comments from industry 
requesting that the Bureau provide safe harbors for the following 
indices specifying that these indices have historical fluctuations that 
are substantially similar to those of certain LIBOR indices: (1) 
AMERIBOR[supreg] rates; (2) the EFFR; and (3) the CMT rates. For the 
reasons discussed above in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A), this final rule does not provide safe harbors 
indicating that the AMERIBOR[supreg] rates, the EFFR, or the CMT rates 
meet the Regulation Z ``historical fluctuations are substantially 
similar'' standard for appropriate replacement indices for a particular 
LIBOR index.
    Additional guidance on determining whether a replacement index has 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. As discussed in more detail in the section-
by-section analysis of Sec.  1026.40(f)(3)(ii), several

[[Page 69766]]

industry commenters asked the Bureau to provide additional guidance on 
how to determine whether a replacement index has historical 
fluctuations that are substantially similar to those of a particular 
LIBOR index, including providing a principles-based standard for 
determining when a replacement index has historical fluctuations that 
are substantially similar to those of LIBOR. For the same reasons 
discussed above in the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) for adopting new comment 40(f)(3)(ii)(A)-2.iii, 
this final rule adopts new comment 55(b)(7)(ii)-1.iii to provide a non-
exhaustive list of factors to be considered in whether a replacement 
index meets the Regulation Z ``historical fluctuations are 
substantially similar'' standard with respect to a particular LIBOR 
index. For the same reasons discussed above in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(A), this final rule does not set 
forth a principles-based standard for determining whether a replacement 
index has historical fluctuations that are substantially similar to 
those of the LIBOR index that is being replaced.
    Newly established index as replacement for the LIBOR index. Section 
1026.55(b)(7)(ii) generally provides if the replacement index is newly 
established and therefore does not have any rate history, it may be 
used if the replacement index value in effect on October 18, 2021, and 
the replacement margin will produce an APR substantially similar to the 
rate calculated using the LIBOR index value in effect on October 18, 
2021, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan. If the 
replacement index is not published on October 18, 2021, the card issuer 
generally must use the next calendar day for which both the LIBOR index 
and the replacement index are published as the date for selecting 
indices values in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR 
index.\147\
---------------------------------------------------------------------------

    \147\ The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the card issuer must use the index value on 
June 30, 2023, for the LIBOR index and, for the SOFR-based spread-
adjusted index for consumer products, must use the index value on 
the first date that index is published, in determining whether the 
APR based on the replacement index is substantially similar to the 
rate based on the LIBOR index.
---------------------------------------------------------------------------

    This final rule adopts Sec.  1026.55(b)(7)(ii) as proposed to 
provide the flexibility for card issuers to use newly established 
indices if certain conditions are met. The Bureau declines to adopt 
industry commenters' suggestions that the Bureau should provide greater 
detail to card issuers regarding the factors or considerations that 
should be taken into account to determine that an index is newly 
established. The Bureau also declines to adopt consumer groups' 
suggestion that the Bureau should restrict the use of new indices that 
lack historical data. For the reasons discussed in the section-by-
section analysis of Sec.  1026.40(f)(3)(ii)(A), the Bureau: (1) 
Believes it is appropriate to provide flexibility in Sec.  
1026.55(b)(7)(ii) for card issuers to use a newly established index to 
replace a LIBOR index if certain conditions are met; and (2) is not 
providing additional details in this final rule on the factors or 
considerations that must be taken into account to determine that an 
index is newly established.
    Substantially similar rate using index values in effect on October 
18, 2021, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan. 
Section 1026.55(b)(7)(ii) provides that, if the replacement index used 
under the plan is published on October 18, 2021, the replacement index 
value in effect on October 18, 2021, and the replacement margin must 
produce an APR substantially similar to the rate calculated using the 
LIBOR index value in effect on October 18, 2021, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. If the replacement index is not 
published on October 18, 2021, the card issuer generally must use the 
next calendar day for which both the LIBOR index and the replacement 
index are published as the date for selecting indices values in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index.\148\ 
Comment 55(b)(7)(ii)-2 provides details on this condition. This final 
rule adopts comment 55(b)(7)(ii)-2 as proposed with several revisions 
consistent with the revisions to Sec.  1026.55(b)(7)(ii) to: (1) Set 
April 1, 2022, as the date on or after which card issuers are permitted 
to replace the LIBOR index used under the plan pursuant to Sec.  
1026.55(b)(7)(ii) prior to LIBOR becoming unavailable; (2) set October 
18, 2021, as the date card issuers generally must use for selecting 
indices values in determining whether the APRs using the LIBOR index 
and the replacement index are substantially similar; and (3) provide 
that if the replacement index is not published on October 18, 2021, the 
card issuer generally must use the next calendar day for which both the 
LIBOR index and the replacement index are published as the date for 
selecting indices values in determining whether the APR based on the 
replacement index is substantially similar to the rate based on the 
LIBOR index.\149\
---------------------------------------------------------------------------

    \148\ The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the card issuer must use the index value on 
June 30, 2023, for the LIBOR index and, for the SOFR-based spread-
adjusted index for consumer products, must use the index value on 
the first date that index is published, in determining whether the 
APR based on the replacement index is substantially similar to the 
rate based on the LIBOR index.
    \149\ Id.
---------------------------------------------------------------------------

    In calculating the comparison rates using the replacement index and 
the LIBOR index used under the credit card account, Sec.  
1026.55(b)(7)(ii) generally require card issuers to use the index 
values for the replacement index and the LIBOR index in effect on 
October 18, 2021, (if the replacement index is published on that 
day).\150\ Section 1026.55(b)(7)(ii) provides exceptions to the general 
requirement to use the index values for the replacement index and the 
LIBOR index used under the plan in effect on October 18, 2021. Section 
1026.55(b)(7)(ii) provides that if the replacement index is not 
published on October 18, 2021, the card issuer generally must use the 
next calendar day that both the LIBOR index and the replacement index 
are published as the date for selecting indices values in determining 
whether the APR based on the replacement index is substantially similar 
to the rate based on the LIBOR index. If the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR 
index, the card issuer must use the index value on June 30, 2023, for 
the LIBOR index and, for the SOFR-based spread-adjusted index for 
consumer products, must use the index value on the first date that 
index is published, in determining whether the APR based on the 
replacement index is substantially similar to the rate based on the 
LIBOR index.
---------------------------------------------------------------------------

    \150\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(B) for a discussion of why the Bureau adopted the 
October 18, 2021, date.
---------------------------------------------------------------------------

    This final rule adopts Sec.  1026.55(b)(7)(ii) as proposed to use a 
single day to compare the rates. For the same reasons discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(B) for HELOCs, 
the Bureau declines to adopt industry

[[Page 69767]]

commenters' suggestions that the Bureau should (1) give card issuers 
the option to either use a single date for purposes of the index values 
or use the median value of the difference between the two indices over 
a slightly longer period of time; or (2) require the use of the 
historical spread rather than the spread on a specific day in comparing 
rates to help ensure such rates are substantially similar to each 
other. The Bureau also declines to adopt consumer group commenters' 
suggestion that the Bureau should require card issuers to use a 
historical median value rather than the value from a single day when 
comparing a potential replacement to the original index rate.
    Under Sec.  1026.55(b)(7)(ii), in calculating the comparison rates 
using the replacement index and the LIBOR index used under the credit 
card plan, the card issuer must use the margin that applied to the 
variable rate immediately prior to when the card issuer provides the 
change-in-terms notice disclosing the replacement index for the 
variable rate. For the same reasons as discussed in the section-by-
section analysis of Sec.  1026.40(f)(3)(ii)(B) for HELOCs, this final 
rule adopts Sec.  1026.55(b)(7)(ii) as proposed to require that card 
issuers must use this margin.
    Comment 55(b)(7)(ii)-2 also explains that the margin that applied 
to the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan is the margin that applied to the variable 
rate immediately prior to when the card issuer provides the change-in-
terms notice disclosing the replacement index for the variable rate. 
Comment 55(b)(7)(ii)-2.i provided examples to illustrate this comment 
for the following two different scenarios: (1) When the margin used to 
calculate the variable rate is increased pursuant to Sec.  
1026.55(b)(3) for new transactions; and (2) when the margin used to 
calculate the variable rate is increased for the outstanding balances 
and new transactions pursuant to Sec.  1026.55(b)(4) because the 
consumer pays the minimum payment more than 60 days late. This final 
rule adopts these examples in comment 55(b)(7)(ii)-2.i as proposed with 
revisions consistent with the revisions to Sec.  1026.55(b)(7)(ii) and 
to clarify the references to the prime rate and the LIBOR index used in 
the examples.
    Comment 55(b)(7)(ii)-3 clarifies that the replacement index and 
replacement margin are not required to produce an APR that is 
substantially similar on the day that the replacement index and 
replacement margin become effective on the plan. Comment 55(b)(7)(ii)-
3.i also provides an example to illustrate this comment. This final 
rule adopts comment 55(b)(7)(ii)-3 generally as proposed with several 
revisions consistent with the revisions to Sec.  1026.55(b)(7)(ii) to: 
(1) Set April 1, 2022, as the date on or after which card issuers are 
permitted to replace the LIBOR index used under the plan pursuant to 
Sec.  1026.55(b)(7)(ii) prior to LIBOR becoming unavailable; (2) set 
October 18, 2021, as the date card issuers generally must use for 
selecting indices values in determining whether the APRs using the 
LIBOR index and the replacement index are substantially similar; and 
(3) provide that if the replacement index is not published on October 
18, 2021, the card issuer generally must use the next calendar day for 
which both the LIBOR index and the replacement index are published as 
the date for selecting indices values in determining whether the APR 
based on the replacement index is substantially similar to the rate 
based on the LIBOR index.\151\ This final rule also revises the example 
set forth in comment 55(b)(7)(ii)-3 from the proposal to clarify the 
prime index and LIBOR index used in the example. As discussed in more 
detail below, this final rule also revises comment 55(b)(7)(ii)-3 from 
the proposal to provide additional detail on how the condition in Sec.  
1026.55(b)(7)(ii) that the replacement index and replacement margin 
would have resulted in an APR substantially similar to the rate 
calculated using the LIBOR index applies to the SOFR-based spread-
adjusted indices recommended by the ARRC for consumer products to 
replace the 1-month, 3-month, or 6-month, USD LIBOR index.
---------------------------------------------------------------------------

    \151\ Id.
---------------------------------------------------------------------------

    The Bureau believes that it would raise compliance issues if the 
rate calculated using the replacement index and replacement margin at 
the time the replacement index and replacement margin became effective 
had to be substantially similar to the rate calculated using the LIBOR 
index in effect on October 18, 2021. Under Sec.  1026.9(c)(2), the card 
issuer must provide a change-in-terms notice of the replacement index 
and replacement margin (including a reduced margin in a change-in-terms 
notice provided on or after October 1, 2022, as required by revised 
Sec.  1026.9(c)(2)(v)(A)) at least 45 days prior to the effective date 
of the changes. The Bureau believes that this advance notice is 
important to consumers to inform them of how variable rates will be 
determined going forward after the LIBOR index is replaced. Because 
advance notice of the changes must be given prior to the changes 
becoming effective, a card issuer would not be able to ensure that the 
rate based on the replacement index and replacement margin at the time 
the change-in-terms notice becomes effective will be substantially 
similar to the rate calculated using the LIBOR index in effect on 
October 18, 2021. The value of the replacement index may change after 
October 18, 2021, and before the change-in-terms notice becomes 
effective.
    This final rule does not provide additional details on the 
``substantially similar'' standard in comparing the rates for purposes 
of Sec.  1026.55(b)(7)(ii). For the reasons discussed in the section-
by-section analysis of Sec.  1026.40(f)(3)(ii)(A), the Bureau declines 
to adopt industry commenters' suggestions that the Bureau should 
provide greater detail as to the process card issuers must use to 
determine whether an APR calculated using a replacement index is 
substantially similar to the APR using the LIBOR index for purposes of 
Sec. Sec.  1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii). 
The Bureau also declines to adopt consumer group commenters' suggestion 
that the Bureau should interpret ``substantially similar'' to require 
card issuers to minimize any value transfer when selecting a 
replacement index and setting a new margin for purposes of Sec. Sec.  
1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii).
    As discussed above, comment 55(b)(7)(ii)-1.ii clarifies that in 
order to use the SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products as the replacement index for the applicable 
LIBOR index, the card issuer must comply with the condition in Sec.  
1026.55(b)(7)(ii) that the SOFR-based spread-adjusted index for 
consumer products and replacement margin would have resulted in an APR 
substantially similar to the rate calculated using the LIBOR index. 
This final rule revises comment 55(b)(7)(ii)-1.ii from the proposal to 
provide that because of the exception in Sec.  1026.55(b)(7)(ii), the 
card issuer must use the index value on June 30, 2023, for the LIBOR 
index and, for the SOFR-based spread-adjusted index for consumer 
products, must use the index value on the first date that index is 
published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index.
    For the same reasons discussed in the section-by-section analysis 
of Sec.  1026.40(f)(3)(ii)(A) for adopting comment 40(f)(3)(ii)(A)-3, 
this final rule revises comment 55(b)(7)(ii)-3 from the

[[Page 69768]]

proposal to provide that for purposes of Sec.  1026.55(b)(7)(ii), if a 
card issuer uses the SOFR-based spread-adjusted index recommended by 
the ARRC for consumer products to replace the 1-month, 3-month, or 6-
month USD LIBOR index as the replacement index and uses as the 
replacement margin the same margin that applied to the variable rate 
immediately prior to the replacement of the LIBOR index used under the 
plan, the card issuer will be deemed to be in compliance with the 
condition in Sec.  1026.55(b)(7)(ii) that the replacement index and 
replacement margin would have resulted in an APR substantially similar 
to the rate calculated using the LIBOR index.\152\ Thus, a card issuer 
that uses the SOFR-based spread-adjusted index recommended by the ARRC 
for consumer products to replace the 1-month, 3-month, or 6-month USD 
LIBOR index as the replacement index still must comply with the 
condition in Sec.  1026.55(b)(7)(ii) that the replacement index and 
replacement margin would have resulted in an APR substantially similar 
to the rate calculated using the LIBOR index, but the card issuer will 
be deemed to be in compliance with this condition if the card issuer 
uses as the replacement margin the same margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR index 
used under the plan. For the same reasons discussed in the section-by-
section analysis of Sec.  1026.40(f)(3)(ii)(A) in relation to comment 
40(f)(3)(ii)(A)-3, the Bureau is reserving judgment about whether to 
include a reference to the 1-year USD LIBOR index in comment 
55(b)(7)(ii)-3 until it obtains additional information.
---------------------------------------------------------------------------

    \152\ See the section-by-section analysis of Sec.  
1026.40(f)(3)(ii)(A) for a discussion of the rationale for the 
Bureau making this determination.
---------------------------------------------------------------------------

Section 1026.59 Reevaluation of Rate Increases

    TILA section 148, which was added by the Credit CARD Act, provides 
that if a creditor increases the APR applicable to a credit card 
account under an open-end consumer credit plan, based on factors 
including the credit risk of the obligor, market conditions, or other 
factors, the creditor shall consider changes in such factors in 
subsequently determining whether to reduce the APR for such 
obligor.\153\ Section 1026.59 implements this provision. The provisions 
in Sec.  1026.59 generally apply to card issuers that increase an APR 
applicable to a credit card account, based on the credit risk of the 
consumer, market conditions, or other factors. For any rate increase 
imposed on or after January 1, 2009, card issuers generally are 
required to review the account no less frequently than once each six 
months and, if appropriate based on that review, reduce the APR. The 
requirement to reevaluate rate increases applies both to increases in 
APRs based on consumer-specific factors, such as changes in the 
consumer's creditworthiness, and to increases in APRs imposed based on 
factors that are not specific to the consumer, such as changes in 
market conditions or the card issuer's cost of funds. If based on its 
review a card issuer is required to reduce the rate applicable to an 
account, the rule requires that the rate be reduced within 45 days 
after completion of the evaluation. Section 1026.59(f) requires that a 
card issuer continue to review a consumer's account each six months 
unless the rate is reduced to the rate in effect prior to the increase.
---------------------------------------------------------------------------

    \153\ 15 U.S.C. 1665c.
---------------------------------------------------------------------------

    As discussed in part III, the industry has raised concerns about 
how the requirements in Sec.  1026.59 would apply to accounts that are 
transitioning away from using LIBOR indices. The Bureau believes that 
the anticipated sunset of the LIBOR indices and transition to a new 
index for credit card accounts presents two interrelated issues with 
respect to compliance with Sec.  1026.59 generally. First, the 
transition from a LIBOR index to a different index on an account under 
Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii) may constitute a rate 
increase for purposes of whether an account is subject to Sec.  
1026.59. Under current Sec.  1026.59, a potential rate increase could 
occur at the time of transition from the LIBOR index to a different 
index, or it could occur at a later time. Second, Sec.  1026.59(f) 
states that, once an account is subject to the general provisions of 
Sec.  1026.59, the obligation to review factors under Sec.  1026.59(a) 
ceases to apply if the card issuer reduces the APR to a rate equal to 
or less than the rate applicable immediately prior to the increase, or 
if the rate immediately prior to the increase was a variable rate, to a 
rate equal to or less than a variable rate determined by the same index 
and margin that applied prior to the increase. In the case where the 
LIBOR index is no longer available to serve as the ``same index'' that 
applied prior to the increase, the current regulation does not provide 
a mechanism by which a card issuer can determine the rate at which it 
can discontinue the obligation to review factors.
    The Bureau proposed revisions and additions to the regulation and 
commentary of Sec.  1026.59 to address these two issues. With respect 
to the first issue, the addition of proposed Sec.  1026.59(h) would 
have excepted rate increases that occur as a result of the transition 
from the LIBOR index to another index under proposed Sec.  
1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii) from triggering the 
requirements of Sec.  1026.59. The proposed provision would not have 
excepted rate increases already subject to the requirements of Sec.  
1026.59 prior to the transition from the LIBOR index from the 
requirements of Sec.  1026.59. With respect to the second issue, 
proposed Sec.  1026.59(f)(3) provided a mechanism by which card issuers 
can determine the rate at which they can discontinue the obligations 
under Sec.  1026.59 where the rate applicable immediately prior to the 
increase was a variable rate with a formula based on a LIBOR index.
    As discussed in more detail below, the Bureau also proposed 
technical edits to comment 59(d)-2 to replace references to LIBOR with 
references to the SOFR index.
    This final rule adopts Sec.  1026.59(f)(3) generally as proposed 
with several revisions to be consistent with revisions to Sec.  
1026.55(b)(7)(ii) as proposed. The final rule adopts Sec.  1026.59(h) 
and comment 59(d)-2 as proposed.
59(d) Factors
    Section 1026.59(d) identifies the factors that card issuers must 
review if they increase an APR that applies to a credit card account 
under an open-end (not home-secured) consumer credit plan. Under Sec.  
1026.59(a), if a card issuer evaluates an existing account using the 
same factors that it considers in determining the rates applicable to 
similar new accounts, the review of factors need not result in existing 
accounts being subject to exactly the same rates and rate structure as 
a creditor imposes on similar new accounts. Comment 59(d)-2 provides an 
illustrative example in which a creditor may offer variable rates on 
similar new accounts that are computed by adding a margin that depends 
on various factors to the value of the LIBOR index. In light of the 
anticipated discontinuation of LIBOR, the Bureau proposed to amend the 
example in comment 59(d)-2 to substitute a SOFR index for the LIBOR 
index. The Bureau also proposed to make technical changes for clarity 
by changing ``prime rate'' to ``prime index.'' In addition, the Bureau 
proposed to change ``creditor'' to ``card issuer'' in the comment to be 
consistent with the terminology used in Sec.  1026.59. No commenters 
addressed the proposed amendments to comment 59(d)-2. The

[[Page 69769]]

Bureau is finalizing the amendments to comment 59(d)-2 as proposed.
59(f) Termination of the Obligation To Review Factors
59(f)(3)
The Bureau's Proposal
    Section 1026.59(f) provides that the obligation to review factors 
under Sec.  1026.59(a) ceases to apply if the card issuer reduces the 
APR to a rate equal to or less than the rate applicable immediately 
prior to the increase, or if the rate applicable immediately prior to 
the increase was a variable rate, to a rate determined by the same 
index and margin (previous formula) that applied prior to the increase. 
Once LIBOR is discontinued, it will not be possible for card issuers to 
use the ``same index.'' Thus, the existing methods to terminate the 
obligation to review would not apply when LIBOR discontinues to 
accounts in which the comparison rate is derived using a LIBOR index.
    Accordingly, the Bureau proposed to add Sec.  1026.59(f)(3) to 
provide a replacement formula that the card issuers could use, 
effective March 15, 2021, to terminate the obligation to review factors 
under Sec.  1026.59(a) when the rate applicable immediately prior to 
the increase was a variable rate with a formula based on a LIBOR index. 
Under proposed Sec.  1026.59(f)(3), the replacement formula, which 
included the replacement index \154\ on December 31, 2020, plus 
replacement margin, would have been required to equal the LIBOR index 
value on December 31, 2020, plus the margin used to calculate the rate 
immediately prior to the increase. Proposed Sec.  1026.59(f)(3) also 
provided that a card issuer must satisfy the conditions set forth in 
proposed Sec.  1026.55(b)(7)(ii) for selecting a replacement index.
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    \154\ While other parts of the rule use ``replacement index'' to 
refer to the index used in the general variable rate that prices the 
account and in determining the account's interest rate, for purposes 
of Sec.  1026.59(f)(3) ``replacement index,'' as defined in final 
comment 59(f)-4, refers to the index used in the replacement 
formula, which identifies the value for benchmark comparison to 
determine if the obligation to conduct rate reevaluations 
terminates.
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    In addition, the Bureau proposed comment 59(f)-3 to set forth two 
examples of how to calculate the replacement formula: One to illustrate 
how to calculate the replacement formula if the account is subject to 
Sec.  1026.59 as of March 15, 2021, and one to illustrate how to 
calculate the replacement formula where the account is not subject to 
Sec.  1026.59 at that time, but would have become subject prior to the 
account transitioning from LIBOR in accordance with Sec.  
1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii). The Bureau also proposed 
comment 59(f)-4 to provide further clarification on how the replacement 
index must be selected and to refer to the requirements described in 
proposed Sec.  1026.55(b)(7)(ii) and proposed comment 55(b)(7)(ii)-1.
    Proposed Sec.  1026.59(f)(3) was intended to apply to situations in 
which a LIBOR index was used as the index in the formula used to 
determine the rate at which the obligation to review factors 
ceases,\155\ and as a result would be impacted by the LIBOR 
discontinuation.
---------------------------------------------------------------------------

    \155\ As noted below in the discussion regarding the Bureau's 
proposed Sec.  1026.59(h)(3), proposed Sec.  1026.59(f)(3) was not 
intended to apply to rate increases that may result from the switch 
from a LIBOR index to another index under proposed Sec.  
1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii) as those potential rate 
increases would be excepted from the provisions of Sec.  1026.59 
under those provisions. Proposed Sec.  1026.59(f)(3) was, however, 
intended to cover rate increases that were already subject to the 
provisions of Sec.  1026.59 and use a formula under Sec.  1026.59(f) 
based on a LIBOR index to determine whether to terminate the review 
obligations under Sec.  1026.59.
---------------------------------------------------------------------------

    Proposed Sec.  1026.59(f)(3) used December 31, 2020, as the value 
of both indices to provide a static and consistent reference point by 
which to determine the formula and was consistent with the index values 
used in proposed Sec.  1026.55(b)(7)(ii). If either the replacement 
index or the LIBOR index were not published on December 31, 2020, under 
the proposed rule, the card issuer would have been required to use the 
next available date that both indices are published as the index values 
to use to determine the replacement formula. Proposed Sec.  
1026.59(f)(3) also provided that in calculating the replacement 
formula, the card issuer must use the margin used to calculate the rate 
immediately prior to the rate increase.
    In essence, the proposed replacement formula would have been 
calculated as: (Replacement index on December 31, 2020) plus 
(replacement margin) equals (LIBOR index on December 31, 2020) plus 
(margin immediately prior to the rate increase). If the replacement 
index on December 31, 2020, the LIBOR index on December 31, 2020, and 
the margin immediately prior to the rate increase were known, the 
replacement margin would have been calculated. Once the replacement 
margin was calculated, the replacement formula was the replacement 
index value plus the replacement margin value.
    Proposed Sec.  1026.59(f)(3) provided that the replacement formula 
must equal the previous formula, within the context of the timing 
constraints (namely the value of the replacement and LIBOR indices as 
of December 31, 2020). The Bureau recognized that the requirement for 
the replacement formula to equate to the previous formula would 
potentially create inconsistency in rate identification for accounts 
that were subject to Sec.  1026.59 prior to the transition from LIBOR 
and those that were excepted from coverage due to the LIBOR transition 
under proposed Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii), in 
that the latter only required the new rate be substantially similar to 
the account's pre-transition rate. The Bureau solicited comment on 
whether the standard for proposed Sec.  1026.59(f)(3) should be that 
the replacement formula should be substantially similar to the previous 
formula (rather than equal to as in the proposal) to provide 
consistency with the language in proposed Sec.  1026.55(b)(7)(ii).
    As discussed in part VI, the Bureau proposed Sec.  1026.59(f)(3) to 
be effective as of March 15, 2021, for accounts that are subject to 
Sec.  1026.59 and use a LIBOR index as the index in the formula to 
determine the rate at which a card issuer can cease the obligation to 
review factors under Sec.  1026.59(a).
Comments Received and the Final Rule
    While the Bureau received general support for the provisions in 
Sec.  1026.59, as discussed in Sec.  1026.59(h)(3), it did not receive 
comments specific to its proposal in Sec.  1026.59(f)(3). For the 
reasons discussed in the proposal and having received no comments on 
proposed Sec.  1026.59(f)(3), the Bureau is finalizing it as proposed 
except to (1) adjust the effective date to April 1, 2022 and to adjust 
the date of comparison in the formula from December 31, 2020, to 
October 18, 2021, as discussed in the section-by-section of Sec.  
1026.55(b)(7)(ii); and (2) provide that if the replacement index is not 
published on October 18, 2021, the card issuer generally must use the 
next calendar day for which both the LIBOR index and the replacement 
index are published as the date for selecting the index values to use 
to determine the replacement formula.\156\
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    \156\ The one exception is that if the replacement index is the 
SOFR-based spread-adjusted index recommended by the ARRC for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year USD LIBOR index, the card issuer must use the index value on 
June 30, 2023, for the LIBOR index and, for the SOFR-based spread-
adjusted index, must use the index value on the first date that 
index is published, as the index values to use to determine the 
replacement formula.
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    Specifically, the Bureau is finalizing the addition of Sec.  
1026.59(f)(3), which provides a replacement formula that card issuers 
can use to terminate the obligation to review factors under Sec.  
1026.59(a) in the LIBOR transition for accounts where a LIBOR index was 
used as the index of comparison in the

[[Page 69770]]

formula for determining cessation. Assuming the replacement index is 
published on October 18, 2021, in the formula, the replacement index on 
October 18, 2021, plus replacement margin, must equal the LIBOR index 
value on October 18, 2021, plus the margin used to calculate the rate 
immediately prior to the increase.
    The Bureau is also finalizing comment 59(f)-3 and comment 59(f)-4, 
which provide examples and methods for identifying the replacement 
index to be used in the formula, generally as proposed, except to (1) 
adjust the effective date and date of comparison as discussed above for 
comment 59(f)-3; (2) clarify which prime index and LIBOR index are used 
in the examples in comment 59(f)-3; and (3) make revisions to comment 
59(f)-4 consistent with changes to Sec.  1026.55(b)(7)(ii) and 
accompanying commentary as proposed, as described in more detail in the 
section-by-section analysis of Sec.  1026.55(b)(7)(ii).
    As discussed below in part VI, the effective date for this 
provision is April 1, 2022.
59(h) Exceptions
59(h)(3) Transition From LIBOR Exception
The Bureau's Proposal
    Section 1026.59(h) provides two situations that are excepted from 
the requirements of Sec.  1026.59. Proposed Sec.  1026.59(h)(3) would 
have added a third exception based upon the transition from a LIBOR 
index to a replacement index used in setting a variable rate. 
Specifically, proposed Sec.  1026.59(h)(3) would have excepted from the 
requirements of Sec.  1026.59 increases in an APR that occurred as the 
result of the transition from the use of a LIBOR index as the index in 
setting a variable rate to the use of a replacement index in setting a 
variable rate if the change from the use of the LIBOR index to a 
replacement index occurred in accordance with proposed Sec.  
1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii).
    Proposed comment 59(h)-1 provided that the proposed exception to 
the requirements of Sec.  1026.59 did not apply to rate increases 
already subject to Sec.  1026.59 prior to the transition from the use 
of a LIBOR index as the index in setting a variable rate to the use of 
a different index in setting a variable rate, where the change from the 
use of a LIBOR index to a different index occurred in accordance with 
proposed Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii). In these 
circumstances, the Bureau proposed that the accounts should continue to 
be subject to the requirements of Sec.  1026.59 and consumers should 
not have to forego reviews on their accounts that could potentially 
result in rate reductions. In particular, proposed Sec.  
1026.55(b)(7)(i) and (ii) provided that the replacement index plus 
replacement margin must produce a rate that was substantially similar 
to the rate that was in effect at the time the original index became 
unavailable or the rate that was in effect based on the LIBOR index on 
December 31, 2020, depending on the provision. These provisions 
provided safeguards that the consumer will not be unduly harmed after 
the transition away from a LIBOR index with a rate that is not 
substantially similar to the rate prior to the transition. No similar 
safeguard exists for accounts on which a rate increase occurred prior 
to the transition away from LIBOR that subjected the account to the 
requirements of Sec.  1026.59. Absent the requirements of Sec.  
1026.59, issuers would not have to continue to review these accounts 
for possible rate reductions that could potentially bring the rate on 
the account in line with the rate prior to the increase, as the 
requirements of Sec.  1026.59 (and proposed Sec.  1026.59(f)(3)) ensure 
that the account continues to be reviewed for a rate reduction that 
could potentially return the rate on the account to a rate that is the 
same as the rate before the increase.
    The Bureau sought comment on issuers' understanding as to whether, 
and to what extent, the accounts in their portfolios would become 
subject to Sec.  1026.59 in the transition away from a LIBOR index 
under proposed Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii), 
absent the proposed Sec.  1026.59(h)(3) exception. The Bureau also 
sought comment on potential compliance issues in transitioning away 
from a LIBOR index if they became subject to the requirements of Sec.  
1026.59.
Comments Received
    The Bureau received comments from a few trade associations 
discussing the proposed changes. The commenters generally supported the 
proposed provisions in Sec.  1026.59, and specifically supported the 
Bureau's proposed changes for credit card issuers that would except 
them from requirements in Sec.  1026.59 should a LIBOR transition 
completed in accordance with final rule Sec.  1026.55(b)(7)(i) or Sec.  
1026.55(b)(7)(ii) result in an APR increase. Commenters encouraged the 
Bureau to finalize as proposed.
The Final Rule
    For the reasons discussed in the proposal and given the support 
from the comments received, the Bureau is finalizing the amendments to 
Sec.  1026.59(h)(3) as proposed.
    Specifically, Sec.  1026.59(h)(3) as finalized adds a third 
exception from the requirements of Sec.  1026.59 for increases in an 
APR that occur as the result of the transition from the use of a LIBOR 
index as the index in setting a variable rate to the use of a 
replacement index in setting a variable rate if the change from the use 
of the LIBOR index to a replacement index occurs in accordance with 
Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii).
    The Bureau is also finalizing comment 59(h)-1 as proposed, which 
clarifies that the exception to the requirements of Sec.  1026.59 does 
not apply to rate increases already subject to Sec.  1026.59 prior to 
the transition from the use of a LIBOR index as the index in setting a 
variable rate to the use of a different index in setting a variable 
rate, where the change from the use of a LIBOR index to a different 
index occurred in accordance with Sec.  1026.55(b)(7)(i) or Sec.  
1026.55(b)(7)(ii).
Appendix H to Part 1026--Closed-End Model Forms and Clauses
    Appendix H to part 1026 provides a sample form for ARMs for 
complying with the requirements of Sec.  1026.20(c) in form H-4(D)(2) 
and a sample form for ARMs for complying with the requirements of Sec.  
1026.20(d) in form H-4(D)(4).\157\ Both of these sample forms refer to 
the 1-year LIBOR. In light of the anticipated discontinuation of LIBOR, 
the Bureau proposed to substitute the 30-day average SOFR index for the 
1-year LIBOR index in the explanation of how the interest rate is 
determined in sample forms H-4(D)(2) and H-4(D)(4) in appendix H to 
provide more relevant samples. The Bureau also proposed to make related 
changes to other information listed on these sample forms, such as the 
effective date of the interest rate adjustment, the dates when future 
interest rate adjustments are scheduled to occur, the date the first 
new payment is due, the source of information about the index, the 
margin added in determining the new payment, and the limits on interest 
rate increases at each interest rate adjustment. To conform to the 
requirements in Sec.  1026.20(d)(2)(i) and (d)(3)(ii) and to make form 
H-4(D)(4) consistent with form H-4(D)(3), the Bureau also proposed to 
add the date of the disclosure at the top of form H-4(D)(4),

[[Page 69771]]

which was inadvertently omitted from the original form H-4(D)(4) as 
published in the Federal Register on February 14, 2013.\158\
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    \157\ The Bureau notes that these are not required forms and 
that forms that meet the requirements of Sec.  1026.20(c) or (d) 
would be considered in compliance with those subsections, 
respectively.
    \158\ 78 FR 10902, 11012 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau requested comment on whether the proposed revisions to 
sample forms H-4(D)(2) and H-4(D)(4) were appropriate and whether the 
Bureau should make any other changes to the forms in appendix H in 
connection with the LIBOR transition. The Bureau also requested comment 
on whether some creditors, assignees, or servicers might still wish to 
use the original forms H-4(D)(2) and H-4(D)(4) as published on February 
14, 2013, after this final rule's effective date if the Bureau 
finalized the proposed changes to forms H-4(D)(2) and H-4(D)(4). The 
Bureau explained that this might include, for example, creditors, 
assignees, or servicers who might wish to rely on the original sample 
forms for notices sent out for LIBOR loans after the proposed March 15, 
2021, effective date but before the LIBOR index is replaced or, 
alternatively, for non-LIBOR loans after the proposed effective date. 
The Bureau requested comment on whether it would be helpful for the 
Bureau to indicate in the final rule that the Bureau will deem 
creditors, assignees, or servicers properly using the original forms H-
4(D)(2) and H-4(D)(4) to be in compliance with the regulation with 
regard to the disclosures required by Sec.  1026.20(c) and (d) 
respectively, even after the final rule's effective date.
    The Bureau did not receive any comments on the proposed amendments 
to H-4(D)(2) and H-4(D)(4) in appendix H or on the issues on which the 
Bureau solicited comment. The Bureau is finalizing the amendments as 
proposed, with certain exceptions. The Bureau understands that the 
inadvertent omission of the date from the top sample form H-4(D)(4) may 
have caused some confusion. The Bureau also understands that some 
creditors, assignees, and servicers may find an example using a LIBOR 
index useful beyond the April 1, 2022, effective date.
    Accordingly, with respect to H-4(D)(4), from April 1, 2022, through 
September 30, 2023, the Bureau will consider creditors, assignees, or 
servicers to be in compliance with the requirements in Sec.  1026.20(d) 
if they use a format substantially similar to form H-4(D)(4) by either 
using the version of the form in effect prior to April 1, 2022 (denoted 
as ``Legacy Form'' in appendix H) that does not include the date at the 
top of the form, or by using the revised form put into effect on April 
1, 2022 (denoted as ``Revised Form'' in appendix H) that includes the 
date at the top of the form. Both versions of this form will be 
available for use in appendix H to demonstrate compliance with Sec.  
1026.20(d) from April 1, 2022, through September 30, 2023. On October 
1, 2023, the version of the form in effect prior to April 1, 2022, 
(denoted as ``Legacy Form'' in appendix H) will be removed and will no 
longer be available for use to demonstrate compliance with Sec.  
1026.20(d). In addition, the revised form of H-4(D)(4) that will become 
effective on April 1, 2022, (denoted as ``Revised Form'' in appendix H) 
provides an example of the form using a SOFR index. Because most tenors 
of USD LIBOR are not expected to be discontinued until June 30, 2023, 
this final rule retains through September 30, 2023, the sample form H-
4(D)(4) that was in effect prior to April 1, 2022, (denoted as ``Legacy 
Form'' in appendix H) that references a LIBOR index.
    New sample form H-4(D)(2) in appendix H effective April 1, 2022, 
(denoted as ``Revised Form'' in appendix H) that can be used for 
complying with Sec.  1026.20(c) provides an example using a SOFR index. 
This final rule also retains through September 30, 2023, the sample 
form H-4(D)(2) that was in effect prior to April 1, 2022, (denoted as 
``Legacy Form'' in appendix H) that provides an example using a LIBOR 
index.

VI. Effective Date

    In the 2020 Proposed Rule, the Bureau proposed to set the effective 
date for this final rule as March 15, 2021, with the exception of the 
updated change-in-term disclosure requirements for HELOCs and credit-
card accounts which would go into effect on October 1, 2021, consistent 
with TILA section 105(d).
    The Bureau received comments from industry and individual 
commenters on the proposed effective date. A trade association 
commenter and an individual commenter supported the March 15, 2021, 
proposed effective date, stating that it provided sufficient time for 
industry participants and consumers to prepare for the shift from LIBOR 
to an alternative index. Several trade associations that represented 
credit unions, student loan servicers, student loan lenders, collection 
agencies, and institutes of higher education requested that the Bureau 
consider setting an earlier effective date. These trade associations 
each individually cited the risk that the LIBOR index could become 
unrepresentative or unreliable before it became unavailable as the 
reason for setting an earlier date. A trade association commenter 
representing reverse mortgage creditors also requested that the Bureau 
set an earlier effective date for the final rule. This trade 
association was concerned that HUD may require reverse mortgage 
creditors for existing HECM products to begin using a replacement index 
identified by the Secretary of HUD earlier than March 15, 2021, which 
would conflict with the proposed provision allowing creditors for 
HELOCs to replace the LIBOR index on or after March 15, 2021.
    The Bureau is finalizing an effective date of April 1, 2022, for 
this final rule. The Bureau believes that the April 1, 2022, effective 
date will provide sufficient time for HELOC creditors and card issuers 
to transition away from a LIBOR index prior to LIBOR becoming 
unavailable, unreliable, or unrepresentative. This effective date 
generally would mean that the changes to the regulation and commentary 
would be effective for a long period of time prior to the expected 
discontinuation of LIBOR, which is projected to occur for most USD 
LIBOR tenors in June 2023. As discussed above in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(B), with respect to HECM reverse 
mortgages, the Bureau does not believe that the April 1, 2022, date 
will create conflicts with any rules issued by HUD related to the 
transition of existing HECMs to a replacement index.
    This final rule provides creditors, assignees, and servicers with 
flexibility and options regarding the requirements for the change-in-
terms notice and the post-consummation disclosure forms that may be 
used to demonstrate compliance. The Bureau notes that the updated 
change-in-terms disclosure requirements for HELOCs and credit card 
accounts in this final rule related to disclosing a reduction in a 
margin in the change-in-terms notices are effective on April 1, 2022, 
with a mandatory compliance date of October 1, 2022. This October 1, 
2022 date is consistent with TILA section 105(d), which generally 
requires that changes in disclosures required by TILA or Regulation Z 
have an effective date of the October 1 that is at least six months 
after the date the final rule is promulgated.\159\ Also, permitting 
optional compliance with the updated change-in-terms notice 
requirements from April 1, 2022, through September 30, 2022, is 
consistent with TILA section 105(d) which provides that a creditor may 
comply with newly promulgated disclosure requirements

[[Page 69772]]

prior to the effective date of the requirement.
---------------------------------------------------------------------------

    \159\ 15 U.S.C. 1604(d).
---------------------------------------------------------------------------

    The updated post-consummation disclosure forms in this final rule 
are effective on April 1, 2022, but are not the only forms available 
for use until October 1, 2023. This will provide creditors, assignees, 
or servicers with ample time to include a date at the top of the form 
that can be used for complying with Sec.  1026.20(d), if they are not 
doing so already, by providing time to transition away from relying on 
the currently-used sample form H-4(D)(4). Creditors, assignees, or 
servicers will have an 18-month interim period between April 1, 2022, 
through September 30, 2023, to make revisions to their forms. As stated 
above, from April 1, 2022, through September 30, 2023, the Bureau will 
consider creditors, assignees, or servicers to be in compliance with 
the requirements in Sec.  1026.20(d) if they use a format substantially 
similar to form H-4(D)(4), by either using the version of the form in 
effect prior to April 1, 2022 (denoted as ``Legacy Form'' in appendix 
H), or by using the revised form put into effect on April 1, 2022 
(denoted as ``Revised Form'' in appendix H). Both versions of form H-
4(D)(4) will be available for use in appendix H to demonstrate 
compliance with Sec.  1026.20(d) from April 1, 2022, through September 
30, 2023. On October 1, 2023, the version of the form in effect prior 
to April 1, 2022, (denoted as the ``Legacy Form'' in appendix H) will 
be removed and will no longer be available for use to demonstrate 
compliance with Sec.  1026.20(d) because it omitted the date at the top 
of the form. Also, a sample form using a LIBOR index will no longer be 
a relevant example. This final rule also adds a new sample form H-
4(D)(2) in appendix H effective April 1, 2022, (denoted as ``Revised 
Form'' in appendix H) that can be used for complying with Sec.  
1026.20(c) and provides an example using a SOFR index. This final rule 
also retains through September 30, 2023, the sample form H-4(D)(2) that 
was in effect prior to April 1, 2022, (denoted as ``Legacy Form'' in 
appendix H) that provides an example using a LIBOR index. On October 1, 
2023, the Legacy Form will be removed because a sample form using a 
LIBOR index will no longer be a relevant example.
    The Bureau recognizes that the use of forms H-4(D)(2) and H-4(D)(4) 
of appendix H to this part is not required. However, creditors, 
assignees, or servicers using them properly will be deemed to be in 
compliance with Sec.  1026.20(c) and (d).

VII. Dodd-Frank Act Section 1022(b) Analysis

A. Overview

    In developing this final rule, the Bureau has considered this final 
rule's potential benefits, costs, and impacts.\160\ In developing this 
final rule, the Bureau has consulted, or offered to consult with, the 
appropriate prudential regulators and other Federal agencies, including 
regarding consistency with any prudential, market, or systemic 
objectives administered by such agencies. The Bureau did not receive 
specific comments on its proposed section 1022(b) analysis.
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    \160\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
(12 U.S.C. 5512(b)(2)(A)) requires the Bureau to consider the 
potential benefits and costs of the regulation to consumers and 
covered persons, including the potential reduction of access by 
consumers to consumer financial products and services; the impact of 
rules on insured depository institutions and insured credit unions 
with $10 billion or less in total assets as described in section 
1026 of the Dodd-Frank Act (12 U.S.C. 5516); and the impact on 
consumers in rural areas.
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    This final rule is primarily designed to address potential 
compliance issues for creditors affected by the anticipated sunset of 
LIBOR. At this time, most tenors of USD LIBOR are expected to be 
discontinued in June 2023.
    This final rule amends and adds several provisions for open-end 
credit. First, this final rule adds LIBOR-specific provisions that 
permit creditors for HELOCs and card issuers for credit card accounts 
to replace the LIBOR index and adjust the margin used to set a variable 
rate on or after April 1, 2022, if certain conditions are met. 
Specifically, under this final rule, the APR calculated using the 
replacement index must be substantially similar to the rate calculated 
using the LIBOR index, based generally on the values of these indices 
on October 18, 2021.\161\ In addition, creditors for HELOCs and card 
issuers will be required to meet certain requirements in selecting a 
replacement index. Under this final rule, creditors for HELOCs and card 
issuers can select an index that is not newly established as a 
replacement index only if the index has historical fluctuations that 
are substantially similar to those of the LIBOR index. Creditors for 
HELOCs or card issuers can also use a replacement index that is newly 
established in certain circumstances. To reduce uncertainty with 
respect to selecting a replacement index that meets these standards, 
the Bureau is providing a non-exhaustive list of examples of the types 
of factors used to determine whether a replacement index has historical 
fluctuations that are substantially similar to those of the LIBOR 
index. Further, the Bureau is determining that Prime is an example of 
an index that has historical fluctuations that are substantially 
similar to those of certain USD LIBOR indices.\162\ The Bureau is also 
determining that certain spread-adjusted indices based on the SOFR 
recommended by the ARRC for consumer products are indices that have 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices.\163\ Finally, the Bureau is determining that 
if a HELOC creditor or card issuer replaces LIBOR indices with the 
SOFR-based spread-adjusted indices recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index, 
the APR that is calculated using those rates is substantially similar 
to the rate calculated using the LIBOR index so long as the creditor or 
card issuer uses as the replacement margin the same margin that was 
used prior to the index change.
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    \161\ If the replacement index is not published on October 18, 
2021, the creditor or card issuer generally must use the next 
calendar day for which both the LIBOR index and the replacement 
index are published as the date for selecting indices values in 
determining whether the APR based on the replacement index is 
substantially similar to the rate based on the LIBOR index. The one 
exception is that if the replacement index is the SOFR-based spread-
adjusted index recommended by the ARRC for consumer products to 
replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR index, 
the creditor or card issuer must use the index value on June 30, 
2023, for the LIBOR index and, for the SOFR-based spread-adjusted 
index, must use the index value on the first date that index is 
published, in determining whether the APR based on the replacement 
index is substantially similar to the rate based on the LIBOR index.
    \162\ Specifically, the Bureau is adding to the commentary a 
determination that Prime has historical fluctuations that are 
substantially similar to those of the 1-month and 3-month USD LIBOR.
    \163\ Specifically, the Bureau is adding to the commentary a 
determination that the SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products to replace the 1-
month, 3-month, or 6-month USD LIBOR indices have historical 
fluctuations that are substantially similar to those of the 1-month, 
3-month, or 6-month USD LIBOR indices respectively.
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    Second, the Bureau is providing additional details on how a 
creditor may disclose information about the periodic rate and APR in a 
change-in-terms notice for HELOCs and credit card accounts when the 
creditor is replacing a LIBOR index with the SOFR-based spread-adjusted 
index recommended by ARRC for consumer products to replace the 1-month, 
3-month, or 6-month USD LIBOR index in certain circumstances. 
Specifically, the Bureau is providing new commentary applicable to 
HELOCs and credit card accounts, providing that a creditor may comply 
with any requirement to disclose in the change-in-terms notice the 
amount of the periodic rate or APR (or changes in

[[Page 69773]]

these amounts) as calculated using the replacement index based on the 
best information reasonably available, clearly stating that the 
disclosure is an estimate. For example, in this situation, this new 
commentary provides the creditor may state that: (1) Information about 
the rate is not yet available but that the creditor estimates that, at 
the time the index is replaced, the rate will be substantially similar 
to what it would be if the index did not have to be replaced; and (2) 
the rate will vary with the market based on a SOFR index.
    Third, this final rule revises existing language in Regulation Z to 
allow creditors for HELOCs and card issuers to replace an index and 
adjust the margin on an account if the index becomes unavailable, if 
certain conditions are met.
    Fourth, this final rule revises change-in-terms notice 
requirements, effective April 1, 2022, with a mandatory compliance date 
of October 1, 2022, for HELOCs and credit card accounts to provide that 
if a creditor is replacing a LIBOR index on an account pursuant to the 
LIBOR-specific provisions or because the LIBOR index becomes 
unavailable as discussed above, the creditor must provide a change-in-
terms notice of any reduced margin that will be used to calculate the 
consumer's variable rate. This will help ensure that consumers are 
notified of how their variable rates will be determined after the LIBOR 
index is replaced.
    Fifth, this final rule adds a LIBOR-specific exception from the 
rate reevaluation requirements of Sec.  1026.59 applicable to credit 
card accounts for increases that occur as a result of replacing a LIBOR 
index with another index in accordance with the LIBOR-specific 
provisions or as a result of the LIBOR indices becoming unavailable as 
discussed above.
    Sixth, this final rule adds provisions to address how a card 
issuer, where an account was subject to the requirements of the 
reevaluation reviews in Sec.  1026.59 prior to the switch from a LIBOR 
index, can terminate the obligation to review where the rate applicable 
immediately prior to the increase was a variable rate calculated using 
a LIBOR index.
    Seventh, this final rule makes technical edits to existing 
commentary to replace LIBOR references with references to a SOFR index 
and to make related changes.
    The Bureau is also making several amendments to the closed-end 
provisions to address the anticipated sunset of LIBOR. First, the 
Bureau is providing a non-exhaustive list of examples of the types of 
factors used to determine whether a replacement index is comparable to 
a LIBOR index, and is amending existing commentary to identify specific 
indices as an example of a comparable index for purposes of the closed-
end refinancing provisions.\164\ Second, the Bureau is making technical 
edits to various closed-end provisions to replace LIBOR references with 
references to a SOFR index and to make related changes and corrections.
---------------------------------------------------------------------------

    \164\ Specifically, the Bureau is adding to the commentary an 
illustrative example indicating that a creditor does not add a 
variable-rate feature by changing the index of a variable-rate 
transaction from the 1-month, 3-month, or 6-month USD LIBOR index to 
the spread-adjusted index based on the SOFR recommended by the ARRC 
for consumer products as replacements for these indices, because the 
replacement index is a comparable index to the corresponding USD 
LIBOR index.
---------------------------------------------------------------------------

B. Provisions To Be Analyzed

    The analysis below considers the potential benefits, costs, and 
impacts to consumers and covered persons of significant provisions of 
this final rule (final provisions), which include the first, second, 
fourth, and fifth open-end provisions described above. The analysis 
also includes the first closed-end provision described above.\165\ 
Therefore, the Bureau has analyzed in more detail the following five 
final provisions:
---------------------------------------------------------------------------

    \165\ The Bureau does not believe that the other provisions 
described above would have any significant costs, benefits, or 
impacts for consumers or covered persons.
---------------------------------------------------------------------------

    1. LIBOR-specific provisions for index changes for HELOCs and 
credit card accounts;
    2. Commentary providing details on how a creditor may disclose 
information about the periodic rate and APR in a change-in-terms notice 
for HELOCs and credit card accounts when the creditor is replacing a 
LIBOR index with the SOFR-based spread-adjusted index recommended by 
the ARRC for consumer products in certain circumstances;
    3. Revisions to change-in-terms notices requirements for HELOCs and 
credit card accounts to disclose margin decreases, if any;
    4. LIBOR-specific exception from the rate reevaluation provisions 
applicable to credit card accounts; and
    5. Commentary providing a non-exhaustive list of examples of the 
types of factors used to determine whether a replacement index is 
comparable to a LIBOR index and stating that specific indices are 
comparable to certain LIBOR tenors for purposes of the closed-end 
refinancing provisions.
    Because this final rule addresses the transition of credit products 
from LIBOR to other indices, which should be complete within the next 
several years under both the baseline and this final rule, the analysis 
below is limited to considering the benefits, costs, and impacts of the 
final provisions over the next several years.

C. Data Limitations and Quantification of Benefits, Costs, and Impacts

    The discussion below relies on information that the Bureau has 
obtained from industry, other regulatory agencies, and publicly 
available sources. The Bureau has performed outreach on many of the 
issues addressed by this final rule, as described in part III. However, 
as discussed further below, the data are generally limited with which 
to quantify the potential costs, benefits, and impacts of the final 
provisions.
    In light of these data limitations, the analysis below generally 
provides a qualitative discussion of the benefits, costs, and impacts 
of the final provisions. General economic principles and the Bureau's 
expertise in consumer financial markets, together with the limited data 
that are available, provide insight into these benefits, costs, and 
impacts.

D. Baseline for Analysis

    In evaluating the potential benefits, costs, and impacts of this 
final rule, the Bureau takes as a baseline the current legal framework 
governing changes in indices used for variable-rate open-end and 
closed-end credit products, as applicable. The FCA has announced that 
it cannot guarantee the publication of certain USD LIBOR tenors beyond 
June 30, 2023, and has urged relevant parties to prepare for the 
transition to alternative reference rates. Therefore, it is likely that 
even under current regulations, existing contracts for HELOCs, credit 
card accounts, and closed-end credit that used those USD LIBOR tenors 
as an index will have transitioned to other indices soon after June 30, 
2023. Furthermore, for HELOCs, credit card accounts, and closed-end 
credit, this final rule will not significantly alter the requirements 
that replacement indices for a LIBOR index must satisfy, nor will it 
alter how these requirements must be evaluated. Hence, the analysis 
below assumes this final rule will not substantially alter the number 
of HELOCs, credit card accounts, and closed-end credit accounts 
switched from a LIBOR index to other indices nor is it likely to 
significantly alter the indices that HELOC creditors, card issuers, and 
closed-end creditors use to replace a LIBOR index (although, as 
discussed below, it is possible the final rule may

[[Page 69774]]

cause some HELOC creditors or card issuers to replace a LIBOR index 
with a SOFR-based spread-adjusted index, when under the baseline they 
would switch to a non SOFR-based index). This final rule will enable 
HELOC creditors, card issuers, and closed-end creditors under 
Regulation Z to transfer existing contracts away from a LIBOR index 
with more certainty about what is required by and permitted under 
Regulation Z. This final rule may also enable HELOC creditors and card 
issuers to transfer existing contracts away from a LIBOR index earlier 
than they could under the baseline, if they choose to do so.
    This final rule, however, does not excuse creditors or card issuers 
from noncompliance with contractual provisions. For example, a contract 
for a HELOC or a credit card account may provide that the creditor or 
card issuer respectively may not replace an index unilaterally under a 
plan unless the original index becomes unavailable. This final rule 
does not grant the creditor or card issuer authority to unilaterally 
replace a LIBOR index used under the plan before LIBOR becomes 
unavailable.

E. Potential Benefits and Costs of the Rule for Consumers and Covered 
Persons

    Reliable data on the indices credit products are linked to is not 
generally available, so the Bureau cannot estimate the dollar value of 
debt tied to LIBOR in the distinct credit markets that will be impacted 
by this final rule. However, the ARRC has estimated that in 2021 there 
was $1.3 trillion of mortgage debt (including ARMs and HELOCs) and $100 
billion of non-mortgage debt tied to LIBOR.\166\
---------------------------------------------------------------------------

    \166\ Alt. Reference Rates Comm., Progress Report: The 
Transition from U.S. Dollar LIBOR (Mar. 2021), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/USD-LIBOR-transition-progress-report-mar-21.pdf.
---------------------------------------------------------------------------

1. LIBOR-Specific Provisions for Index Changes for HELOCs and Credit 
Card Accounts
    For consumers with HELOCs and credit card accounts with APRs tied 
to a LIBOR index, and for creditors of HELOCs and card issuers with 
APRs tied to a LIBOR index, the main effect of the LIBOR-specific 
provisions that allow HELOC creditors or card issuers under Regulation 
Z to replace a LIBOR index before it becomes unavailable will be that 
some creditors and card issuers for HELOCs and credit card accounts 
respectively will switch those contracts from a LIBOR index to other 
indices earlier than they would have without the final provision.\167\ 
Since the LIBOR indices are likely to become unavailable after June 30, 
2023, and the final provision will allow creditors and card issuers 
under Regulation Z to switch on or after April 1, 2022, creditors and 
card issuers may be able to switch contracts from a LIBOR index to 
other indices roughly 15 months earlier than they would without the 
final provision (if permitted by the contractual provisions as 
discussed above). However, the ARRC has indicated that the SOFR-based 
spread-adjusted indices recommended by the ARRC for consumer products 
to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR index 
will not be published until Monday, July 3, 2023, and creditors 
switching contracts from a LIBOR index to a SOFR-based spread-adjusted 
index for consumer products will not be able to switch those contracts 
until the SOFR-based spread-adjusted index for consumer products is 
published. Since the LIBOR indices are likely to become unavailable 
after June 30, 2023, this provision is unlikely to allow creditors 
switching contracts from a LIBOR index to a SOFR-based spread-adjusted 
index for consumer products to switch earlier than they otherwise 
would. The Bureau cannot estimate how many accounts will be switched 
early because of this final provision, and it cannot estimate when 
these accounts will be switched from a LIBOR index under the final 
provision. The Bureau also cannot estimate the number of accounts that 
contractually cannot be switched from a LIBOR index until that LIBOR 
index becomes unavailable, although the Bureau believes that a larger 
proportion of HELOC contracts than credit card contracts are affected 
by this issue.\168\
---------------------------------------------------------------------------

    \167\ The LIBOR-specific provisions are set forth in Sec.  
1026.40(f)(3)(ii)(B) and related commentary for HELOC accounts, and 
in Sec.  1026.55(b)(7)(ii) and related commentary for credit card 
accounts.
    \168\ Furthermore, some HELOC creditors and card issuers may be 
able to switch indices from LIBOR to replacement indices even before 
LIBOR becomes unavailable (under the baseline) or April 1, 2022 
(under this final rule). For HELOCs, some creditors may be able to 
switch earlier if the consumer specifically agrees to the change in 
writing under Sec.  1026.40(f)(3)(iii). For credit card accounts 
that have been open for at least a year, card issuers may be able to 
switch indices earlier for new transactions under Sec.  
1026.55(b)(3). The Bureau cannot estimate the number of such 
accounts that could be switched early.
---------------------------------------------------------------------------

    The final provision also includes revisions to commentary to 
Regulation Z to (1) provide a non-exhaustive list of examples of the 
types of factors used to determine whether a replacement index has 
historical fluctuations that are substantially similar to those of the 
LIBOR index, (2) state that SOFR-based spread-adjusted indices 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month, or 6-month USD LIBOR index have historical fluctuations that 
are substantially similar to the applicable tenor of LIBOR, (3) state 
that Prime has historical fluctuations that are substantially similar 
to those of the 1-month and 3-month USD LIBOR, and (4) state that if a 
HELOC creditor or card issuer replaces LIBOR indices with the SOFR-
based spread-adjusted indices recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index, 
the APR that is calculated using those rates is substantially similar 
to the rate calculated using the LIBOR index so long as the creditor or 
card issuer uses as the replacement margin the same margin that was 
used prior to the index change. The Bureau believes that market 
participants, using analysis similar to that the Bureau has performed, 
would come to these conclusions even without this final commentary. 
Therefore, the Bureau estimates that this final commentary will not 
significantly change the indices that HELOC creditors or card issuers 
switch to, the dates on which indices are switched, or the manner in 
which those switches are made.
Potential Benefits and Costs to Consumers
    The Bureau believes that this final provision will benefit 
consumers primarily by making their experience transitioning from a 
LIBOR index more informed and less disruptive than it otherwise could 
be, although the Bureau does not have the data to quantify the value of 
this benefit. The Bureau expects this consumer benefit to arise because 
creditors for HELOCs and card issuers will have more time to transition 
contracts from LIBOR indices to replacement indices, giving them more 
time to plan for the transition, communicate with consumers about the 
transition, and avoid technical or system issues that could affect 
consumers' accounts during the transition. However, as discussed above, 
because the ARRC has indicated that the SOFR-based spread-adjusted 
indices recommended by the ARRC for consumer products to replace the 1-
month, 3-month, 6-month, or 1-year USD LIBOR index will not be 
published until Monday, July 3, 2023, the Bureau expects that this 
final provision is unlikely to allow creditors to switch to SOFR-based 
spread-adjusted indices for consumer products earlier than they would 
under the baseline. This will

[[Page 69775]]

limit the benefits of this final provision to consumers.
    The Bureau does not anticipate that the final provision will impose 
any significant costs on consumers on average. Under the final 
provision, creditors for HELOCs and card issuers will generally have to 
adjust margins used to calculate the variable rates on the accounts so 
that consumers' APRs are calculated using the value of the replacement 
index in effect on October 18, 2021, and the replacement margin will 
produce a rate that is substantially similar to their rates calculated 
using the value of the LIBOR index in effect on October 18, 2021, and 
the margins that applied to the variable rates immediately prior to the 
replacement of the LIBOR index. After the transition, consumers' APRs 
will be tied to the replacement indices and not to the LIBOR indices. 
Because the replacement indices creditors for HELOCs and card issuers 
will switch to are not identical to the LIBOR indices, they will not 
move identically to the LIBOR indices, and so for the roughly 15 months 
affected by this final provision (for contracts being switched to an 
index other than a SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products), affected consumers' payments will be 
different under the final provision than they would be under the 
baseline. On some dates in which indexed rates reset, some replacement 
indices may have increased relative to the LIBOR index. Consumers with 
these indices will then pay a cost due to this final provision until 
the next rate reset. On some dates in which indexed rates reset, some 
replacement indices may have decreased relative to the LIBOR index. 
Consumers with these indices will then benefit from this final 
provision until the next rate reset. Consumers vary in their 
constraints and preferences, the credit products they have, the dates 
those credit products reset, the replacement indices their creditors or 
card issuers will choose, and the transition dates their creditors or 
card issuers will choose. The benefits and costs that will accrue to 
consumers from this final provision and that arise because of 
differences in index movements will vary across consumers and over 
time. However, the Bureau expects ex-ante for these benefits and costs 
to be small on average, because the rates creditors or card issuers 
switch to must be substantially similar to existing LIBOR-based rates 
generally using index values in effect on October 18, 2021, and because 
replacement indices that are not newly established must have historical 
fluctuations that are substantially similar to those of the LIBOR 
index.
Potential Benefits and Costs to Covered Persons
    The Bureau believes this final provision will have three primary 
benefits for creditors for HELOCs and card issuers. First, under this 
final provision, these creditors and card issuers will have more 
certainty about the transition date and more time to make the 
transition away from the LIBOR indices. This should increase the 
ability of HELOC creditors and card issuers to plan for the transition, 
improving their communication with consumers about the transition, and 
decreasing the likelihood of technical or system issues that affect 
consumers' accounts during the transition. Both of these effects should 
lower the cost of the transition to creditors. However, as discussed 
above, because the ARRC has indicated that the SOFR-based spread-
adjusted indices recommended by the ARRC for consumer products to 
replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR index will 
not be published until Monday, July 3, 2023, this final provision is 
unlikely to allow creditors to switch to SOFR-based spread-adjusted 
indices for consumer products earlier than they would under the 
baseline. This will limit the benefits of this final provision to 
creditors.
    Second, this final provision will provide creditors for HELOCs and 
card issuers with additional detail for how to comply with their legal 
obligations under Regulation Z with respect to the LIBOR transition. 
This should decrease the cost of legal and compliance staff time 
preparing for the transition beforehand and dealing with litigation 
after.
    Third, this final provision will also include revisions to 
commentary on Regulation Z (1) providing a non-exhaustive list of 
examples of the types of factors used to determine whether a 
replacement index has historical fluctuations that are substantially 
similar to those of the LIBOR index, (2) stating that SOFR-based 
spread-adjusted indices recommended by the ARRC for consumer products 
to replace the 1-month, 3-month, or 6-month USD LIBOR index have 
historical fluctuations that are substantially similar to the 
applicable tenor of LIBOR, (3) stating that Prime has historical 
fluctuations that are substantially similar to those of the 1-month and 
3-month USD LIBOR index, and (4) stating that if a HELOC creditor or 
card issuer replaces LIBOR indices with the SOFR-based spread-adjusted 
indices recommended by the ARRC for consumer products to replace the 1-
month, 3-month, or 6-month USD LIBOR index, the APR that is calculated 
using those rates is substantially similar to the rate calculated using 
the LIBOR index so long as the creditor or card issuer uses as the 
replacement margin the same margin that was used prior to the index 
change. This should decrease the cost of compliance staff time coming 
to the same conclusions as the commentary before the transition from 
LIBOR, and it should decrease the cost of litigation after.
    As discussed under ``Potential Benefits and Costs to Consumers'' 
above, because the replacement indices that creditors for HELOCs and 
card issuers will switch to are not identical to the LIBOR indices, 
they will not move identically to the LIBOR indices, and so for the 
roughly 15 months affected by this final provision (for contracts being 
switched to an index other than a SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products), affected consumers' 
payments will be different under this final provision than they would 
be under the baseline. On some dates in which indexed rates reset, some 
replacement indices will have increased relative to the LIBOR index. 
HELOC creditors and card issuers with rates linked to these indices 
will then benefit from this final provision until the next rate reset. 
On some dates on which indexed rates reset, some replacement indices 
will have decreased relative to the LIBOR index. HELOC creditors and 
card issuers with rates linked to these indices will then pay a cost 
due to this final provision until the next rate reset. Creditors and 
card issuers vary in their constraints and preferences, the credit 
products they issue, the dates those credit products reset, the 
replacement indices they will choose under this final provision, and 
the transition dates they will choose under this final provision. The 
benefits and costs that will accrue to HELOC creditors and card issuers 
from this final provision and that arise because of differences in 
index movements will vary across creditors and card issuers and over 
time. However, the Bureau expects ex-ante for these benefits and costs 
to be small on average, because the rates creditors or card issuers 
switch to must be substantially similar to existing LIBOR-based rates 
generally using index values in effect on October 18, 2021, and 
replacement indices that are not newly established must have historical 
fluctuations that are substantially similar to those of the LIBOR 
index.
    This final provision will allow creditors for HELOCs and card 
issuers

[[Page 69776]]

under Regulation Z to switch contracts from a LIBOR index earlier than 
they otherwise would have, but it does not require them to do so. 
Therefore, this aspect of this final provision does not impose any 
significant costs on HELOC creditors and card issuers. The final 
commentary does not determine that any specific indices have historical 
fluctuations that are not substantially similar to those of LIBOR, so 
the final revisions will not prevent creditors or card issuers from 
switching to other indices as long as those indices still satisfy 
regulatory requirements. Therefore, the final commentary also does not 
impose any significant costs on HELOC creditors and card issuers. 
However, as noted above, the replacement indices HELOC creditors and 
card issuers choose may move less favorably for them than the LIBOR 
indices would have.
2. Commentary Providing Details on How a Creditor May Disclose 
Information About the Periodic Rate and APR in a Change-in-Terms Notice 
for HELOCs and Credit Card Accounts When the Creditor Is Replacing a 
LIBOR Index With the SOFR-Based Spread-Adjusted Index Recommended by 
the ARRC for Consumer Products in Certain Circumstances
    The Bureau is providing comment 9(c)(1)-4 for HELOCs and comment 
9(c)(2)(iv)-2.ii for credit card accounts to provide additional details 
for situations where (1) a creditor is replacing a LIBOR index with the 
SOFR-based spread-adjusted index recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index, 
(2) the creditor is not changing the margin used to calculate the 
variable rate as a result of the replacement, and (3) a periodic rate 
or the corresponding annual percentage rate based on the replacement 
index is unknown to the creditor at the time the change-in-terms notice 
is provided because the SOFR index has not been published at the time 
the creditor provides the change-in-terms notice but will be published 
by the time the replacement of the index takes effect on the account. 
In this case, new comments 9(c)(1)-4 and 9(c)(2)(iv)-2.ii provide that 
a creditor may comply with any requirement to disclose the amount of 
the periodic rate or APR (or changes in these amounts) as calculated 
using the replacement index based on the best information reasonably 
available, clearly stating that the disclosure is an estimate. For 
example, in this situation, comments 9(c)(1)-4 and 9(c)(2)(iv)-2.ii 
provide the creditor may state that: (1) Information about the rate is 
not yet available but that the creditor estimates that, at the time the 
index is replaced, the rate will be substantially similar to what it 
would be if the index did not have to be replaced; and (2) the rate 
will vary with the market based on a SOFR index.
    In these unique circumstances, the Bureau interprets Sec.  
1026.5(c) to be consistent with new comments 9(c)(1)-4 and 9(c)(2)(iv)-
2.ii. Section 1026.5(c) provides, in relevant part, that if any 
information necessary for accurate disclosure is unknown to the 
creditor, it must make the disclosure based on the best information 
reasonably available and must state clearly that the disclosure is an 
estimate. The Bureau believes that the main effect of this final 
commentary will be to facilitate compliance with change-in-terms notice 
requirements for creditors who wish to switch existing accounts from a 
LIBOR index to the SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products to replace the 1-month, 3-month, or 6-month 
USD LIBOR index in certain circumstances.
    Without this final commentary, it is not clear how creditors could 
provide required change-in-terms notices to switch consumers from a 
LIBOR index to a SOFR-based spread-adjusted index recommended by the 
ARRC for consumer products to replace the 1-month, 3-month, or 6-month 
USD LIBOR index, prior to the SOFR-based spread-adjusted index for 
consumer products being published. Therefore, it is not clear what 
creditors would do under the baseline absent this final commentary.
    Some creditors may be legally required to switch consumers to a 
SOFR-based spread-adjusted index for consumer products. Presumably, 
they would still do so even absent this final commentary, although they 
might face significant legal uncertainty and experience significant 
legal costs by doing so. They might face this legal uncertainty if they 
decide to send out the change-in-terms notice prior to the SOFR-based 
spread-adjusted index for consumer products being published. 
Alternatively, if they decide not to send out the change-in-terms 
notice until after the SOFR-based spread-adjusted index for consumer 
products is published, they might face legal uncertainty in how to 
calculate the rate after the LIBOR index is discontinued but prior to 
the SOFR-based spread-adjusted rate becoming effective on the account.
    Other creditors could choose under the baseline to switch to a 
SOFR-based spread-adjusted index for consumer products even if not 
required to do so. For these creditors, these final provisions will 
decrease costs by providing additional clarity and certainty about the 
required change-in-terms notices. These final provisions may also 
decrease litigation costs for these creditors after the transition from 
certain LIBOR indices to certain SOFR-based spread-adjusted indices for 
consumer products.
    Consumers with loans from these creditors would have their loans 
switched from LIBOR indices to SOFR-spread adjusted indices for 
consumer products both under this final rule and under the baseline. 
The Bureau expects that, under this final rule and under the baseline, 
these consumers would receive similar change-in-terms notices with only 
minimal adjustments to the content of those notices. Hence, the Bureau 
estimates that these final revisions will have no significant benefits, 
costs, or impacts for these consumers.
    However, other creditors that will switch to SOFR-based spread-
adjusted indices for consumer products under this final rule might be 
deterred by existing change-in-terms notice requirements from switching 
consumers to SOFR-based spread-adjusted indices for consumer products 
without this final provision. These creditors would choose different 
indices to replace LIBOR indices. Because these creditors would prefer 
to switch to SOFR-based spread-adjusted indices for consumer products 
and this final commentary will allow them to do so, the Bureau expects 
that this final commentary will generate substantial benefits for these 
creditors. However, the Bureau cannot estimate how many such creditors 
exist or the size of these benefits to them.
    Consumers with loans from these creditors would have their loans 
switched to a SOFR-based index for consumer products under this final 
rule but would have their loans switched to some other index under the 
baseline. After the transition, consumers' APRs will be tied to these 
other indices rather than to the SOFR-based indices. Because these 
other replacement indices creditors would switch to are not identical 
to the SOFR-based indices, they will not move identically to the SOFR-
based indices, so affected consumers' payments will be different under 
the final commentary than they would be under the baseline. On some 
dates in which indexed rates reset, some replacement indices may have 
increased relative to a SOFR-based spread-adjusted index for consumer 
products. Consumers with these indices will then pay a cost due to this 
final provision

[[Page 69777]]

until the next rate reset. On some dates in which indexed rates reset, 
some replacement indices may have decreased relative to a SOFR-based 
spread-adjusted index for consumer products. Consumers with these 
indices will then benefit from this final provision until the next rate 
reset. Consumers vary in their constraints and preferences, the credit 
products they have, the dates those credit products reset, the 
replacement indices their creditors would choose, and the transition 
dates their creditors will choose. The benefits and costs that will 
accrue to consumers from this final provision and that arise because of 
differences in index movements will vary across consumers and over 
time. However, the Bureau expects ex-ante for these benefits and costs 
to be small on average, because the rates creditors switch to must be 
substantially similar to existing LIBOR-based rates generally using 
index values in effect on October 18, 2021, and because replacement 
indices that are not newly established must have historical 
fluctuations that are substantially similar to those of the LIBOR 
index.
    While the final commentary provisions make minimal adjustments to 
the content of change-in-terms notices, they do not impose extra 
change-in-term requirements on creditors. Therefore, these final 
provisions will impose no significant costs on creditors.
3. Revisions to Change-in-Terms Notices Requirements for HELOCs and 
Credit Card Accounts To Disclose Margin Decreases, if Any
    The amendments to Sec.  1026.9(c)(1)(ii) and (c)(2)(v)(A) will, 
effective April 1, 2022, with a mandatory compliance date of October 1, 
2022, require creditors for HELOCs and card issuers to disclose margin 
reductions to consumers when they switch contracts from using LIBOR 
indices to other indices. Under both the existing regulation and this 
final provision, creditors for HELOCs and card issuers are required to 
send consumers change-in-terms notices when indices change, disclosing 
the replacement index and any increase in the margin. Therefore, this 
final provision will not affect the number of consumers who receive 
change-in-terms notices nor the number of change-in-terms notices 
creditors for HELOCs or card issuers must provide.
    The benefits, costs, and impacts of this final provision depend on 
whether HELOC creditors or card issuers would choose to disclose margin 
decreases even if not required to do so, as under the existing 
regulation. Creditors for HELOCs or card issuers that would not 
otherwise disclose margin decreases in their change-in-terms notices 
will bear the cost of having to provide slightly longer notices. They 
may also have to develop distinct notices for different groups of 
consumers with different initial margins. Consumers with HELOC or 
credit card accounts from those creditors or card issuers will benefit 
by having an improved understanding of how and why their APRs would 
change. However, the Bureau believes it is likely that most creditors 
for HELOCs and card issuers would choose to disclose margin decreases 
in their change-in-terms notices even if not required to do so, because 
margin decreases are beneficial for consumers, and because in these 
situations the creditors or card issuers likely benefit from improved 
consumer understanding. Further, compliance with this final provision 
will be mandatory only beginning October 1, 2022. HELOC creditors and 
card issuers that would prefer not to disclose margin decreases can 
choose to change indices before compliance with this final provision 
becomes mandatory (if the change in indices is permitted by the 
contractual provisions at that time). Therefore, the Bureau expects 
that both the benefits and costs of this final provision for consumers 
and HELOC creditors and card issuers will be small.
4. LIBOR-Specific Exception From the Rate Reevaluation Provisions 
Applicable to Credit Card Accounts
    Rate increases may occur due to the LIBOR transition either at the 
time of transition from the LIBOR index to a different index or at a 
later time. Under current Sec.  1026.59, in these scenarios card 
issuers would need to reevaluate the APRs until they equal or fall 
below what they would have been had they remained tied to LIBOR. This 
final provision set forth in new Sec.  1026.59(h)(3) and related 
commentary will except card issuers from these rate reevaluation 
requirements for rate increases that occur as a result of the 
transition from the LIBOR index to another index under the LIBOR-
specific provisions discussed above or under the existing regulation 
that allows card issuers to replace an index when the index becomes 
unavailable. This final provision will not except rate increases 
already subject to the rate reevaluation requirements prior to the 
transition from the LIBOR index to another index as discussed above. 
Because relative rate movements are hard to anticipate ex-ante, it is 
unlikely that this final provision will affect the indices that card 
issuers use as replacements. Because card issuers can only switch from 
LIBOR-based rates to rates that are substantially similar generally 
using index values in effect on October 18, 2021, and use a replacement 
index (if the replacement index is not newly established) that has 
historical fluctuations that are substantially similar to those of the 
LIBOR index, it is unlikely such rate reevaluations will result in 
significant rate reductions for consumers before LIBOR is discontinued. 
Therefore, before LIBOR is discontinued, the impact of this final 
provision on consumers is likely to be small. After LIBOR is 
discontinued, it will not be possible to compute what consumer rates 
would have been under the LIBOR indices, and so it is not clear how 
card issuers would conduct such rate reevaluations after that time. 
Therefore, after LIBOR is discontinued, the impact of this final 
provision on consumers is not clear. This final provision will benefit 
affected card issuers by saving them the cost of reevaluating rates 
until LIBOR is discontinued. This final provision will impose no costs 
on affected card issuers because they can still perform rate 
reevaluations if they choose to do so prior to LIBOR being 
discontinued.
5. Commentary Providing a Non-Exhaustive List of Examples of the Types 
of Factors Used To Determine Whether a Replacement Index Is Comparable 
to a LIBOR Index and Stating That Specific Indices Are Comparable to 
Certain LIBOR Tenors for Purposes of the Closed-End Refinancing 
Provisions
    The Bureau is adding comment 20(a)-3.iv to provide a non-exhaustive 
list of examples of the types of factors used to determine whether a 
replacement index is comparable to a LIBOR index and is amending 
comment 20(a)-3.ii.B to state that the SOFR-based spread-adjusted 
indices recommended by the ARRC for consumer products to replace the 1-
month, 3-month, or6-month USD LIBOR index are comparable to the 
applicable tenor of LIBOR. The Bureau believes that market 
participants, using analysis similar to that the Bureau has performed, 
would come to this conclusion even without this final commentary. 
Therefore, the Bureau believes that this final commentary will not 
significantly change the indices that creditors switch to, the dates on 
which indices are switched, or the manner in which those switches are 
made. Hence, the Bureau estimates that these final revisions will have 
no significant benefits, costs, or impacts for consumers.
    For creditors, this final provision will decrease costs by 
providing additional

[[Page 69778]]

clarity and certainty about whether indices are comparable for purposes 
of Regulation Z. For creditors that will switch from certain LIBOR 
indices to certain SOFR-based spread-adjusted indices for consumer 
products, this final provision will decrease the compliance staff time 
required to come to the conclusion that the SOFR index is comparable to 
the LIBOR index. This final provision will also decrease litigation 
costs for creditors after the transition from certain LIBOR indices to 
certain SOFR-based spread-adjusted indices for consumer products.
    The final commentary does not determine that any specific indices 
are not comparable to LIBOR. Therefore, this final provision will not 
prevent creditors from switching to other indices as long as those 
indices still satisfy regulatory requirements. Therefore, this final 
provision will impose no significant costs on creditors.

F. Alternative Provisions Considered

    As discussed above in the section-by-section analyses of Sec. Sec.  
1026.40(f)(3)(ii) and 1026.55(b)(7), the Bureau considered interpreting 
the LIBOR indices to be unavailable as of a certain date prior to LIBOR 
being discontinued. The Bureau briefly discusses the costs, benefits, 
and impacts of the considered interpretation below.
    If the Bureau were to interpret the LIBOR indices to be unavailable 
as of the effective date of this final rule (i.e., April 1, 2022) under 
the existing Regulation Z rules prior to LIBOR being discontinued, it 
could provide benefits similar to those of this final rule by allowing 
creditors and card issuers to switch away from LIBOR indices before 
LIBOR is discontinued. It might also potentially provide some benefit 
to consumers and covered persons whose contracts require them to wait 
until the LIBOR indices become unavailable before replacing the LIBOR 
index, by providing some additional clarity in interpreting that 
provision of their contracts.
    However, a determination by the Bureau that the LIBOR indices are 
unavailable as of the effective date of this final rule (i.e., April 1, 
2022) could have unintended consequences on other products or markets. 
For example, the Bureau believes that such a determination could 
unintentionally cause confusion for creditors for other products (e.g., 
ARMs) about whether the LIBOR indices are also unavailable for those 
products and could possibly put pressure on those creditors to replace 
the LIBOR index used for those products before those creditors are 
ready for the change. This could impose significant costs on affected 
consumers and creditors in the markets for these other products.
    In addition, even if the Bureau interpreted unavailability to 
indicate that the LIBOR indices are unavailable as of the effective 
date of this final rule (i.e., April 1, 2022) or as of June 30, 2023, 
(the date after which the FCA will consider most USD LIBOR tenors to be 
unrepresentative even if the rates are still being published), this 
interpretation would not completely solve the contractual issues for 
creditors and card issuers whose contracts require them to wait until 
the LIBOR indices become unavailable before replacing the LIBOR index. 
Creditors and card issuers still would need to decide for their 
contracts whether the LIBOR indices are unavailable, and that decision 
could result in litigation or arbitration under the contracts. Thus, 
even if the Bureau decided that the LIBOR indices are unavailable under 
Regulation Z as described above, creditors and card issuers whose 
contracts require them to wait until the LIBOR indices become 
unavailable before replacing the LIBOR index essentially would be in 
the same position under this considered interpretation as they would be 
under the current rule. Therefore, the benefits of the considered 
interpretation would be small even for the main intended beneficiaries 
of such an interpretation, specifically the consumers, creditors, and 
card issuers under contracts that require creditors and card issuers to 
wait until the LIBOR indices become unavailable before replacing the 
LIBOR index.

G. Potential Specific Impacts of This Final Rule

1. Depository Institutions and Credit Unions With $10 Billion or Less 
in Total Assets, as Described in Section 1026
    The Bureau believes that the consideration of benefits and costs of 
covered persons presented above provides a largely accurate analysis of 
the impacts of these final provisions on depository institutions and 
credit unions with $10 billion or less in total assets that issue 
credit products that are tied to LIBOR and are covered by these final 
provisions.
2. Impact of This Final Rule on Consumer Access to Credit and on 
Consumers in Rural Areas
    Because this final rule will affect only existing accounts that are 
tied to LIBOR and will generally not affect new loans, this final rule 
will not directly impact consumer access to credit. While this final 
rule will provide some benefits and costs to creditors and card issuers 
in connection to the transition away from LIBOR, it is unlikely to 
affect the costs of providing new credit and therefore the Bureau 
believes that any impact on creditors and card issuers from this final 
rule is not likely to have a significant impact on consumer access to 
credit.
    Consumers in rural areas may experience benefits or costs from this 
final rule that are larger or smaller than the benefits and costs 
experienced by consumers in general if credit products in rural areas 
are more or less likely to be linked to LIBOR than credit products in 
other areas. The Bureau does not have any data or other information to 
understand whether this is the case.

VIII. Regulatory Flexibility Act Analysis

A. Overview

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct an initial regulatory flexibility analysis and a final 
regulatory flexibility analysis (FRFA) of any rule subject to notice-
and-comment rulemaking requirements, unless the agency certifies that 
the rule will not have a significant economic impact on a substantial 
number of small entities.\169\ The Bureau also is subject to certain 
additional procedures under the RFA involving the convening of a panel 
to consult with small business representatives before proposing a rule 
for which an IRFA is required.\170\
---------------------------------------------------------------------------

    \169\ 5 U.S.C. 601 et seq.
    \170\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    A final regulatory flexibility analysis is not required for this 
final rule because it will not have a significant economic impact on a 
substantial number of small entities.

B. Impact of Provisions on Small Entities

    The analysis below evaluates the potential economic impact of the 
final provisions on small entities as defined by the RFA.\171\ A card 
issuer or depository institution is considered ``small'' if it has $600 
million or less in

[[Page 69779]]

assets.\172\ Except for card issuers, non-depository creditors are 
considered ``small'' if their average annual receipts are less than 
$41.5 million.\173\
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    \171\ For purposes of assessing the impacts of this final rule 
on small entities, ``small entities'' is defined in the RFA to 
include small businesses, small not-for-profit organizations, and 
small government jurisdictions. 5 U.S.C. 601(6). A ``small 
business'' is determined by application of Small Business 
Administration regulations and reference to the North American 
Industry Classification System (NAICS) classifications and size 
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and 
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small 
governmental jurisdiction'' is the government of a city, county, 
town, township, village, school district, or special district with a 
population of less than 50,000. 5 U.S.C. 601(5).
    \172\ U.S. Small Bus. Admin., Table of Small Business Size 
Standards Matched to North American Industry Classification System 
Codes (Aug. 19, 2019), https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf (current SBA size standards).
    \173\ Id.
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    Based on its market intelligence, the Bureau believes that there 
are few, if any, small card issuers with LIBOR-based cards. Based on 
its market intelligence, the Bureau estimates that there are 
approximately 200 to 300 small institutional lenders with variable-rate 
student loans tied to LIBOR. There are also a few state-sponsored 
nonbank lenders that offer variable-rate student loans based on LIBOR.
    To estimate the number of small mortgage lenders that will be 
impacted by this final rule, the Bureau has analyzed the 2019 Home 
Mortgage Disclosure Act (HMDA) data.\174\ The HMDA data cover mortgage 
originations, while entities may be impacted by the rule if they hold 
debt tied to LIBOR. The HMDA data will not include entities that 
originated LIBOR-linked debt before 2019 but not during 2019, even if 
those entities still hold that debt. The data will include entities 
that originated LIBOR-linked debt in 2019 but will have sold it before 
this final rule comes into effect, and so will not be impacted by this 
final rule. Other limitations of the data are discussed below. Despite 
these limitations, the HMDA data are the best data source currently 
available to the Bureau to quantify the number of small mortgage 
lenders that will be impacted by this final rule.
---------------------------------------------------------------------------

    \174\ See Bureau of Consumer Fin. Prot., Data Point: 2019 
Mortgage Market Activity and Trends (June 2020), https://files.consumerfinance.gov/f/documents/cfpb_2019-mortgage-market-activity-trends_report.pdf. (2019 Mortgage Market Activity) The 
Bureau has analyzed 2019 HMDA data rather than 2020 HMDA data for 
the purposes of the RFA because in 2020 the HMDA reporting threshold 
for closed-end transactions increased from 25 to 100. Thus, the 2020 
HMDA data will not include information on many lenders that 
originated between 25 and 100 closed-end loans, while the 2019 HMDA 
data will. These lenders are likely to be small as defined by the 
RFA, so in order to avoid understating the number of small lenders 
affected by the rule we use the 2019 HMDA data.
---------------------------------------------------------------------------

    The HMDA data include entities that originate ARMs and HELOCs. The 
data include information on whether mortgages are open-end or closed-
end, although some entities are exempt from reporting this 
information.\175\ The data do not include information on whether or not 
mortgages have rates that are tied to LIBOR. The data do indicate 
whether or not mortgages have rates that may change. This measure is 
used as a proxy for potential exposure to the rule. Mortgages may have 
rates that are linked to indices besides LIBOR. They may also have 
``step rates'' that switch from one pre-determined rate to another pre-
determined rate that is not linked to any index. Therefore, the proxy 
for potential exposure to this final rule likely overstates the number 
of entities with rates tied to LIBOR.
---------------------------------------------------------------------------

    \175\ In May 2017, Congress passed the Economic Growth, 
Regulatory Relief, and Consumer Protection Act (EGRRCPA) that 
granted certain HMDA reporters partial exemptions from HMDA 
reporting. The closed-end partial exemption applies to HMDA 
reporters that are insured depository institutions or insured credit 
unions and that originated fewer than 500 closed-end mortgages in 
each of the two preceding years. HMDA reporters that are insured 
depository institutions or insured credit unions that originated 
fewer than 500 open-end lines of credit in each of the two preceding 
years also qualify for a partial exemption with respect to reporting 
their open-end transactions. The insured depository institutions 
must also not have received certain less than satisfactory 
examination ratings under the Community Reinvestment Act of 1977 to 
qualify for the partial exemptions.
---------------------------------------------------------------------------

    Based on these data, the Bureau estimates that there are 131 small 
depositories that originated at least one closed-end adjustable-rate 
mortgage product in 2019 and so may be affected by the closed-end 
provisions of this final rule, and there are 710 small depositories 
that originated at least one open-end adjustable-rate mortgage product 
and so may be affected by the open-end provisions of this final rule. 
Of these, 92 small depositories originated at least one closed-end 
adjustable-rate mortgage product and one open-end adjustable-rate 
mortgage product, and so may be affected by both the open-end and 
closed-end provisions of this final rule.
    The definition of ``small'' for purposes of the RFA for non-
depository institutions that originate mortgages depends on average 
annual receipts. The HMDA data do not include this information, and so 
the Bureau cannot estimate the number of small non-depository mortgage 
lenders that may be affected by this final rule. The Bureau estimates 
that there are 50 non-depository mortgage lenders that originated at 
least one closed-end adjustable-rate mortgage product and 564 non-
depository mortgage lenders that originated at least one open-end 
adjustable-rate mortgage product. Of these, 42 originated at least one 
closed-end and one open-end adjustable-rate mortgage product.
    The numbers above do not include entities that reported originating 
mortgages but under the EGRRCPA were exempt from reporting whether or 
not those mortgages had adjustable rates. There are 2,047 such small 
depositories in the 2019 HMDA data. There are two such non-depository 
institutions in the 2019 HMDA data. These entities may have originated 
adjustable-rate mortgage products that were not explicitly reported as 
such.
    Finally, the numbers above also do not include entities that may 
have originated adjustable-rate mortgages in 2019 that were exempt 
entirely from reporting any 2019 HMDA data. The Bureau has estimated 
that approximately 11,200 institutions originated at least one closed-
end mortgage loan in 2019, and 5,496 institutions reported HMDA data in 
2019.\176\ This implies that approximately 5,704 institutions 
originated at least one closed-end mortgage in 2019 but are not in the 
HMDA data. Because these institutions are not in the HMDA data, the 
Bureau cannot estimate the number that may have originated adjustable-
rate mortgages. Furthermore, the Bureau cannot confirm that they are 
small for purposes of the RFA, although it is likely they are because 
HMDA reporting thresholds are based in part on origination volume. 
Finally, the Bureau cannot estimate the number of institutions that did 
not report HMDA data in 2019 but did originate at least one open-end 
mortgage loan in 2019, or at least one closed-end and one open-end 
mortgage loan in 2019.
---------------------------------------------------------------------------

    \176\ See 2019 Mortgage Market Activity, supra note 174.
---------------------------------------------------------------------------

    As discussed above in part VII, there are five main final 
provisions:
    1. LIBOR-specific provisions for index changes for HELOCs and 
credit card accounts;
    2. Commentary providing details on how a creditor may disclose 
information about the periodic rate and APR in a change-in-terms notice 
for HELOCs and credit card accounts when the creditor is replacing a 
LIBOR index with the SOFR-based spread-adjusted index recommended by 
the ARRC for consumer products in certain circumstances;
    3. Revisions to change-in-terms notices requirements for HELOCs and 
credit card accounts to disclose margin decreases, if any;
    4. LIBOR-specific exception from the rate reevaluation provisions 
applicable to credit card accounts; and
    5. Commentary providing a non-exhaustive list of examples of the 
types of factors used to determine whether a replacement index is 
comparable to a

[[Page 69780]]

LIBOR index and stating that specific indices are comparable to certain 
LIBOR tenors for purposes of the closed-end refinancing provisions.
    The final LIBOR-specific provisions for index change requirements 
for open-end credit will allow HELOC creditors and card issuers, 
including small entities, under Regulation Z to switch away from LIBOR 
earlier than they would under the baseline, but it will not require 
them to do so.\177\ This additional flexibility will benefit small 
entities with these outstanding credit products tied to LIBOR, by 
reducing uncertainty and allowing them to implement the switch in a 
more orderly way. This additional flexibility will not impose any 
significant costs on HELOC creditors and card issuers, including small 
entities.
---------------------------------------------------------------------------

    \177\ As discussed in the section-by-section analyses of 
Sec. Sec.  1026.40(f)(3)(ii) and 1026.55(b)(7) above, this final 
rule, however, will not excuse creditors or card issuers from 
noncompliance with contractual provisions. For example, a contract 
for a HELOC or a credit card account may provide that the creditor 
or card issuer respectively may not replace an index unilaterally 
under a plan unless the original index becomes unavailable. This 
final rule does not grant the creditor or card issuer authority to 
unilaterally replace a LIBOR index used under the plan before LIBOR 
becomes unavailable.
---------------------------------------------------------------------------

    The final LIBOR-specific provisions for index change requirements 
for open-end credit also include revisions to commentary to Regulation 
Z (1) providing a non-exhaustive list of examples of the types of 
factors used to determine whether a replacement index has historical 
fluctuations that are substantially similar to those of the LIBOR 
index, (2) stating that SOFR-based spread-adjusted indices recommended 
by the ARRC for consumer products to replace the 1-month, 3-month, or 
6-month USD LIBOR index have historical fluctuations that are 
substantially similar to the applicable tenor of LIBOR, (3) stating 
that Prime has historical fluctuations that are substantially similar 
to those of the 1-month and 3-month USD LIBOR, and (4) stating that if 
a HELOC creditor or card issuer replaces LIBOR indices with the SOFR-
based spread-adjusted indices recommended by the ARRC for consumer 
products to replace the 1-month, 3-month, or 6-month USD LIBOR index, 
the APR that is calculated using those rates is substantially similar 
to the rate calculated using LIBOR so long as the creditor or card 
issuer uses as the replacement margin the same margin that was used 
prior to the index change. The final commentary does not determine that 
any specific indices have historical fluctuations that are not 
substantially similar to those of LIBOR, so the final revisions will 
not prevent creditors or card issuers from switching to other indices 
as long as those indices still satisfy regulatory requirements. 
Therefore, the final commentary does not impose any significant costs 
on HELOC creditors and card issuers, including small entities. 
Therefore, the final LIBOR-specific provisions for index change 
requirements for open-end credit impose no significant burden on small 
entities.
    The commentary provisions providing details on how a creditor may 
disclose information about the periodic rate and APR in a change-in-
terms notice for HELOCs and credit card accounts when the creditor is 
replacing a LIBOR index with the SOFR-based spread-adjusted index 
recommended by the ARRC for consumer products to replace the 1-month, 
3-month or 6-month USD LIBOR indices in certain circumstances make 
minimal adjustments to the content of change-in-terms notices, they do 
not impose extra disclosure requirements on creditors. Therefore, the 
final commentary provisions will impose no significant costs on 
creditors, including small entities.
    The final revisions to change-in-terms notices requirements to 
disclose margin decreases, if any, expand regulatory requirements for 
creditors for HELOCs and card issuers, including small entities, and 
therefore may increase their compliance costs. The final provision will 
on or after October 1, 2022, require creditors for HELOCs and card 
issuers, including small entities, to disclose margin reductions to 
consumers when they switch contracts from using LIBOR indices to other 
indices. Under both the existing regulation and the final provision, 
creditors for HELOCs and card issuers, including small entities, are 
required to send consumers change-in-terms notices when indices change, 
disclosing the replacement index and any increase in the margin. 
Therefore, this final provision will not affect the number of consumers 
who receive change-in-terms notices nor the number of change-in-terms 
notices creditors for HELOCs or card issuers, including small entities, 
must provide.
    The benefits, costs, and impacts of this final provision depend on 
whether HELOC creditors or card issuers, including small entities, 
would choose to disclose margin decreases even if not required to do so 
under the existing regulation. Creditors for HELOCs or card issuers, 
including small entities, that would not otherwise disclose margin 
decreases in their change-in-terms notices will bear the cost of having 
to provide slightly longer notices. They may also have to develop 
distinct notices for different groups of consumers with different 
initial margins. However, the Bureau believes it is likely that most 
creditors for HELOCs and card issuers, including small entities, would 
choose to disclose margin decreases in their change-in-terms notices 
even if not required to, because margin decreases are beneficial for 
consumers, and because in these situations the creditors or card 
issuers likely benefit from improved consumer understanding. Further, 
compliance with this final provision will be mandatory only beginning 
October 1, 2022. HELOC creditors and card issuers, including small 
entities, that would prefer not to disclose margin decreases could 
choose to change indices before this proposed provision becomes 
effective (if the change in indices is permitted by the contractual 
provisions at that time). Therefore, the Bureau expects that both the 
benefits and costs of this final provision for HELOC creditors and card 
issuers, including small entities, will be small. Therefore, this final 
provision will not impose significant costs on a significant number of 
small entities.
    The LIBOR-specific exception from the rate reevaluation provisions 
applicable to credit card accounts will benefit affected card issuers, 
including small entities, by saving them the cost of reevaluating rate 
increases that occur as a result of the transition from the LIBOR index 
to another index under the LIBOR-specific provisions discussed above or 
under the existing regulation that allows card issuers to replace an 
index when the index becomes unavailable. This final provision will 
impose no costs on affected card issuers, including small entities, 
because they could still perform rate reevaluations if they choose to 
do so until LIBOR is discontinued. Therefore, this final provision will 
impose no significant burden on small entities.
    The Bureau is adding commentary to provide a non-exhaustive list of 
examples of the types of factors used to determine whether a 
replacement index is comparable to a LIBOR index and is amending 
commentary to state that SOFR-based spread-adjusted indices recommended 
by the ARRC for consumer products to replace the 1-month, 3-month, or 
6-month USD LIBOR indices are comparable to the applicable tenor of 
LIBOR. This final commentary does not determine that any specific 
indices are not comparable to LIBOR. Therefore, this final provision 
will not prevent creditors from switching to other indices as long as

[[Page 69781]]

those indices still satisfy regulatory requirements. Therefore, this 
final provision will impose no significant costs on creditors, 
including small entities.
    Accordingly, the Director certifies that this final rule will not 
have a significant economic impact on a substantial number of small 
entities. Thus, a FRFA is not required for this final rule.

IX. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA),\178\ Federal 
agencies are generally required to seek the Office of Management and 
Budget's (OMB's) approval for information collection requirements prior 
to implementation. The collections of information related to Regulation 
Z have been previously reviewed and approved by OMB and assigned OMB 
Control number 3170-0015. Under the PRA, the Bureau may not conduct or 
sponsor and, notwithstanding any other provision of law, a person is 
not required to respond to an information collection unless the 
information collection displays a valid control number assigned by OMB.
---------------------------------------------------------------------------

    \178\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The Bureau has determined that this final rule does not impose any 
new or revise any existing recordkeeping, reporting, or disclosure 
requirements on covered entities or members of the public that would be 
collections of information requiring approval by the Office of 
Management and Budget under the Paperwork Reduction Act.

List of Subjects in 12 CFR Part 1026

    Advertising, Banks, Banking, Consumer protection, Credit, Credit 
unions, Mortgages, National banks, Reporting and recordkeeping 
requirements, Savings associations, Truth-in-lending.

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau revises 
Regulation Z, 12 CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 1026 continues to read as follows:

    Authority:  12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

Subpart B--Open-End Credit

0
2. Effective April 1, 2022, Sec.  1026.9 is amended by revising 
paragraphs (c)(1)(ii) and (c)(2)(v)(A) to read as follows:


Sec.  1026.9   Subsequent disclosure requirements.

* * * * *
    (c) * * *
    (1) * * *
    (ii) Notice not required. For home-equity plans subject to the 
requirements of Sec.  1026.40, a creditor is not required to provide 
notice under this section when the change involves a reduction of any 
component of a finance or other charge (except that on or after October 
1, 2022, this provision on when the change involves a reduction of any 
component of a finance or other charge does not apply to any change in 
the margin when a LIBOR index is replaced, as permitted by Sec.  
1026.40(f)(3)(ii)(A) or (B)) or when the change results from an 
agreement involving a court proceeding.
* * * * *
    (2) * * *
    (v) * * *
    (A) When the change involves charges for documentary evidence; a 
reduction of any component of a finance or other charge (except that on 
or after October 1, 2022, this provision on when the change involves a 
reduction of any component of a finance or other charge does not apply 
to any change in the margin when a LIBOR index is replaced, as 
permitted by Sec.  1026.55(b)(7)(i) or (ii)); suspension of future 
credit privileges (except as provided in paragraph (c)(2)(vi) of this 
section) or termination of an account or plan; when the change results 
from an agreement involving a court proceeding; when the change is an 
extension of the grace period; or if the change is applicable only to 
checks that access a credit card account and the changed terms are 
disclosed on or with the checks in accordance with paragraph (b)(3) of 
this section;
* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions


Sec.  1026.36   [Amended]

0
3. Effective April 1, 2022, Sec.  1026.36 is amended by removing 
``LIBOR'' and adding in its place ``SOFR'' in paragraphs (a)(4)(iii)(C) 
and (a)(5)(iii)(B).

0
4. Effective April 1, 2022, Sec.  1026.40 is amended by revising 
paragraph (f)(3)(ii) to read as follows:


Sec.  1026.40   Requirements for home equity plans.

* * * * *
    (f) * * *
    (3) * * *
    (ii)(A) Change the index and margin used under the plan if the 
original index is no longer available, the replacement index has 
historical fluctuations substantially similar to that of the original 
index, and the replacement index and replacement margin would have 
resulted in an annual percentage rate substantially similar to the rate 
in effect at the time the original index became unavailable. If the 
replacement index is newly established and therefore does not have any 
rate history, it may be used if it and the replacement margin will 
produce an annual percentage rate substantially similar to the rate in 
effect when the original index became unavailable; or
    (B) If a variable rate on the plan is calculated using a LIBOR 
index, change the LIBOR index and the margin for calculating the 
variable rate on or after April 1, 2022, to a replacement index and a 
replacement margin, as long as historical fluctuations in the LIBOR 
index and replacement index were substantially similar, and as long as 
the replacement index value in effect on October 18, 2021, and 
replacement margin will produce an annual percentage rate substantially 
similar to the rate calculated using the LIBOR index value in effect on 
October 18, 2021, and the margin that applied to the variable rate 
immediately prior to the replacement of the LIBOR index used under the 
plan. If the replacement index is newly established and therefore does 
not have any rate history, it may be used if the replacement index 
value in effect on October 18, 2021, and the replacement margin will 
produce an annual percentage rate substantially similar to the rate 
calculated using the LIBOR index value in effect on October 18, 2021, 
and the margin that applied to the variable rate immediately prior to 
the replacement of the LIBOR index used under the plan. If the 
replacement index is not published on October 18, 2021, the creditor 
generally must use the next calendar day for which both the LIBOR index 
and the replacement index are published as the date for selecting 
indices values in determining whether the annual percentage rate based 
on the replacement index is substantially similar to the rate based on 
the LIBOR index. The one exception is that if the replacement index is 
the spread-adjusted index based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-month, 
3-month, 6-month, or 1-year U.S. Dollar LIBOR index, the creditor must 
use the index value on June 30, 2023, for the LIBOR index and, for the 
SOFR-based spread-adjusted index for consumer products, must use the 
index value on the first date that index is published, in determining 
whether the annual percentage rate based on the

[[Page 69782]]

replacement index is substantially similar to the rate based on the 
LIBOR index.
* * * * *

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open-End Credit Offered to College Students

0
5. Effective April 1, 2022, Sec.  1026.55 is amended by adding 
paragraph (b)(7) to read as follows:


Sec.  1026.55   Limitations on increasing annual percentage rates, 
fees, and charges.

* * * * *
    (b) * * *
    (7) Index replacement and margin change exception. A card issuer 
may increase an annual percentage rate when:
    (i) The card issuer changes the index and margin used to determine 
the annual percentage rate if the original index becomes unavailable, 
as long as historical fluctuations in the original and replacement 
indices were substantially similar, and as long as the replacement 
index and replacement margin will produce a rate substantially similar 
to the rate that was in effect at the time the original index became 
unavailable. If the replacement index is newly established and 
therefore does not have any rate history, it may be used if it and the 
replacement margin will produce a rate substantially similar to the 
rate in effect when the original index became unavailable; or
    (ii) If a variable rate on the plan is calculated using a LIBOR 
index, the card issuer changes the LIBOR index and the margin for 
calculating the variable rate on or after April 1, 2022, to a 
replacement index and a replacement margin, as long as historical 
fluctuations in the LIBOR index and replacement index were 
substantially similar, and as long as the replacement index value in 
effect on October 18, 2021, and replacement margin will produce an 
annual percentage rate substantially similar to the rate calculated 
using the LIBOR index value in effect on October 18, 2021, and the 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. If the replacement 
index is newly established and therefore does not have any rate 
history, it may be used if the replacement index value in effect on 
October 18, 2021, and the replacement margin will produce an annual 
percentage rate substantially similar to the rate calculated using the 
LIBOR index value in effect on October 18, 2021, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. If the replacement index is not 
published on October 18, 2021, the card issuer generally must use the 
next calendar day for which both the LIBOR index and the replacement 
index are published as the date for selecting indices values in 
determining whether the annual percentage rate based on the replacement 
index is substantially similar to the rate based on the LIBOR index. 
The one exception is that if the replacement index is the spread-
adjusted index based on SOFR recommended by the Alternative Reference 
Rates Committee for consumer products to replace the 1-month, 3-month, 
6-month, or 1-year U.S. Dollar LIBOR index, the card issuer must use 
the index value on June 30, 2023, for the LIBOR index and, for the 
SOFR-based spread-adjusted index for consumer products, must use the 
index value on the first date that index is published, in determining 
whether the annual percentage rate based on the replacement index is 
substantially similar to the rate based on the LIBOR index.
* * * * *

0
6. Effective April 1, 2022, Sec.  1026.59 is amended by adding 
paragraphs (f)(3) and (h)(3) to read as follows:


Sec.  1026.59   Reevaluation of rate increases.

* * * * *
    (f) * * *
    (3) Effective April 1, 2022, in the case where the rate applicable 
immediately prior to the increase was a variable rate with a formula 
based on a LIBOR index, the card issuer reduces the annual percentage 
rate to a rate determined by a replacement formula that is derived from 
a replacement index value on October 18, 2021, plus replacement margin 
that is equal to the LIBOR index value on October 18, 2021, plus the 
margin used to calculate the rate immediately prior to the increase 
(previous formula). A card issuer must satisfy the conditions set forth 
in Sec.  1026.55(b)(7)(ii) for selecting a replacement index. If the 
replacement index is not published on October 18, 2021, the card issuer 
generally must use the values of the indices on the next calendar day 
for which both the LIBOR index and the replacement index are published 
as the index values to use to determine the replacement formula. The 
one exception is that if the replacement index is the spread-adjusted 
index based on SOFR recommended by the Alternative Reference Rates 
Committee for consumer products to replace the 1-month, 3-month, 6-
month, or 1-year U.S. Dollar LIBOR index, the card issuer must use the 
index value on June 30, 2023, for the LIBOR index and, for the SOFR-
based spread-adjusted index for consumer products, must use the index 
value on the first date that index is published, as the index values to 
use to determine the replacement formula.
* * * * *
    (h) * * *
    (3) Transition from LIBOR. The requirements of this section do not 
apply to increases in an annual percentage rate that occur as a result 
of the transition from the use of a LIBOR index as the index in setting 
a variable rate to the use of a replacement index in setting a variable 
rate if the change from the use of the LIBOR index to a replacement 
index occurs in accordance with Sec.  1026.55(b)(7)(i) or (ii).

0
7. Effective April 1, 2022, appendix H to part 1026 is amended by 
revising the entries for H-4(D)(2) and H-4(D)(4) to read as follows:

Appendix H to Part 1026--Closed-End Model Forms and Clauses

* * * * *
BILLING CODE 4810-AM-P

[[Page 69783]]

[GRAPHIC] [TIFF OMITTED] TR08DE21.000


[[Page 69784]]


[GRAPHIC] [TIFF OMITTED] TR08DE21.001


[[Page 69785]]


[GRAPHIC] [TIFF OMITTED] TR08DE21.002


[[Page 69786]]


[GRAPHIC] [TIFF OMITTED] TR08DE21.003

* * * * *

0
8. Effective October 1, 2023, appendix H to part 1026 is further 
amended by revising the entries for H-4(D)(2) and H-4(D)(4) to read as 
follows:

Appendix H to Part 1026--Closed-End Model Forms and Clauses

[[Page 69787]]

[GRAPHIC] [TIFF OMITTED] TR08DE21.004

* * * * *

[[Page 69788]]

[GRAPHIC] [TIFF OMITTED] TR08DE21.005

BILLING CODE 4810-AM-C
* * * * *

0
9. In supplement I to part 1026:
0
a. Under Section 1026.9--Subsequent Disclosure Requirements, revise 
9(c)(1) Rules Affecting Home-Equity Plans, 9(c)(1)(ii) Notice not 
Required, 9(c)(2)(iv) Disclosure Requirements, and 9(c)(2)(v) Notice 
not Required.
0
b. Under Section 1026.20--Disclosure Requirements Regarding Post-
Consummation Events, revise 20(a) Refinancings.
0
c. Under Section 1026.37--Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate), revise 37(j)(1) Index and margin.
0
d. Under Section 1026.40--Requirements for Home-Equity Plans, revise 
Paragraph 40(f)(3)(ii) and add Paragraph 40(f)(3)(ii)(A) and Paragraph 
40(f)(3)(ii)(B).
0
e. Under Section 1026.55--Limitations on Increasing Annual Percentage 
Rates, Fees, and Charges, revise 55(b)(2) Variable rate exception and 
add 55(b)(7) Index replacement and margin change exception.

[[Page 69789]]

0
f. Under Section 1026.59--Reevaluation of Rate Increases, revise 59(d) 
Factors and 59(f) Termination of Obligation to Review Factors and add 
59(h) Exceptions.
    The revisions and additions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Section 1026.9--Subsequent Disclosure Requirements

* * * * *

9(c)(1) Rules Affecting Home-Equity Plans

    1. Changes initially disclosed. No notice of a change in terms 
need be given if the specific change is set forth initially, such 
as: Rate increases under a properly disclosed variable-rate plan, a 
rate increase that occurs when an employee has been under a 
preferential rate agreement and terminates employment, or an 
increase that occurs when the consumer has been under an agreement 
to maintain a certain balance in a savings account in order to keep 
a particular rate and the account balance falls below the specified 
minimum. The rules in Sec.  1026.40(f) relating to home-equity plans 
limit the ability of a creditor to change the terms of such plans.
    2. State law issues. Examples of issues not addressed by Sec.  
1026.9(c) because they are controlled by state or other applicable 
law include:
    i. The types of changes a creditor may make. (But see Sec.  
1026.40(f).)
    ii. How changed terms affect existing balances, such as when a 
periodic rate is changed and the consumer does not pay off the 
entire existing balance before the new rate takes effect.
    3. Change in billing cycle. Whenever the creditor changes the 
consumer's billing cycle, it must give a change-in-terms notice if 
the change either affects any of the terms required to be disclosed 
under Sec.  1026.6(a) or increases the minimum payment, unless an 
exception under Sec.  1026.9(c)(1)(ii) applies; for example, the 
creditor must give advance notice if the creditor initially 
disclosed a 25-day grace period on purchases and the consumer will 
have fewer days during the billing cycle change.
    4. Changing index for calculating a variable rate from LIBOR to 
SOFR in specified circumstances. If a creditor is replacing a LIBOR 
index with the index based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR index, the creditor is 
not changing the margin used to calculate the variable rate as a 
result of the replacement, and a periodic rate or the corresponding 
annual percentage rate based on the replacement index is unknown to 
the creditor at the time the change-in-terms notice is provided 
because the SOFR index has not been published at the time the 
creditor provides the change-in-terms notice but will be published 
by the time the replacement of the index takes effect on the 
account, the creditor may comply with any requirement to disclose 
the amount of the new rate (as calculated using the new index), or a 
change in the periodic rate or the corresponding annual percentage 
rate (as calculated using the replacement index), based on the best 
information reasonably available, clearly stating that the 
disclosure is an estimate. For example, in this situation, the 
creditor may state that: {1{time}  Information about the rate is not 
yet available but that the creditor estimates that, at the time the 
index is replaced, the rate will be substantially similar to what it 
would be if the index did not have to be replaced; and {2{time}  the 
rate will vary with the market based on a SOFR index.
* * * * *

9(c)(1)(ii) Notice Not Required

    1. Changes not requiring notice. The following are examples of 
changes that do not require a change-in-terms notice:
    i. A change in the consumer's credit limit.
    ii. A change in the name of the credit card or credit card plan.
    iii. The substitution of one insurer for another.
    iv. A termination or suspension of credit privileges. (But see 
Sec.  1026.40(f).)
    v. Changes arising merely by operation of law; for example, if 
the creditor's security interest in a consumer's car automatically 
extends to the proceeds when the consumer sells the car.
    2. Skip features. If a credit program allows consumers to skip 
or reduce one or more payments during the year, or involves 
temporary reductions in finance charges, no notice of the change in 
terms is required either prior to the reduction or upon resumption 
of the higher rates or payments if these features are explained on 
the initial disclosure statement (including an explanation of the 
terms upon resumption). For example, a merchant may allow consumers 
to skip the December payment to encourage holiday shopping, or a 
teachers' credit union may not require payments during summer 
vacation. Otherwise, the creditor must give notice prior to resuming 
the original schedule or rate, even though no notice is required 
prior to the reduction. The change-in-terms notice may be combined 
with the notice offering the reduction. For example, the periodic 
statement reflecting the reduction or skip feature may also be used 
to notify the consumer of the resumption of the original schedule or 
rate, either by stating explicitly when the higher payment or 
charges resume, or by indicating the duration of the skip option. 
Language such as ``You may skip your October payment,'' or ``We will 
waive your finance charges for January,'' may serve as the change-
in-terms notice.
    3. Replacing LIBOR. The exception in Sec.  1026.9(c)(1)(ii) 
under which a creditor is not required to provide a change-in-terms 
notice under Sec.  1026.9(c)(1) when the change involves a reduction 
of any component of a finance or other charge does not apply on or 
after October 1, 2022, to margin reductions when a LIBOR index is 
replaced, as permitted by Sec.  1026.40(f)(3)(ii)(A) or (B). For 
change-in-terms notices provided under Sec.  1026.9(c)(1) on or 
after October 1, 2022, covering changes permitted by Sec.  
1026.40(f)(3)(ii)(A) or (B), a creditor must provide a change-in-
terms notice under Sec.  1026.9(c)(1) disclosing the replacement 
index for a LIBOR index and any adjusted margin that is permitted 
under Sec.  1026.40(f)(3)(ii)(A) or (B), even if the margin is 
reduced. From April 1, 2022, through September 30, 2022, a creditor 
has the option of disclosing a reduced margin in the change-in-terms 
notice that discloses the replacement index for a LIBOR index as 
permitted by Sec.  1026.40(f)(3)(ii)(A) or (B).
* * * * *

9(c)(2)(iv) Disclosure Requirements

    1. Changing margin for calculating a variable rate. If a 
creditor is changing a margin used to calculate a variable rate, the 
creditor must disclose the amount of the new rate (as calculated 
using the new margin) in the table described in Sec.  
1026.9(c)(2)(iv), and include a reminder that the rate is a variable 
rate. For example, if a creditor is changing the margin for a 
variable rate that uses the prime rate as an index, the creditor 
must disclose in the table the new rate (as calculated using the new 
margin) and indicate that the rate varies with the market based on 
the prime rate.
    2. Changing index for calculating a variable rate. i. In 
general. If a creditor is changing the index used to calculate a 
variable rate, the creditor must disclose the amount of the new rate 
(as calculated using the new index) and indicate that the rate 
varies and how the rate is determined, as explained in Sec.  
1026.6(b)(2)(i)(A). For example, if a creditor is changing from 
using a LIBOR index to using a prime index in calculating a variable 
rate, the creditor would disclose in the table the new rate (using 
the new index) and indicate that the rate varies with the market 
based on a prime index.
    ii. Changing index for calculating a variable rate from LIBOR to 
SOFR in specified circumstances. If a creditor is replacing a LIBOR 
index with an index based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR index, the creditor is 
not changing the margin used to calculate the variable rate as a 
result of the replacement, and a periodic rate or the corresponding 
annual percentage rate based on the replacement index is unknown to 
the creditor at the time the change-in-terms notice is provided 
because the SOFR index has not been published at the time the 
creditor provides the change-in-terms notice, but will be published 
by the time the replacement of the index takes effect on the 
account, the creditor may comply with any requirement to disclose 
the amount of the new rate (as calculated using the new index), or a 
change in the periodic rate or the corresponding annual percentage 
rate (as calculated using the replacement index), based on the best 
information reasonably available, clearly stating that the 
disclosure is an estimate. For example, in this situation, the 
creditor may state that: {1{time}  information about the rate is not 
yet available but that the creditor estimates that, at the time the 
index is replaced, the rate will be substantially similar to what it 
would be if the index did not have to be replaced; and {2{time}  the 
rate will vary with the market based on a SOFR index.

[[Page 69790]]

    3. Changing from a variable rate to a non-variable rate. If a 
creditor is changing a rate applicable to a consumer's account from 
a variable rate to a non-variable rate, the creditor generally must 
provide a notice as otherwise required under Sec.  1026.9(c) even if 
the variable rate at the time of the change is higher than the non-
variable rate. However, a creditor is not required to provide a 
notice under Sec.  1026.9(c) if the creditor provides the 
disclosures required by Sec.  1026.9(c)(2)(v)(B) or (D) in 
connection with changing a variable rate to a lower non-variable 
rate. Similarly, a creditor is not required to provide a notice 
under Sec.  1026.9(c) when changing a variable rate to a lower non-
variable rate in order to comply with 50 U.S.C. app. 527 or a 
similar Federal or state statute or regulation. Finally, a creditor 
is not required to provide a notice under Sec.  1026.9(c) when 
changing a variable rate to a lower non-variable rate in order to 
comply with Sec.  1026.55(b)(4).
    4. Changing from a non-variable rate to a variable rate. If a 
creditor is changing a rate applicable to a consumer's account from 
a non-variable rate to a variable rate, the creditor generally must 
provide a notice as otherwise required under Sec.  1026.9(c) even if 
the non-variable rate is higher than the variable rate at the time 
of the change. However, a creditor is not required to provide a 
notice under Sec.  1026.9(c) if the creditor provides the 
disclosures required by Sec.  1026.9(c)(2)(v)(B) or (D) in 
connection with changing a non-variable rate to a lower variable 
rate. Similarly, a creditor is not required to provide a notice 
under Sec.  1026.9(c) when changing a non-variable rate to a lower 
variable rate in order to comply with 50 U.S.C. app. 527 or a 
similar Federal or state statute or regulation. Finally, a creditor 
is not required to provide a notice under Sec.  1026.9(c) when 
changing a non-variable rate to a lower variable rate in order to 
comply with Sec.  1026.55(b)(4). See comment 55(b)(2)-4 regarding 
the limitations in Sec.  1026.55(b)(2) on changing the rate that 
applies to a protected balance from a non-variable rate to a 
variable rate.
    5. Changes in the penalty rate, the triggers for the penalty 
rate, or how long the penalty rate applies. If a creditor is 
changing the amount of the penalty rate, the creditor must also 
redisclose the triggers for the penalty rate and the information 
about how long the penalty rate applies even if those terms are not 
changing. Likewise, if a creditor is changing the triggers for the 
penalty rate, the creditor must redisclose the amount of the penalty 
rate and information about how long the penalty rate applies. If a 
creditor is changing how long the penalty rate applies, the creditor 
must redisclose the amount of the penalty rate and the triggers for 
the penalty rate, even if they are not changing.
    6. Changes in fees. If a creditor is changing part of how a fee 
that is disclosed in a tabular format under Sec.  1026.6(b)(1) and 
(2) is determined, the creditor must redisclose all relevant 
information related to that fee regardless of whether this other 
information is changing. For example, if a creditor currently 
charges a cash advance fee of ``Either $5 or 3% of the transaction 
amount, whichever is greater (Max: $100),'' and the creditor is only 
changing the minimum dollar amount from $5 to $10, the issuer must 
redisclose the other information related to how the fee is 
determined. For example, the creditor in this example would disclose 
the following: ``Either $10 or 3% of the transaction amount, 
whichever is greater (Max: $100).''
    7. Combining a notice described in Sec.  1026.9(c)(2)(iv) with a 
notice described in Sec.  1026.9(g)(3). If a creditor is required to 
provide a notice described in Sec.  1026.9(c)(2)(iv) and a notice 
described in Sec.  1026.9(g)(3) to a consumer, the creditor may 
combine the two notices. This would occur if penalty pricing has 
been triggered, and other terms are changing on the consumer's 
account at the same time.
    8. Content. Sample G-20 contains an example of how to comply 
with the requirements in Sec.  1026.9(c)(2)(iv) when a variable rate 
is being changed to a non-variable rate on a credit card account. 
The sample explains when the new rate will apply to new transactions 
and to which balances the current rate will continue to apply. 
Sample G-21 contains an example of how to comply with the 
requirements in Sec.  1026.9(c)(2)(iv) when the late payment fee on 
a credit card account is being increased, and the returned payment 
fee is also being increased. The sample discloses the consumer's 
right to reject the changes in accordance with Sec.  1026.9(h).
    9. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required 
under Sec.  1026.9(c)(2)(iv)(A)(1).
    10. Terminology. See Sec.  1026.5(a)(2) for terminology 
requirements applicable to disclosures required under Sec.  
1026.9(c)(2)(iv)(A)(1).
    11. Reasons for increase. i. In general. Section 
1026.9(c)(2)(iv)(A)(8) requires card issuers to disclose the 
principal reason(s) for increasing an annual percentage rate 
applicable to a credit card account under an open-end (not home-
secured) consumer credit plan. The regulation does not mandate a 
minimum number of reasons that must be disclosed. However, the 
specific reasons disclosed under Sec.  1026.9(c)(2)(iv)(A)(8) are 
required to relate to and accurately describe the principal factors 
actually considered by the card issuer in increasing the rate. A 
card issuer may describe the reasons for the increase in general 
terms. For example, the notice of a rate increase triggered by a 
decrease of 100 points in a consumer's credit score may state that 
the increase is due to ``a decline in your creditworthiness'' or ``a 
decline in your credit score.'' Similarly, a notice of a rate 
increase triggered by a 10% increase in the card issuer's cost of 
funds may be disclosed as ``a change in market conditions.'' In some 
circumstances, it may be appropriate for a card issuer to combine 
the disclosure of several reasons in one statement. However, Sec.  
1026.9(c)(2)(iv)(A)(8) requires that the notice specifically 
disclose any violation of the terms of the account on which the rate 
is being increased, such as a late payment or a returned payment, if 
such violation of the account terms is one of the four principal 
reasons for the rate increase.
    ii. Example. Assume that a consumer made a late payment on the 
credit card account on which the rate increase is being imposed, 
made a late payment on a credit card account with another card 
issuer, and the consumer's credit score decreased, in part due to 
such late payments. The card issuer may disclose the reasons for the 
rate increase as a decline in the consumer's credit score and the 
consumer's late payment on the account subject to the increase. 
Because the late payment on the credit card account with the other 
issuer also likely contributed to the decline in the consumer's 
credit score, it is not required to be separately disclosed. 
However, the late payment on the credit card account on which the 
rate increase is being imposed must be specifically disclosed even 
if that late payment also contributed to the decline in the 
consumer's credit score.

9(c)(2)(v) Notice not Required

    1. Changes not requiring notice. The following are examples of 
changes that do not require a change-in-terms notice:
    i. A change in the consumer's credit limit except as otherwise 
required by Sec.  1026.9(c)(2)(vi).
    ii. A change in the name of the credit card or credit card plan.
    iii. The substitution of one insurer for another.
    iv. A termination or suspension of credit privileges.
    v. Changes arising merely by operation of law; for example, if 
the creditor's security interest in a consumer's car automatically 
extends to the proceeds when the consumer sells the car.
    2. Skip features. i. Skipped or reduced payments. If a credit 
program allows consumers to skip or reduce one or more payments 
during the year, no notice of the change in terms is required either 
prior to the reduction in payments or upon resumption of the higher 
payments if these features are explained on the account-opening 
disclosure statement (including an explanation of the terms upon 
resumption). For example, a merchant may allow consumers to skip the 
December payment to encourage holiday shopping, or a teacher's 
credit union may not require payments during summer vacation. 
Otherwise, the creditor must give notice prior to resuming the 
original payment schedule, even though no notice is required prior 
to the reduction. The change-in-terms notice may be combined with 
the notice offering the reduction. For example, the periodic 
statement reflecting the skip feature may also be used to notify the 
consumer of the resumption of the original payment schedule, either 
by stating explicitly when the higher resumes or by indicating the 
duration of the skip option. Language such as ``You may skip your 
October payment'' may serve as the change-in-terms notice.
    ii. Temporary reductions in interest rates or fees. If a credit 
program involves temporary reductions in an interest rate or fee, no 
notice of the change in terms is required either prior to the 
reduction or upon resumption of the original rate or fee if these 
features are disclosed in advance in accordance with the 
requirements of Sec.  1026.9(c)(2)(v)(B). Otherwise, the creditor 
must give notice prior to resuming the original rate or fee, even 
though no notice is required prior to the reduction. The notice

[[Page 69791]]

provided prior to resuming the original rate or fee must comply with 
the timing requirements of Sec.  1026.9(c)(2)(i) and the content and 
format requirements of Sec.  1026.9(c)(2)(iv)(A), (B) (if 
applicable), (C) (if applicable), and (D). See comment 55(b)-3 for 
guidance regarding the application of Sec.  1026.55 in these 
circumstances.
    3. Changing from a variable rate to a non-variable rate. See 
comment 9(c)(2)(iv)-3.
    4. Changing from a non-variable rate to a variable rate. See 
comment 9(c)(2)(iv)-4.
    5. Temporary rate or fee reductions offered by telephone. The 
timing requirements of Sec.  1026.9(c)(2)(v)(B) are deemed to have 
been met, and written disclosures required by Sec.  
1026.9(c)(2)(v)(B) may be provided as soon as reasonably practicable 
after the first transaction subject to a rate that will be in effect 
for a specified period of time (a temporary rate) or the imposition 
of a fee that will be in effect for a specified period of time (a 
temporary fee) if:
    i. The consumer accepts the offer of the temporary rate or 
temporary fee by telephone;
    ii. The creditor permits the consumer to reject the temporary 
rate or temporary fee offer and have the rate or rates or fee that 
previously applied to the consumer's balances reinstated for 45 days 
after the creditor mails or delivers the written disclosures 
required by Sec.  1026.9(c)(2)(v)(B), except that the creditor need 
not permit the consumer to reject a temporary rate or temporary fee 
offer if the rate or rates or fee that will apply following 
expiration of the temporary rate do not exceed the rate or rates or 
fee that applied immediately prior to commencement of the temporary 
rate or temporary fee; and
    iii. The disclosures required by Sec.  1026.9(c)(2)(v)(B) and 
the consumer's right to reject the temporary rate or temporary fee 
offer and have the rate or rates or fee that previously applied to 
the consumer's account reinstated, if applicable, are disclosed to 
the consumer as part of the temporary rate or temporary fee offer.
    6. First listing. The disclosures required by Sec.  
1026.9(c)(2)(v)(B)(1) are only required to be provided in close 
proximity and in equal prominence to the first listing of the 
temporary rate or fee in the disclosure provided to the consumer. 
For purposes of Sec.  1026.9(c)(2)(v)(B), the first statement of the 
temporary rate or fee is the most prominent listing on the front 
side of the first page of the disclosure. If the temporary rate or 
fee does not appear on the front side of the first page of the 
disclosure, then the first listing of the temporary rate or fee is 
the most prominent listing of the temporary rate on the subsequent 
pages of the disclosure. For advertising requirements for 
promotional rates, see Sec.  1026.16(g).
    7. Close proximity--point of sale. Creditors providing the 
disclosures required by Sec.  1026.9(c)(2)(v)(B) of this section in 
person in connection with financing the purchase of goods or 
services may, at the creditor's option, disclose the annual 
percentage rate or fee that would apply after expiration of the 
period on a separate page or document from the temporary rate or fee 
and the length of the period, provided that the disclosure of the 
annual percentage rate or fee that would apply after the expiration 
of the period is equally prominent to, and is provided at the same 
time as, the disclosure of the temporary rate or fee and length of 
the period.
    8. Disclosure of annual percentage rates. If a rate disclosed 
pursuant to Sec.  1026.9(c)(2)(v)(B) or (D) is a variable rate, the 
creditor must disclose the fact that the rate may vary and how the 
rate is determined. For example, a creditor could state ``After 
October 1, 2009, your APR will be 14.99%. This APR will vary with 
the market based on the Prime Rate.''
    9. Deferred interest or similar programs. If the applicable 
conditions are met, the exception in Sec.  1026.9(c)(2)(v)(B) 
applies to deferred interest or similar promotional programs under 
which the consumer is not obligated to pay interest that accrues on 
a balance if that balance is paid in full prior to the expiration of 
a specified period of time. For purposes of this comment and Sec.  
1026.9(c)(2)(v)(B), ``deferred interest'' has the same meaning as in 
Sec.  1026.16(h)(2) and associated commentary. For such programs, a 
creditor must disclose pursuant to Sec.  1026.9(c)(2)(v)(B)(1) the 
length of the deferred interest period and the rate that will apply 
to the balance subject to the deferred interest program if that 
balance is not paid in full prior to expiration of the deferred 
interest period. Examples of language that a creditor may use to 
make the required disclosures under Sec.  1026.9(c)(2)(v)(B)(1) 
include:
    i. ``No interest if paid in full in 6 months. If the balance is 
not paid in full in 6 months, interest will be imposed from the date 
of purchase at a rate of 15.99%.''
    ii. ``No interest if paid in full by December 31, 2010. If the 
balance is not paid in full by that date, interest will be imposed 
from the transaction date at a rate of 15%.''
    10. Relationship between Sec. Sec.  1026.9(c)(2)(v)(B) and 
1026.6(b). A disclosure of the information described in Sec.  
1026.9(c)(2)(v)(B)(1) provided in the account-opening table in 
accordance with Sec.  1026.6(b) complies with the requirements of 
Sec.  1026.9(c)(2)(v)(B)(2), if the listing of the introductory rate 
in such tabular disclosure also is the first listing as described in 
comment 9(c)(2)(v)-6.
    11. Disclosure of the terms of a workout or temporary hardship 
arrangement. In order for the exception in Sec.  1026.9(c)(2)(v)(D) 
to apply, the disclosure provided to the consumer pursuant to Sec.  
1026.9(c)(2)(v)(D)(2) must set forth:
    i. The annual percentage rate that will apply to balances 
subject to the workout or temporary hardship arrangement;
    ii. The annual percentage rate that will apply to such balances 
if the consumer completes or fails to comply with the terms of, the 
workout or temporary hardship arrangement;
    iii. Any reduced fee or charge of a type required to be 
disclosed under Sec.  1026.6(b)(2)(ii), (iii), (viii), (ix), (xi), 
or (xii) that will apply to balances subject to the workout or 
temporary hardship arrangement, as well as the fee or charge that 
will apply if the consumer completes or fails to comply with the 
terms of the workout or temporary hardship arrangement;
    iv. Any reduced minimum periodic payment that will apply to 
balances subject to the workout or temporary hardship arrangement, 
as well as the minimum periodic payment that will apply if the 
consumer completes or fails to comply with the terms of the workout 
or temporary hardship arrangement; and
    v. If applicable, that the consumer must make timely minimum 
payments in order to remain eligible for the workout or temporary 
hardship arrangement.
    12. Index not under creditor's control. See comment 55(b)(2)-2 
for guidance on when an index is deemed to be under a creditor's 
control.
    13. Temporary rates--relationship to Sec.  1026.59. i. General. 
Section 1026.59 requires a card issuer to review rate increases 
imposed due to the revocation of a temporary rate. In some 
circumstances, Sec.  1026.59 may require an issuer to reinstate a 
reduced temporary rate based on that review. If, based on a review 
required by Sec.  1026.59, a creditor reinstates a temporary rate 
that had been revoked, the card issuer is not required to provide an 
additional notice to the consumer when the reinstated temporary rate 
expires, if the card issuer provided the disclosures required by 
Sec.  1026.9(c)(2)(v)(B) prior to the original commencement of the 
temporary rate. See Sec.  1026.55 and the associated commentary for 
guidance on the permissibility and applicability of rate increases.
    i. Example. A consumer opens a new credit card account under an 
open-end (not home-secured) consumer credit plan on January 1, 2011. 
The annual percentage rate applicable to purchases is 18%. The card 
issuer offers the consumer a 15% rate on purchases made between 
January 1, 2012 and January 1, 2014. Prior to January 1, 2012, the 
card issuer discloses, in accordance with Sec.  1026.9(c)(2)(v)(B), 
that the rate on purchases made during that period will increase to 
the standard 18% rate on January 1, 2014. In March 2012, the 
consumer makes a payment that is ten days late. The card issuer, 
upon providing 45 days' advance notice of the change under Sec.  
1026.9(g), increases the rate on new purchases to 18% effective as 
of June 1, 2012. On December 1, 2012, the issuer performs a review 
of the consumer's account in accordance with Sec.  1026.59. Based on 
that review, the card issuer is required to reduce the rate to the 
original 15% temporary rate as of January 15, 2013. On January 1, 
2014, the card issuer may increase the rate on purchases to 18%, as 
previously disclosed prior to January 1, 2012, without providing an 
additional notice to the consumer.
    14. Replacing LIBOR. The exception in Sec.  1026.9(c)(2)(v)(A) 
under which a creditor is not required to provide a change-in-terms 
notice under Sec.  1026.9(c)(2) when the change involves a reduction 
of any component of a finance or other charge does not apply on or 
after October 1, 2022, to margin reductions when a LIBOR index is 
replaced as permitted by Sec.  1026.55(b)(7)(i) or (ii). For change-
in-terms notices provided under Sec.  1026.9(c)(2) on or after 
October 1, 2022, covering changes permitted by Sec.  
1026.55(b)(7)(i) or (ii), a creditor must provide a change-in-terms

[[Page 69792]]

notice under Sec.  1026.9(c)(2) disclosing the replacement index for 
a LIBOR index and any adjusted margin that is permitted under Sec.  
1026.55(b)(7)(i) or (ii), even if the margin is reduced. From April 
1, 2022, through September 30, 2022, a creditor has the option of 
disclosing a reduced margin in the change-in-terms notice that 
discloses the replacement index for a LIBOR index as permitted by 
Sec.  1026.55(b)(7)(i) or (ii).
* * * * *

Section 1026.20--Disclosure Requirements Regarding Post-
Consummation Events

20(a) Refinancings

    1. Definition. A refinancing is a new transaction requiring a 
complete new set of disclosures. Whether a refinancing has occurred 
is determined by reference to whether the original obligation has 
been satisfied or extinguished and replaced by a new obligation, 
based on the parties' contract and applicable law. The refinancing 
may involve the consolidation of several existing obligations, 
disbursement of new money to the consumer or on the consumer's 
behalf, or the rescheduling of payments under an existing 
obligation. In any form, the new obligation must completely replace 
the prior one.
    i. Changes in the terms of an existing obligation, such as the 
deferral of individual installments, will not constitute a 
refinancing unless accomplished by the cancellation of that 
obligation and the substitution of a new obligation.
    ii. A substitution of agreements that meets the refinancing 
definition will require new disclosures, even if the substitution 
does not substantially alter the prior credit terms.
    2. Exceptions. A transaction is subject to Sec.  1026.20(a) only 
if it meets the general definition of a refinancing. Section 
1026.20(a)(1) through (5) lists 5 events that are not treated as 
refinancings, even if they are accomplished by cancellation of the 
old obligation and substitution of a new one.
    3. Variable-rate. i. If a variable-rate feature was properly 
disclosed under the regulation, a rate change in accord with those 
disclosures is not a refinancing. For example, no new disclosures 
are required when the variable-rate feature is invoked on a 
renewable balloon-payment mortgage that was previously disclosed as 
a variable-rate transaction.
    ii. Even if it is not accomplished by the cancellation of the 
old obligation and substitution of a new one, a new transaction 
subject to new disclosures results if the creditor either:
    A. Increases the rate based on a variable-rate feature that was 
not previously disclosed; or
    B. Adds a variable-rate feature to the obligation. A creditor 
does not add a variable-rate feature by changing the index of a 
variable-rate transaction to a comparable index, whether the change 
replaces the existing index or substitutes an index for one that no 
longer exists. For example, a creditor does not add a variable-rate 
feature by changing the index of a variable-rate transaction from 
the 1-month, 3-month, or 6-month U.S. Dollar LIBOR index to the 
spread-adjusted index based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR index respectively 
because the replacement index is a comparable index to the 
corresponding U.S. Dollar LIBOR index. See comment 20(a)-3.iv for 
factors to be used in determining whether a replacement index is 
comparable to a particular LIBOR index.
    iii. If either of the events in paragraph 20(a)-3.ii.A or ii.B 
occurs in a transaction secured by a principal dwelling with a term 
longer than one year, the disclosures required under Sec.  
1026.19(b) also must be given at that time.
    iv. The relevant factors to be considered in determining whether 
a replacement index is comparable to a particular LIBOR index depend 
on the replacement index being considered and the LIBOR index being 
replaced. For example, these determinations may need to consider 
certain aspects of the historical data itself for a particular 
replacement index, such as whether the replacement index is a 
backward-looking rate (e.g., historical average of rates) such that 
timing aspects of the data may need to be adjusted to match up with 
the particular forward-looking LIBOR term-rate being replaced. The 
types of relevant factors to establish if a replacement index could 
meet the ``comparable'' standard with respect to a particular LIBOR 
index using historical data or future expectations, include but are 
not limited to, whether: {1{time}  the movements over time are 
comparable; {2{time}  the consumers' payments using the replacement 
index compared to payments using the LIBOR index are comparable if 
there is sufficient data for this analysis; {3{time}  the index 
levels are comparable; {4{time}  the replacement index is publicly 
available; and {5{time}  the replacement index is outside the 
control of the creditor.
    4. Unearned finance charge. In a transaction involving 
precomputed finance charges, the creditor must include in the 
finance charge on the refinanced obligation any unearned portion of 
the original finance charge that is not rebated to the consumer or 
credited against the underlying obligation. For example, in a 
transaction with an add-on finance charge, a creditor advances new 
money to a consumer in a fashion that extinguishes the original 
obligation and replaces it with a new one. The creditor neither 
refunds the unearned finance charge on the original obligation to 
the consumer nor credits it to the remaining balance on the old 
obligation. Under these circumstances, the unearned finance charge 
must be included in the finance charge on the new obligation and 
reflected in the annual percentage rate disclosed on refinancing. 
Accrued but unpaid finance charges are included in the amount 
financed in the new obligation.
    5. Coverage. Section 1026.20(a) applies only to refinancings 
undertaken by the original creditor or a holder or servicer of the 
original obligation. A ``refinancing'' by any other person is a new 
transaction under the regulation, not a refinancing under this 
section.

Paragraph 20(a)(1)

    1. Renewal. This exception applies both to obligations with a 
single payment of principal and interest and to obligations with 
periodic payments of interest and a final payment of principal. In 
determining whether a new obligation replacing an old one is a 
renewal of the original terms or a refinancing, the creditor may 
consider it a renewal even if:
    i. Accrued unpaid interest is added to the principal balance.
    ii. Changes are made in the terms of renewal resulting from the 
factors listed in Sec.  1026.17(c)(3).
    iii. The principal at renewal is reduced by a curtailment of the 
obligation.

Paragraph 20(a)(2)

    1. Annual percentage rate reduction. A reduction in the annual 
percentage rate with a corresponding change in the payment schedule 
is not a refinancing. If the annual percentage rate is subsequently 
increased (even though it remains below its original level) and the 
increase is effected in such a way that the old obligation is 
satisfied and replaced, new disclosures must then be made.
    2. Corresponding change. A corresponding change in the payment 
schedule to implement a lower annual percentage rate would be a 
shortening of the maturity, or a reduction in the payment amount or 
the number of payments of an obligation. The exception in Sec.  
1026.20(a)(2) does not apply if the maturity is lengthened, or if 
the payment amount or number of payments is increased beyond that 
remaining on the existing transaction.

Paragraph 20(a)(3)

    1. Court agreements. This exception includes, for example, 
agreements such as reaffirmations of debts discharged in bankruptcy, 
settlement agreements, and post-judgment agreements. (See the 
commentary to Sec.  1026.2(a)(14) for a discussion of court-approved 
agreements that are not considered ``credit.'')

Paragraph 20(a)(4)

    1. Workout agreements. A workout agreement is not a refinancing 
unless the annual percentage rate is increased or additional credit 
is advanced beyond amounts already accrued plus insurance premiums.

Paragraph 20(a)(5)

    1. Insurance renewal. The renewal of optional insurance added to 
an existing credit transaction is not a refinancing, assuming that 
appropriate Truth in Lending disclosures were provided for the 
initial purchase of the insurance.
* * * * *

Section 1026.37--Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate)

* * * * *

37(j)(1) Index and Margin

    1. Index and margin. The index disclosed pursuant to Sec.  
1026.37(j)(1) must be stated such that a consumer reasonably can 
identify

[[Page 69793]]

it. A common abbreviation or acronym of the name of the index may be 
disclosed in place of the proper name of the index, if it is a 
commonly used public method of identifying the index. For example, 
``SOFR'' may be disclosed instead of Secured Overnight Financing 
Rate. The margin should be disclosed as a percentage. For example, 
if the contract determines the interest rate by adding 4.25 
percentage points to the index, the margin should be disclosed as 
``4.25%.''
* * * * *

Section 1026.40--Requirements for Home-Equity Plans

* * * * *

Paragraph 40(f)(3)(ii)

    1. Replacing LIBOR. A creditor may use either the provision in 
Sec.  1026.40(f)(3)(ii)(A) or (f)(3)(ii)(B) to replace a LIBOR index 
used under a plan so long as the applicable conditions are met for 
the provision used. Neither provision, however, excuses the creditor 
from noncompliance with contractual provisions. The following 
examples illustrate when a creditor may use the provisions in Sec.  
1026.40(f)(3)(ii)(A) or (B) to replace the LIBOR index used under a 
plan.
    i. Assume that LIBOR becomes unavailable after June 30, 2023, 
and assume a contract provides that a creditor may not replace an 
index unilaterally under a plan unless the original index becomes 
unavailable and provides that the replacement index and replacement 
margin will result in an annual percentage rate substantially 
similar to a rate that is in effect when the original index becomes 
unavailable. In this case, the creditor may use Sec.  
1026.40(f)(3)(ii)(A) to replace the LIBOR index used under the plan 
so long as the conditions of that provision are met. Section 
1026.40(f)(3)(ii)(B) provides that a creditor may replace the LIBOR 
index if, among other conditions, the replacement index value in 
effect on October 18, 2021, and replacement margin will produce an 
annual percentage rate substantially similar to the rate calculated 
using the LIBOR index value in effect on October 18, 2021, and the 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. If the 
replacement index is not published on October 18, 2021, the creditor 
generally must use the next calendar day for which both the LIBOR 
index and the replacement index are published as the date for 
selecting indices values in determining whether the annual 
percentage rate based on the replacement index is substantially 
similar to the rate based on the LIBOR index. The one exception is 
that if the replacement index is the spread-adjusted index based on 
SOFR recommended by the Alternative Reference Rates Committee for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year U.S. Dollar LIBOR index, the creditor must use the index value 
on June 30, 2023, for the LIBOR index and, for the SOFR-based 
spread-adjusted index for consumer products, must use the index 
value on the first date that index is published, in determining 
whether the annual percentage rate based on the replacement index is 
substantially similar to the rate based on the LIBOR index. In this 
example, however, the creditor would be contractually prohibited 
from replacing the LIBOR index used under the plan unless the 
replacement index and replacement margin also will produce an annual 
percentage rate substantially similar to a rate that is in effect 
when the LIBOR index becomes unavailable.
    ii. Assume that LIBOR becomes unavailable after June 30, 2023, 
and assume a contract provides that a creditor may not replace an 
index unilaterally under a plan unless the original index becomes 
unavailable but does not require that the replacement index and 
replacement margin will result in an annual percentage rate 
substantially similar to a rate that is in effect when the original 
index becomes unavailable. In this case, the creditor would be 
contractually prohibited from unilaterally replacing a LIBOR index 
used under the plan until it becomes unavailable. At that time, the 
creditor has the option of using Sec.  1026.40(f)(3)(ii)(A) or (B) 
to replace the LIBOR index if the conditions of the applicable 
provision are met.
    iii. Assume that LIBOR becomes unavailable after June 30, 2023, 
and assume a contract provides that a creditor may change the terms 
of the contract (including the index) as permitted by law. In this 
case, if the creditor replaces a LIBOR index under a plan on or 
after April 1, 2022, but does not wait until the LIBOR index becomes 
unavailable to do so, the creditor may only use Sec.  
1026.40(f)(3)(ii)(B) to replace the LIBOR index if the conditions of 
that provision are met. In this case, the creditor may not use Sec.  
1026.40(f)(3)(ii)(A). If the creditor waits until the LIBOR index 
used under the plan becomes unavailable to replace the LIBOR index, 
the creditor has the option of using Sec.  1026.40(f)(3)(ii)(A) or 
(B) to replace the LIBOR index if the conditions of the applicable 
provision are met.

Paragraph 40(f)(3)(ii)(A)

    1. Substitution of index. A creditor may change the index and 
margin used under the plan if the original index becomes 
unavailable, as long as historical fluctuations in the original and 
replacement indices were substantially similar, and as long as the 
replacement index and replacement margin will produce a rate 
substantially similar to the rate that was in effect at the time the 
original index became unavailable. If the replacement index is newly 
established and therefore does not have any rate history, it may be 
used if it and the replacement margin will produce a rate 
substantially similar to the rate in effect when the original index 
became unavailable.
    2. Replacing LIBOR. For purposes of replacing a LIBOR index used 
under a plan, a replacement index that is not newly established must 
have historical fluctuations that are substantially similar to those 
of the LIBOR index used under the plan, considering the historical 
fluctuations up through when the LIBOR index becomes unavailable or 
up through the date indicated in a Bureau determination that the 
replacement index and the LIBOR index have historical fluctuations 
that are substantially similar, whichever is earlier.
    i. The Bureau has determined that effective April 1, 2022, the 
prime rate published in the Wall Street Journal has historical 
fluctuations that are substantially similar to those of the 1-month 
and 3-month U.S. Dollar LIBOR indices. In order to use this prime 
rate as the replacement index for the 1-month or 3-month U.S. Dollar 
LIBOR index, the creditor also must comply with the condition in 
Sec.  1026.40(f)(3)(ii)(A) that the prime rate and replacement 
margin would have resulted in an annual percentage rate 
substantially similar to the rate in effect at the time the LIBOR 
index became unavailable. See also comment 40(f)(3)(ii)(A)-3.
    ii. The Bureau has determined that effective April 1, 2022, the 
spread-adjusted indices based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR indices have historical 
fluctuations that are substantially similar to those of the 1-month, 
3-month, or 6-month U.S. Dollar LIBOR indices respectively. In order 
to use this SOFR-based spread-adjusted index for consumer products 
as the replacement index for the applicable LIBOR index, the 
creditor also must comply with the condition in Sec.  
1026.40(f)(3)(ii)(A) that the SOFR-based spread-adjusted index for 
consumer products and replacement margin would have resulted in an 
annual percentage rate substantially similar to the rate in effect 
at the time the LIBOR index became unavailable. See also comment 
40(f)(3)(ii)(A)-3.
    iii. The relevant factors to be considered in determining 
whether a replacement index has historical fluctuations 
substantially similar to those of a particular LIBOR index depend on 
the replacement index being considered and the LIBOR index being 
replaced. For example, these determinations may need to consider 
certain aspects of the historical data itself for a particular 
replacement index, such as whether the replacement index is a 
backward-looking rate (e.g., historical average of rates) such that 
timing aspects of the data may need to be adjusted to match up with 
the particular forward-looking LIBOR term-rate being replaced. The 
types of relevant factors to establish if a replacement index would 
meet the ``historical fluctuations are substantially similar'' 
standard with respect to a particular LIBOR index using historical 
data, include but are not limited to, whether: {1{time}  The 
movements over time are substantially similar; and {2{time}  the 
consumers' payments using the replacement index compared to payments 
using the LIBOR index are substantially similar if there is 
sufficient historical data for this analysis.
    3. Substantially similar rate when LIBOR becomes unavailable. 
Under Sec.  1026.40(f)(3)(ii)(A), the replacement index and 
replacement margin must produce an annual percentage rate 
substantially similar to the rate that was in effect based on the 
LIBOR index used under the plan when the LIBOR index became 
unavailable. For this comparison of the rates, a creditor generally 
must use the value of the replacement index and the LIBOR index on 
the day that LIBOR becomes unavailable. If the replacement index is 
not published on the day that the

[[Page 69794]]

LIBOR index becomes unavailable, the creditor generally must use the 
previous calendar day that both indices are published as the date 
for selecting indices values in determining whether the annual 
percentage rate based on the replacement index is substantially 
similar to the rate based on the LIBOR index. The one exception is 
that if the replacement index is the spread-adjusted index based on 
SOFR recommended by the Alternative Reference Rates Committee for 
consumer products to replace the 1-month, 3-month, 6-month, or 1-
year U.S. Dollar LIBOR index, the creditor must use the index value 
on June 30, 2023, for the LIBOR index and, for the SOFR-based 
spread-adjusted index for consumer products, must use the index 
value on the first date that index is published, in determining 
whether the annual percentage rate based on the replacement index is 
substantially similar to the rate based on the LIBOR index. The 
replacement index and replacement margin are not required to produce 
an annual percentage rate that is substantially similar on the day 
that the replacement index and replacement margin become effective 
on the plan. For purposes of Sec.  1026.40(f)(3)(ii)(A), if a 
creditor uses the SOFR-based spread-adjusted index recommended by 
the Alternative Reference Rates Committee for consumer products to 
replace the 1-month, 3-month, or 6-month U.S. Dollar LIBOR index as 
the replacement index and uses as the replacement margin the same 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan, the creditor 
will be deemed to be in compliance with the condition in Sec.  
1026.40(f)(3)(ii)(A) that the replacement index and replacement 
margin would have resulted in an annual percentage rate 
substantially similar to the rate in effect at the time the LIBOR 
index became unavailable. The following example illustrates this 
comment.
    i. Assume that the 1-month U.S. Dollar LIBOR index used under a 
plan becomes unavailable on June 30, 2023, and on that day the LIBOR 
index value is 2%, the margin is 10%, and the annual percentage rate 
is 12%. Also, assume that a creditor has selected the prime index 
published in the Wall Street Journal as the replacement index, and 
the value of the prime index is 5% on June 30, 2023. The creditor 
would satisfy the requirement to use a replacement index and 
replacement margin that will produce an annual percentage rate 
substantially similar to the rate that was in effect when the LIBOR 
index used under the plan became unavailable by selecting a 7% 
replacement margin. (The prime index value of 5% and the replacement 
margin of 7% would produce a rate of 12% on June 30, 2023.) Thus, if 
the creditor provides a change-in-terms notice under Sec.  
1026.9(c)(1) on July 1, 2023, disclosing the prime index as the 
replacement index and a replacement margin of 7%, where these 
changes will become effective on July 17, 2023, the creditor 
satisfies the requirement to use a replacement index and replacement 
margin that will produce an annual percentage rate substantially 
similar to the rate that was in effect when the LIBOR index used 
under the plan became unavailable. This is true even if the prime 
index value changes after June 30, 2023, and the annual percentage 
rate calculated using the prime index value and 7% margin on July 
17, 2022, is not substantially similar to the rate calculated using 
the LIBOR index value on June 30, 2023.

Paragraph 40(f)(3)(ii)(B)

    1. Replacing LIBOR. For purposes of replacing a LIBOR index used 
under a plan, a replacement index that is not newly established must 
have historical fluctuations that are substantially similar to those 
of the LIBOR index used under the plan, considering the historical 
fluctuations up through the relevant date. If the Bureau has made a 
determination that the replacement index and the LIBOR index have 
historical fluctuations that are substantially similar, the relevant 
date is the date indicated in that determination. If the Bureau has 
not made a determination that the replacement index and the LIBOR 
index have historical fluctuations that are substantially similar, 
the relevant date is the later of April 1, 2022, or the date no more 
than 30 days before the creditor makes a determination that the 
replacement index and the LIBOR index have historical fluctuations 
that are substantially similar.
    i. The Bureau has determined that effective April 1, 2022, the 
prime rate published in the Wall Street Journal has historical 
fluctuations that are substantially similar to those of the 1-month 
and 3-month U.S. Dollar LIBOR indices. In order to use this prime 
rate as the replacement index for the 1-month or 3-month U.S. Dollar 
LIBOR index, the creditor also must comply with the condition in 
Sec.  1026.40(f)(3)(ii)(B) that the prime rate index value in effect 
on October 18, 2021, and replacement margin will produce an annual 
percentage rate substantially similar to the rate calculated using 
the LIBOR index value in effect on October 18, 2021, and the margin 
that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. See also 
comments 40(f)(3)(ii)(B)-2 and -3.
    ii. The Bureau has determined that effective April 1, 2022, the 
spread-adjusted indices based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR indices have historical 
fluctuations that are substantially similar to those of the 1-month, 
3-month, or 6-month U.S. Dollar LIBOR indices respectively. In order 
to use this SOFR-based spread-adjusted index for consumer products 
as the replacement index for the applicable LIBOR index, the 
creditor also must comply with the condition in Sec.  
1026.40(f)(3)(ii)(B) that the SOFR-based spread-adjusted index for 
consumer products and replacement margin will produce an annual 
percentage rate substantially similar to the rate calculated using 
the LIBOR index and the margin that applied to the variable rate 
immediately prior to the replacement of the LIBOR index used under 
the plan. Because of the exception in Sec.  1026.40(f)(3)(ii)(B), 
the creditor must use the index value on June 30, 2023, for the 
LIBOR index and, for the SOFR-based spread-adjusted index for 
consumer products, must use the index value on the first date that 
index is published, in determining whether the annual percentage 
rate based on the replacement index is substantially similar to the 
rate based on the LIBOR index. See also comments 40(f)(3)(ii)(B)-2 
and -3.
    iii. The relevant factors to be considered in determining 
whether a replacement index has historical fluctuations substantial 
similar to those of a particular LIBOR index depend on the 
replacement index being considered and the LIBOR index being 
replaced. For example, these determinations may need to consider 
certain aspects of the historical data itself for a particular 
replacement index, such as whether the replacement index is a 
backward-looking rate (e.g., historical average of rates) such that 
timing aspects of the data may need to be adjusted to match up with 
the particular forward-looking LIBOR term-rate being replaced. The 
types of relevant factors to establish if a replacement index would 
meet the ``historical fluctuations are substantially similar'' 
standard with respect to a particular LIBOR index using historical 
data, include but are not limited to, whether: {1{time}  The 
movements over time are substantially similar; and {2{time}  the 
consumers' payments using the replacement index compared to payments 
using the LIBOR index are substantially similar if there is 
sufficient historical data for this analysis.
    2. Using index values on October 18, 2021, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. Under Sec.  
1026.40(f)(3)(ii)(B), if the replacement index was published on 
October 18, 2021, the replacement index value in effect on October 
18, 2021, and replacement margin must produce an annual percentage 
rate substantially similar to the rate calculated using the LIBOR 
index value in effect on October 18, 2021, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. The margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR 
index used under the plan is the margin that applied to the variable 
rate immediately prior to when the creditor provides the change-in-
terms notice disclosing the replacement index for the variable rate. 
The following example illustrates this comment.
    i. Assume a variable rate used under the plan that is based on 
the 1-month U.S. Dollar LIBOR index and assume that LIBOR becomes 
unavailable after June 30, 2023. On October 18, 2021, the LIBOR 
index value is 2%, the margin on that day is 10% and the annual 
percentage rate using that index value and margin is 12%. Assume on 
January 1, 2022, a creditor provides a change-in-terms notice under 
Sec.  1026.9(c)(1) disclosing a new margin of 12% for the variable 
rate pursuant to a written agreement under Sec.  1026.40(f)(3)(iii), 
and this change in the margin becomes effective on January 1, 2022, 
pursuant to Sec.  1026.9(c)(1). Assume that there are no more 
changes in the margin that is used in calculating the variable rate 
prior to April 1, 2022, the date on which the creditor provides a 
change-in-terms notice under Sec.  1026.9(c)(1), disclosing the 
replacement

[[Page 69795]]

index and replacement margin for the variable rate that will be 
effective on April 17, 2022. In this case, the margin that applied 
to the variable rate immediately prior to the replacement of the 
LIBOR index used under the plan is 12%. Assume that the creditor has 
selected the prime index published in the Wall Street Journal as the 
replacement index, and the value of the prime index is 5% on October 
18, 2021. A replacement margin of 9% is permissible under Sec.  
1026.40(f)(3)(ii)(B) because that replacement margin combined with 
the prime index value of 5% on October 18, 2021, will produce an 
annual percentage rate of 14%, which is substantially similar to the 
14% annual percentage rate calculated using the LIBOR index value in 
effect on October 18, 2021, (which is 2%) and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan (which is 12%).
    3. Substantially similar rates using index values on October 18, 
2021. Under Sec.  1026.40(f)(3)(ii)(B), if the replacement index was 
published on October 18, 2021, the replacement index value in effect 
on October 18, 2021, and replacement margin must produce an annual 
percentage rate substantially similar to the rate calculated using 
the LIBOR index value in effect on October 18, 2021, and the margin 
that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. The replacement 
index and replacement margin are not required to produce an annual 
percentage rate that is substantially similar on the day that the 
replacement index and replacement margin become effective on the 
plan. For purposes of Sec.  1026.40(f)(3)(ii)(B), if a creditor uses 
the SOFR-based spread-adjusted index recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR index as the 
replacement index and uses as the replacement margin the same margin 
that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan, the creditor 
will be deemed to be in compliance with the condition in Sec.  
1026.40(f)(3)(ii)(B) that the replacement index and replacement 
margin would have resulted in an annual percentage rate 
substantially similar to the rate calculated using the LIBOR index. 
The following example illustrates this comment.
    i. Assume that the 1-month U.S. Dollar LIBOR index used under 
the plan has a value of 2% on October 18, 2021, the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan is 10%, and the annual 
percentage rate based on that LIBOR index value and that margin is 
12%. Also, assume that the creditor has selected the prime index 
published in the Wall Street Journal as the replacement index, and 
the value of the prime index is 5% on October 18, 2021. A creditor 
would satisfy the requirement to use a replacement index value in 
effect on October 18, 2021, and replacement margin that will produce 
an annual percentage rate substantially similar to the rate 
calculated using the LIBOR index value in effect on October 18, 
2021, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan, by 
selecting a 7% replacement margin. (The prime index value of 5% and 
the replacement margin of 7% would produce a rate of 12%.) Thus, if 
the creditor provides a change-in-terms notice under Sec.  
1026.9(c)(1) on April 1, 2022, disclosing the prime index as the 
replacement index and a replacement margin of 7%, where these 
changes will become effective on April 17, 2022, the creditor 
satisfies the requirement to use a replacement index value in effect 
on October 18, 2021, and replacement margin that will produce an 
annual percentage rate substantially similar to the rate calculated 
using the LIBOR value in effect on October 18, 2021, and the margin 
that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. This is true 
even if the prime index value or the LIBOR index value changes after 
October 18, 2021, and the annual percentage rate calculated using 
the prime index value and 7% margin on April 17, 2022, is not 
substantially similar to the rate calculated using the LIBOR index 
value on October 18, 2021, or substantially similar to the rate 
calculated using the LIBOR index value on April 17, 2022.
* * * * *

Section 1026.55--Limitations on Increasing Annual Percentage Rates, 
Fees, and Charges

* * * * *

55(b)(2) Variable Rate Exception

    1. Increases due to increase in index. Section 1026.55(b)(2) 
provides that an annual percentage rate that varies according to an 
index that is not under the card issuer's control and is available 
to the general public may be increased due to an increase in the 
index. This section does not permit a card issuer to increase the 
rate by changing the method used to determine a rate that varies 
with an index (such as by increasing the margin), even if that 
change will not result in an immediate increase. However, from time 
to time, a card issuer may change the day on which index values are 
measured to determine changes to the rate.
    2. Index not under card issuer's control. A card issuer may 
increase a variable annual percentage rate pursuant to Sec.  
1026.55(b)(2) only if the increase is based on an index or indices 
outside the card issuer's control. For purposes of Sec.  
1026.55(b)(2), an index is under the card issuer's control if:
    i. The index is the card issuer's own prime rate or cost of 
funds. A card issuer is permitted, however, to use a published prime 
rate, such as that in the Wall Street Journal, even if the card 
issuer's own prime rate is one of several rates used to establish 
the published rate.
    ii. The variable rate is subject to a fixed minimum rate or 
similar requirement that does not permit the variable rate to 
decrease consistent with reductions in the index. A card issuer is 
permitted, however, to establish a fixed maximum rate that does not 
permit the variable rate to increase consistent with increases in an 
index. For example, assume that, under the terms of an account, a 
variable rate will be adjusted monthly by adding a margin of 5 
percentage points to a publicly-available index. When the account is 
opened, the index is 10% and therefore the variable rate is 15%. If 
the terms of the account provide that the variable rate will not 
decrease below 15% even if the index decreases below 10%, the card 
issuer cannot increase that rate pursuant to Sec.  1026.55(b)(2). 
However, Sec.  1026.55(b)(2) does not prohibit the card issuer from 
providing in the terms of the account that the variable rate will 
not increase above a certain amount (such as 20%).
    iii. The variable rate can be calculated based on any index 
value during a period of time (such as the 90 days preceding the 
last day of a billing cycle). A card issuer is permitted, however, 
to provide in the terms of the account that the variable rate will 
be calculated based on the average index value during a specified 
period. In the alternative, the card issuer is permitted to provide 
in the terms of the account that the variable rate will be 
calculated based on the index value on a specific day (such as the 
last day of a billing cycle). For example, assume that the terms of 
an account provide that a variable rate will be adjusted at the 
beginning of each quarter by adding a margin of 7 percentage points 
to a publicly-available index. At account opening at the beginning 
of the first quarter, the variable rate is 17% (based on an index 
value of 10%). During the first quarter, the index varies between 
9.8% and 10.5% with an average value of 10.1%. On the last day of 
the first quarter, the index value is 10.2%. At the beginning of the 
second quarter, Sec.  1026.55(b)(2) does not permit the card issuer 
to increase the variable rate to 17.5% based on the first quarter's 
maximum index value of 10.5%. However, if the terms of the account 
provide that the variable rate will be calculated based on the 
average index value during the prior quarter, Sec.  1026.55(b)(2) 
permits the card issuer to increase the variable rate to 17.1% 
(based on the average index value of 10.1% during the first 
quarter). In the alternative, if the terms of the account provide 
that the variable rate will be calculated based on the index value 
on the last day of the prior quarter, Sec.  1026.55(b)(2) permits 
the card issuer to increase the variable rate to 17.2% (based on the 
index value of 10.2% on the last day of the first quarter).
    3. Publicly available. The index or indices must be available to 
the public. A publicly-available index need not be published in a 
newspaper, but it must be one the consumer can independently obtain 
(by telephone, for example) and use to verify the annual percentage 
rate applied to the account.
    4. Changing a non-variable rate to a variable rate. Section 
1026.55 generally prohibits a card issuer from changing a non-
variable annual percentage rate to a variable annual percentage rate 
because such a change can result in an increase. However, a card 
issuer may change a non-variable rate to a variable rate to the 
extent permitted by one of the exceptions in Sec.  1026.55(b). For 
example, Sec.  1026.55(b)(1) permits a card issuer to change a non-
variable rate to a variable rate upon expiration of a specified 
period of time. Similarly, following the first year after the 
account is opened,

[[Page 69796]]

Sec.  1026.55(b)(3) permits a card issuer to change a non-variable 
rate to a variable rate with respect to new transactions (after 
complying with the notice requirements in Sec.  1026.9(b), (c), or 
(g)).
    5. Changing a variable rate to a non-variable rate. Nothing in 
Sec.  1026.55 prohibits a card issuer from changing a variable 
annual percentage rate to an equal or lower non-variable rate. 
Whether the non-variable rate is equal to or lower than the variable 
rate is determined at the time the card issuer provides the notice 
required by Sec.  1026.9(c). For example, assume that on March 1 a 
variable annual percentage rate that is currently 15% applies to a 
balance of $2,000 and the card issuer sends a notice pursuant to 
Sec.  1026.9(c) informing the consumer that the variable rate will 
be converted to a non-variable rate of 14% effective April 15. On 
April 15, the card issuer may apply the 14% non-variable rate to the 
$2,000 balance and to new transactions even if the variable rate on 
March 2 or a later date was less than 14%.
* * * * *

55(b)(7) Index Replacement and Margin Change Exception

    1. Replacing LIBOR. A card issuer may use either the provision 
in Sec.  1026.55(b)(7)(i) or (ii) to replace a LIBOR index used 
under the plan so long as the applicable conditions are met for the 
provision used. Neither provision, however, excuses the card issuer 
from noncompliance with contractual provisions. The following 
examples illustrate when a card issuer may use the provisions in 
Sec.  1026.55(b)(7)(i) or (ii) to replace a LIBOR index on the plan.
    i. Assume that LIBOR becomes unavailable after June 30, 2023, 
and assume a contract provides that a card issuer may not replace an 
index unilaterally under a plan unless the original index becomes 
unavailable and provides that the replacement index and replacement 
margin will result in an annual percentage rate substantially 
similar to a rate that is in effect when the original index becomes 
unavailable. The card issuer may use Sec.  1026.55(b)(7)(i) to 
replace the LIBOR index used under the plan so long as the 
conditions of that provision are met. Section 1026.55(b)(7)(ii) 
provides that a card issuer may replace the LIBOR index if, among 
other conditions, the replacement index value in effect on October 
18, 2021, and replacement margin will produce an annual percentage 
rate substantially similar to the rate calculated using the LIBOR 
index value in effect on October 18, 2021, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. If the replacement index is not 
published on October 18, 2021, the card issuer generally must use 
the next calendar day for which both the LIBOR index and the 
replacement index are published as the date for selecting indices 
values in determining whether the annual percentage rate based on 
the replacement index is substantially similar to the rate based on 
the LIBOR index. The one exception is that if the replacement index 
is the spread-adjusted index based on SOFR recommended by the 
Alternative Reference Rates Committee for consumer products to 
replace the 1-month, 3-month, 6-month, or 1-year U.S. Dollar LIBOR 
index, the card issuer must use the index value on June 30, 2023, 
for the LIBOR index and, for the SOFR-based spread-adjusted index 
for consumer products, must use the index value on the first date 
that index is published, in determining whether the annual 
percentage rate based on the replacement index is substantially 
similar to the rate based on the LIBOR index. In this example, 
however, the card issuer would be contractually prohibited from 
replacing the LIBOR index used under the plan unless the replacement 
index and replacement margin also will produce an annual percentage 
rate substantially similar to a rate that is in effect when the 
LIBOR index becomes unavailable.
    ii. Assume that LIBOR becomes unavailable after June 30, 2023, 
and assume a contract provides that a card issuer may not replace an 
index unilaterally under a plan unless the original index becomes 
unavailable but does not require that the replacement index and 
replacement margin will result in an annual percentage rate 
substantially similar to a rate that is in effect when the original 
index becomes unavailable. In this case, the card issuer would be 
contractually prohibited from unilaterally replacing the LIBOR index 
used under the plan until it becomes unavailable. At that time, the 
card issuer has the option of using Sec.  1026.55(b)(7)(i) or (ii) 
to replace the LIBOR index used under the plan if the conditions of 
the applicable provision are met.
    iii. Assume that LIBOR becomes unavailable after June 30, 2023, 
and assume a contract provides that a card issuer may change the 
terms of the contract (including the index) as permitted by law. In 
this case, if the card issuer replaces the LIBOR index used under 
the plan on or after April 1, 2022, but does not wait until the 
LIBOR index becomes unavailable to do so, the card issuer may only 
use Sec.  1026.55(b)(7)(ii) to replace the LIBOR index if the 
conditions of that provision are met. In that case, the card issuer 
may not use Sec.  1026.55(b)(7)(i). If the card issuer waits until 
the LIBOR index used under the plan becomes unavailable to replace 
LIBOR, the card issuer has the option of using Sec.  
1026.55(b)(7)(i) or (ii) to replace the LIBOR index if the 
conditions of the applicable provisions are met.

Paragraph 55(b)(7)(i)

    1. Replacing LIBOR. For purposes of replacing a LIBOR index used 
under a plan, a replacement index that is not newly established must 
have historical fluctuations that are substantially similar to those 
of the LIBOR index used under the plan, considering the historical 
fluctuations up through when the LIBOR index becomes unavailable or 
up through the date indicated in a Bureau determination that the 
replacement index and the LIBOR index have historical fluctuations 
that are substantially similar, whichever is earlier.
    i. The Bureau has determined that effective April 1, 2022, the 
prime rate published in the Wall Street Journal has historical 
fluctuations that are substantially similar to those of the 1-month 
and 3-month U.S. Dollar LIBOR indices. In order to use this prime 
rate as the replacement index for the 1-month or 3-month U.S. Dollar 
LIBOR index, the card issuer also must comply with the condition in 
Sec.  1026.55(b)(7)(i) that the prime rate and replacement margin 
will produce a rate substantially similar to the rate that was in 
effect at the time the LIBOR index became unavailable. See also 
comment 55(b)(7)(i)-2.
    ii. The Bureau has determined that effective April 1, 2022, the 
spread-adjusted indices based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR indices have historical 
fluctuations that are substantially similar to those of the 1-month, 
3-month, or 6-month U.S. Dollar LIBOR indices respectively. In order 
to use this SOFR-based spread-adjusted index for consumer products 
as the replacement index for the applicable LIBOR index, the card 
issuer also must comply with the condition in Sec.  1026.55(b)(7)(i) 
that the SOFR-based spread-adjusted index for consumer products 
replacement margin will produce a rate substantially similar to the 
rate that was in effect at the time the LIBOR index became 
unavailable. See also comment 55(b)(7)(i)-2.
    iii. The relevant factors to be considered in determining 
whether a replacement index has historical fluctuations substantial 
similar to those of a particular LIBOR index depend on the 
replacement index being considered and the LIBOR index being 
replaced. For example, these determinations may need to consider 
certain aspects of the historical data itself for a particular 
replacement index, such as whether the replacement index is a 
backward-looking rate (e.g., historical average of rates) such that 
timing aspects of the data may need to be adjusted to match up with 
the particular forward-looking LIBOR term-rate being replaced. The 
types of relevant factors to establish if a replacement index would 
meet the ``historical fluctuations are substantially similar'' 
standard with respect to a particular LIBOR index using historical 
data, include but are not limited to, whether: {1{time}  The 
movements over time are substantially similar; and {2{time}  the 
consumers' payments using the replacement index compared to payments 
using the LIBOR index are substantially similar if there is 
sufficient historical data for this analysis.
    2. Substantially similar rate when LIBOR becomes unavailable. 
Under Sec.  1026.55(b)(7)(i), the replacement index and replacement 
margin must produce an annual percentage rate substantially similar 
to the rate that was in effect at the time the LIBOR index used 
under the plan became unavailable. For this comparison of the rates, 
a card issuer generally must use the value of the replacement index 
and the LIBOR index on the day that LIBOR becomes unavailable. If 
the replacement index is not published on the day that the LIBOR 
index becomes unavailable, the card issuer generally must use the 
previous calendar day that both indices are published as the date 
for selecting indices values in determining whether the annual 
percentage rate based on the replacement index is substantially 
similar to the rate based on the LIBOR index. The one exception is 
that, if the replacement index is the SOFR-based spread-adjusted 
index recommended by the Alternative Reference

[[Page 69797]]

Rates Committee for consumer products to replace the 1-month, 3-
month, 6-month, or 1-year U.S. Dollar LIBOR index, the card issuer 
must use the index value on June 30, 2023, for the LIBOR index and, 
for the SOFR-based spread-adjusted index for consumer products, must 
use the index value on the first date that index is published, in 
determining whether the annual percentage rate based on the 
replacement index is substantially similar to the rate based on the 
LIBOR index. The replacement index and replacement margin are not 
required to produce an annual percentage rate that is substantially 
similar on the day that the replacement index and replacement margin 
become effective on the plan. For purposes of Sec.  
1026.55(b)(7)(i), if a card issuer uses the SOFR-based spread-
adjusted index recommended by the Alternative Reference Rates 
Committee for consumer products to replace the 1-month, 3-month, or 
6-month U.S. Dollar LIBOR index as the replacement index and uses as 
the replacement margin the same margin that applied to the variable 
rate immediately prior to the replacement of the LIBOR index used 
under the plan the card issuer will be deemed to be in compliance 
with the condition in Sec.  1026.55(b)(7)(i) that the replacement 
index and replacement margin would have resulted in an annual 
percentage rate substantially similar to the rate in effect at the 
time the LIBOR index became unavailable. The following example 
illustrates this comment.
    i. Assume that the 1-month U.S. Dollar LIBOR index used under 
the plan becomes unavailable on June 30, 2023, and on that day the 
LIBOR value is 2%, the margin is 10%, and the annual percentage rate 
is 12%. Also, assume that a card issuer has selected the prime index 
published in the Wall Street Journal as the replacement index, and 
the value of the prime index is 5% on June 30, 2023. The card issuer 
would satisfy the requirement to use a replacement index and 
replacement margin that will produce an annual percentage rate 
substantially similar to the rate that was in effect when the LIBOR 
index used under the plan became unavailable by selecting a 7% 
replacement margin. (The prime index value of 5% and the replacement 
margin of 7% would produce a rate of 12% on June 30, 2023.) Thus, if 
the card issuer provides a change-in-terms notice under Sec.  
1026.9(c)(2) on July 1, 2023, disclosing the prime index as the 
replacement index and a replacement margin of 7%, where these 
changes will become effective on August 16, 2023, the card issuer 
satisfies the requirement to use a replacement index and replacement 
margin that will produce an annual percentage rate substantially 
similar to the rate that was in effect when the LIBOR index used 
under the plan became unavailable. This is true even if the prime 
index value changes after June 30, 2023, and the annual percentage 
rate calculated using the prime index value and 7% margin on August 
16, 2023, is not substantially similar to the rate calculated using 
the LIBOR index value on June 30, 2023.

Paragraph 55(b)(7)(ii)

    1. Replacing LIBOR. For purposes of replacing a LIBOR index used 
under a plan, a replacement index that is not newly established must 
have historical fluctuations that are substantially similar to those 
of the LIBOR index used under the plan, considering the historical 
fluctuations up through the relevant date. If the Bureau has made a 
determination that the replacement index and the LIBOR index have 
historical fluctuations that are substantially similar, the relevant 
date is the date indicated in that determination. If the Bureau has 
not made a determination that the replacement index and the LIBOR 
index have historical fluctuations that are substantially similar, 
the relevant date is the later of April 1, 2022, or the date no more 
than 30 days before the card issuer makes a determination that the 
replacement index and the LIBOR index have historical fluctuations 
that are substantially similar.
    i. The Bureau has determined that effective April 1, 2022, the 
prime rate published in the Wall Street Journal has historical 
fluctuations that are substantially similar to those of the 1-month 
and 3-month U.S. Dollar LIBOR indices. In order to use this prime 
rate as the replacement index for the 1-month or 3-month U.S. Dollar 
LIBOR index, the card issuer also must comply with the condition in 
Sec.  1026.55(b)(7)(ii) that the prime rate index value in effect on 
October 18, 2021, and replacement margin will produce an annual 
percentage rate substantially similar to the rate calculated using 
the LIBOR index value in effect on October 18, 2021, and the margin 
that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. See also 
comments 55(b)(7)(ii)-2 and -3.
    ii. The Bureau has determined that effective April 1, 2022, the 
spread-adjusted indices based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR indices have historical 
fluctuations that are substantially similar to those of the 1-month, 
3-month, or 6-month U.S. Dollar LIBOR indices respectively. In order 
to use this SOFR-based spread-adjusted index for consumer products 
as the replacement index for the applicable LIBOR index, the card 
issuer also must comply with the condition in Sec.  
1026.55(b)(7)(ii) that the SOFR-based spread-adjusted index for 
consumer products and replacement margin will produce an annual 
percentage rate substantially similar to the rate calculated using 
the LIBOR index, and the margin that applied to the variable rate 
immediately prior to the replacement of the LIBOR index used under 
the plan. Because of the exception in Sec.  1026.55(b)(7)(ii), the 
card issuer must use the index value on June 30, 2023, for the LIBOR 
index and, for the SOFR-based spread-adjusted index for consumer 
products, must use the index value on the first date that index is 
published, in determining whether the annual percentage rate based 
on the replacement index is substantially similar to the rate based 
on the LIBOR index. See also comments 55(b)(7)(ii)-2 and -3.
    iii. The relevant factors to be considered in determining 
whether a replacement index has historical fluctuations substantial 
similar to those of a particular LIBOR index depend on the 
replacement index being considered and the LIBOR index being 
replaced. For example, these determinations may need to consider 
certain aspects of the historical data itself for a particular 
replacement index, such as whether the replacement index is a 
backward-looking rate (e.g., historical average of rates) such that 
timing aspects of the data may need to be adjusted to match up with 
the particular forward-looking LIBOR term-rate being replaced. The 
types of relevant factors to establish if a replacement index would 
meet the ``historical fluctuations are substantially similar'' 
standard with respect to a particular LIBOR index using historical 
data, include but are not limited to, whether: {1{time}  The 
movements over time are substantially similar; and {2{time}  the 
consumers' payments using the replacement index compared to payments 
using the LIBOR index are substantially similar if there is 
sufficient historical data for this analysis.
    2. Using index values on October 18, 2021, and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan. Under Sec.  1026.55(b)(7)(ii), 
if the replacement index was published on October 18, 2021, the 
replacement index value in effect on October 18, 2021, and 
replacement margin must produce an annual percentage rate 
substantially similar to the rate calculated using the LIBOR index 
value in effect on October 18, 2021, and the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan. The margin that applied to the variable 
rate immediately prior to the replacement of the LIBOR index used 
under the plan is the margin that applied to the variable rate 
immediately prior to when the card issuer provides the change-in-
terms notice disclosing the replacement index for the variable rate. 
The following examples illustrate how to determine the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan.
    i. Assume a variable rate used under the plan that is based on 
the 1-month U.S. Dollar LIBOR index, and assume that LIBOR becomes 
unavailable after June 30, 2023. On October 18, 2021, the LIBOR 
index value is 2%, the margin on that day is 10% and the annual 
percentage rate using that index value and margin is 12%. Assume 
that on November 16, 2021, pursuant to Sec.  1026.55(b)(3), a card 
issuer provides a change-in-terms notice under Sec.  1026.9(c)(2) 
disclosing a new margin of 12% for the variable rate that will apply 
to new transactions after November 30, 2021, and this change in the 
margin becomes effective on January 1, 2022. The margin for the 
variable rate applicable to the transactions that occurred on or 
prior to November 30, 2021, remains at 10%. Assume that there are no 
more changes in the margin used on the variable rate that applied to 
transactions that occurred after November 30, 2021, or to the margin 
used on the variable rate that applied to transactions that occurred 
on or prior to November 30, 2021, prior to when the card issuer 
provides a change-in-terms notice on April 1, 2022, disclosing the 
replacement

[[Page 69798]]

index and replacement margins for both variable rates that will be 
effective on May 17, 2022. In this case, the margin that applied to 
the variable rate immediately prior to the replacement of the LIBOR 
index used under the plan for transactions that occurred on or prior 
to November 30, 2021, is 10%. The margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR 
index used under the plan for transactions that occurred after 
November 30, 2021, is 12%. Assume that the card issuer has selected 
the prime index published in the Wall Street Journal as the 
replacement index, and the value of the prime index is 5% on October 
18, 2021. A replacement margin of 7% is permissible under Sec.  
1026.55(b)(7)(ii) for transactions that occurred on or prior to 
November 30, 2021, because that replacement margin combined with the 
prime index value of 5% on October 18, 2021, will produce an annual 
percentage rate of 12%, which is substantially similar to the 12% 
annual percentage rate calculated using the LIBOR index value in 
effect on October 18, 2021, (which is 2%) and the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan for that balance (which is 10%). 
A replacement margin of 9% is permissible under Sec.  
1026.55(b)(7)(ii) for transactions that occurred after November 30, 
2021, because that replacement margin combined with the prime index 
value of 5% on October 18, 2021, will produce an annual percentage 
rate of 14%, which is substantially similar to the 14% annual 
percentage rate calculated using the LIBOR index value in effect on 
October 18, 2021, (which is 2%) and the margin that applied to the 
variable rate immediately prior to the replacement of the LIBOR 
index used under the plan for transactions that occurred after 
November 30, 2021, (which is 12%).
    ii. Assume a variable rate used under the plan that is based on 
the 1-month U.S. Dollar LIBOR index, and assume that LIBOR becomes 
unavailable after June 30, 2023. On October 18, 2021, the LIBOR 
index value is 2%, the margin on that day is 10% and the annual 
percentage rate using that index value and margin is 12%. Assume 
that on November 16, 2021, pursuant to Sec.  1026.55(b)(4), a card 
issuer provides a penalty rate notice under Sec.  1026.9(g) 
increasing the margin for the variable rate to 20% that will apply 
to both outstanding balances and new transactions effective January 
1, 2022, because the consumer was more than 60 days late in making a 
minimum payment. Assume that there are no more changes in the margin 
used on the variable rate for either the outstanding balance or new 
transactions prior to April 1, 2022, the date on which the card 
issuer provides a change-in-terms notice under Sec.  1026.9(c)(2) 
disclosing the replacement index and replacement margin for the 
variable rate that will be effective on May 17, 2022. The margin 
that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan for the 
outstanding balance and new transactions is 12%. Assume that the 
card issuer has selected the prime index published in the Wall 
Street Journal as the replacement index, and the value of the prime 
index is 5% on October 18, 2021. A replacement margin of 17% is 
permissible under Sec.  1026.55(b)(7)(ii) for the outstanding 
balance and new transactions because that replacement margin 
combined with the prime index value of 5% on October 18, 2021, will 
produce an annual percentage rate of 22%, which is substantially 
similar to the 22% annual percentage rate calculated using the LIBOR 
index value in effect on October 18, 2021, (which is 2%) and the 
margin that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan for the 
outstanding balance and new transactions (which is 20%).
    3. Substantially similar rate using index values on October 18, 
2021. Under Sec.  1026.55(b)(7)(ii), if the replacement index was 
published on October 18, 2021, the replacement index value in effect 
on October 18, 2021, and replacement margin must produce an annual 
percentage rate substantially similar to the rate calculated using 
the LIBOR index value in effect on October 18, 2021, and the margin 
that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. A card issuer is 
not required to produce an annual percentage rate that is 
substantially similar on the day that the replacement index and 
replacement margin become effective on the plan. For purposes of 
Sec.  1026.55(b)(7)(ii), if a card issuer uses the SOFR-based 
spread-adjusted index recommended by the Alternative Reference Rates 
Committee for consumer products to replace the 1-month, 3-month, or 
6-month U.S. Dollar LIBOR index as the replacement index and uses as 
the replacement margin the same margin that applied to the variable 
rate immediately prior to the replacement of the LIBOR index used 
under the plan, the card issuer will be deemed to be in compliance 
with the condition in Sec.  1026.55(b)(7)(ii) that the replacement 
index and replacement margin would have resulted in an annual 
percentage rate substantially similar to the rate calculated using 
the LIBOR index. The following example illustrates this comment.
    i. Assume that the 1-month U.S. Dollar LIBOR index used under 
the plan has a value of 2% on October 18, 2021, the margin that 
applied to the variable rate immediately prior to the replacement of 
the LIBOR index used under the plan is 10%, and the annual 
percentage rate based on that LIBOR index value and that margin is 
12%. Also, assume that the card issuer has selected the prime index 
published in the Wall Street Journal as the replacement index, and 
the value of the prime index is 5% on October 18, 2021. A card 
issuer would satisfy the requirement to use a replacement index 
value in effect on October 18, 2021, and replacement margin that 
will produce an annual percentage rate substantially similar to the 
rate calculated using the LIBOR index value in effect on October 18, 
2021, and the margin that applied to the variable rate immediately 
prior to the replacement of the LIBOR index used under the plan, by 
selecting a 7% replacement margin. (The prime index value of 5% and 
the replacement margin of 7% would produce a rate of 12%.) Thus, if 
the card issuer provides a change-in-terms notice under Sec.  
1026.9(c)(2) on April 1, 2022, disclosing the prime index as the 
replacement index and a replacement margin of 7%, where these 
changes will become effective on May 17, 2022, the card issuer 
satisfies the requirement to use a replacement index value in effect 
on October 18, 2021, and replacement margin that will produce an 
annual percentage rate substantially similar to the rate calculated 
using the LIBOR value in effect on October 18, 2021, and the margin 
that applied to the variable rate immediately prior to the 
replacement of the LIBOR index used under the plan. This is true 
even if the prime index value or the LIBOR value change after 
October 18, 2021, and the annual percentage rate calculated using 
the prime index value and 7% margin on May 17, 2022, is not 
substantially similar to the rate calculated using the LIBOR index 
value on October 18, 2021, or substantially similar to the rate 
calculated using the LIBOR index value on May 17, 2022.
* * * * *

Section 1026.59--Reevaluation of Rate Increases

* * * * *

59(d) Factors

    1. Change in factors. A creditor that complies with Sec.  
1026.59(a) by reviewing the factors it currently considers in 
determining the annual percentage rates applicable to similar new 
credit card accounts may change those factors from time to time. 
When a creditor changes the factors it considers in determining the 
annual percentage rates applicable to similar new credit card 
accounts from time to time, it may comply with Sec.  1026.59(a) by 
reviewing the set of factors it considered immediately prior to the 
change in factors for a brief transition period, or may consider the 
new factors. For example, a creditor changes the factors it uses to 
determine the rates applicable to similar new credit card accounts 
on January 1, 2012. The creditor reviews the rates applicable to its 
existing accounts that have been subject to a rate increase pursuant 
to Sec.  1026.59(a) on January 25, 2012. The creditor complies with 
Sec.  1026.59(a) by reviewing, at its option, either the factors 
that it considered on December 31, 2011 when determining the rates 
applicable to similar new credit card accounts or the factors that 
it considers as of January 25, 2012. For purposes of compliance with 
Sec.  1026.59(d), a transition period of 60 days from the change of 
factors constitutes a brief transition period.
    2. Comparison of existing account to factors used for similar 
new accounts. Under Sec.  1026.59(a), if a card issuer evaluates an 
existing account using the same factors that it considers in 
determining the rates applicable to similar new accounts, the review 
of factors need not result in existing accounts being subject to 
exactly the same rates and rate structure as a card issuer imposes 
on similar new accounts. For example, a card issuer may offer 
variable rates on similar new accounts that are computed by adding a 
margin that depends on various factors to the value of a SOFR index. 
The account that the card issuer is required to review pursuant to 
Sec.  1026.59(a)

[[Page 69799]]

may have variable rates that were determined by adding a different 
margin, depending on different factors, to a published prime index. 
In performing the review required by Sec.  1026.59(a), the card 
issuer may review the factors it uses to determine the rates 
applicable to similar new accounts. If a rate reduction is required, 
however, the card issuer need not base the variable rate for the 
existing account on the SOFR index but may continue to use the 
published prime index. Section 1026.59(a) requires, however, that 
the rate on the existing account after the reduction, as determined 
by adding the published prime index and margin, be comparable to the 
rate, as determined by adding the margin and the SOFR index, charged 
on a new account for which the factors are comparable.
    3. Similar new credit card accounts. A card issuer complying 
with Sec.  1026.59(d)(1)(ii) is required to consider the factors 
that the card issuer currently considers when determining the annual 
percentage rates applicable to similar new credit card accounts 
under an open-end (not home-secured) consumer credit plan. For 
example, a card issuer may review different factors in determining 
the annual percentage rate that applies to credit card plans for 
which the consumer pays an annual fee and receives rewards points 
than it reviews in determining the rates for credit card plans with 
no annual fee and no rewards points. Similarly, a card issuer may 
review different factors in determining the annual percentage rate 
that applies to private label credit cards than it reviews in 
determining the rates applicable to credit cards that can be used at 
a wider variety of merchants. In addition, a card issuer may review 
different factors in determining the annual percentage rate that 
applies to private label credit cards usable only at Merchant A than 
it may review for private label credit cards usable only at Merchant 
B. However, Sec.  1026.59(d)(1)(ii) requires a card issuer to review 
the factors it considers when determining the rates for new credit 
card accounts with similar features that are offered for similar 
purposes.
    4. No similar new credit card accounts. In some circumstances, a 
card issuer that complies with Sec.  1026.59(a) by reviewing the 
factors that it currently considers in determining the annual 
percentage rates applicable to similar new accounts may not be able 
to identify a class of new accounts that are similar to the existing 
accounts on which a rate increase has been imposed. For example, 
consumers may have existing credit card accounts under an open-end 
(not home-secured) consumer credit plan but the card issuer may no 
longer offer a product to new consumers with similar 
characteristics, such as the availability of rewards, size of credit 
line, or other features. Similarly, some consumers' accounts may 
have been closed and therefore cannot be used for new transactions, 
while all new accounts can be used for new transactions. In those 
circumstances, Sec.  1026.59 requires that the card issuer 
nonetheless perform a review of the rate increase on the existing 
customers' accounts. A card issuer does not comply with Sec.  
1026.59 by maintaining an increased rate without performing such an 
evaluation. In such circumstances, Sec.  1026.59(d)(1)(ii) requires 
that the card issuer compare the existing accounts to the most 
closely comparable new accounts that it offers.
    5. Consideration of consumer's conduct on existing account. A 
card issuer that complies with Sec.  1026.59(a) by reviewing the 
factors that it currently considers in determining the annual 
percentage rates applicable to similar new accounts may consider the 
consumer's payment or other account behavior on the existing account 
only to the same extent and in the same manner that the issuer 
considers such information when one of its current cardholders 
applies for a new account with the card issuer. For example, a card 
issuer might obtain consumer reports for all of its applicants. The 
consumer reports contain certain information regarding the 
applicant's past performance on existing credit card accounts. 
However, the card issuer may have additional information about an 
existing cardholder's payment history or account usage that does not 
appear in the consumer report and that, accordingly, it would not 
generally have for all new applicants. For example, a consumer may 
have made a payment that is five days late on his or her account 
with the card issuer, but this information does not appear on the 
consumer report. The card issuer may consider this additional 
information in performing its review under Sec.  1026.59(a), but 
only to the extent and in the manner that it considers such 
information if a current cardholder applies for a new account with 
the issuer.
    6. Multiple rate increases between January 1, 2009 and February 
21, 2010. i. General. Section 1026.59(d)(2) applies if an issuer 
increased the rate applicable to a credit card account under an 
open-end (not home-secured) consumer credit plan between January 1, 
2009 and February 21, 2010, and the increase was not based solely 
upon factors specific to the consumer. In some cases, a credit card 
account may have been subject to multiple rate increases during the 
period from January 1, 2009 to February 21, 2010. Some such rate 
increases may have been based solely upon factors specific to the 
consumer, while others may have been based on factors not specific 
to the consumer, such as the issuer's cost of funds or market 
conditions. In such circumstances, when conducting the first two 
reviews required under Sec.  1026.59, the card issuer may separately 
review: {i{time}  Rate increases imposed based on factors not 
specific to the consumer, using the factors described in Sec.  
1026.59(d)(1)(ii) (as required by Sec.  1026.59(d)(2)); and 
{ii{time}  rate increases imposed based on consumer-specific 
factors, using the factors described in Sec.  1026.59(d)(1)(i). If 
the review of factors described in Sec.  1026.59(d)(1)(i) indicates 
that it is appropriate to continue to apply a penalty or other 
increased rate to the account as a result of the consumer's payment 
history or other factors specific to the consumer, Sec.  1026.59 
permits the card issuer to continue to impose the penalty or other 
increased rate, even if the review of the factors described in Sec.  
1026.59(d)(1)(ii) would otherwise require a rate decrease.
    i. Example. Assume a credit card account was subject to a rate 
of 15% on all transactions as of January 1, 2009. On May 1, 2009, 
the issuer increased the rate on existing balances and new 
transactions to 18%, based upon market conditions or other factors 
not specific to the consumer or the consumer's account. 
Subsequently, on September 1, 2009, based on a payment that was 
received five days after the due date, the issuer increased the 
applicable rate on existing balances and new transactions from 18% 
to a penalty rate of 25%. When conducting the first review required 
under Sec.  1026.59, the card issuer reviews the rate increase from 
15% to 18% using the factors described in Sec.  1026.59(d)(1)(ii) 
(as required by Sec.  1026.59(d)(2)), and separately but 
concurrently reviews the rate increase from 18% to 25% using the 
factors described in paragraph Sec.  1026.59(d)(1)(i). The review of 
the rate increase from 15% to 18% based upon the factors described 
in Sec.  1026.59(d)(1)(ii) indicates that a similarly situated new 
consumer would receive a rate of 17%. The review of the rate 
increase from 18% to 25% based upon the factors described in Sec.  
1026.59(d)(1)(i) indicates that it is appropriate to continue to 
apply the 25% penalty rate based upon the consumer's late payment. 
Section 1026.59 permits the rate on the account to remain at 25%.
* * * * *

59(f) Termination of Obligation To Review Factors

    1. Revocation of temporary rates. i. In general. If an annual 
percentage rate is increased due to revocation of a temporary rate, 
Sec.  1026.59(a) requires that the card issuer periodically review 
the increased rate. In contrast, if the rate increase results from 
the expiration of a temporary rate previously disclosed in 
accordance with Sec.  1026.9(c)(2)(v)(B), the review requirements in 
Sec.  1026.59(a) do not apply. If a temporary rate is revoked such 
that the requirements of Sec.  1026.59(a) apply, Sec.  1026.59(f) 
permits an issuer to terminate the review of the rate increase if 
and when the applicable rate is the same as the rate that would have 
applied if the increase had not occurred.
    ii. Examples. Assume that on January 1, 2011, a consumer opens a 
new credit card account under an open-end (not home-secured) 
consumer credit plan. The annual percentage rate applicable to 
purchases is 15%. The card issuer offers the consumer a 10% rate on 
purchases made between February 1, 2012, and August 1, 2013, and 
discloses pursuant to Sec.  1026.9(c)(2)(v)(B) that on August 1, 
2013, the rate on purchases will revert to the original 15% rate. 
The consumer makes a payment that is five days late in July 2012.
    A. Upon providing 45 days' advance notice and to the extent 
permitted under Sec.  1026.55, the card issuer increases the rate 
applicable to new purchases to 15%, effective on September 1, 2012. 
The card issuer must review that rate increase under Sec.  
1026.59(a) at least once each six months during the period from 
September 1, 2012, to August 1, 2013, unless and until the card 
issuer reduces the rate to 10%. The card issuer performs reviews of 
the rate increase on January 1, 2013, and July 1, 2013. Based on 
those reviews, the rate applicable to

[[Page 69800]]

purchases remains at 15%. Beginning on August 1, 2013, the card 
issuer is not required to continue periodically reviewing the rate 
increase, because if the temporary rate had expired in accordance 
with its previously disclosed terms, the 15% rate would have applied 
to purchase balances as of August 1, 2013, even if the rate increase 
had not occurred on September 1, 2012.
    B. Same facts as above except that the review conducted on July 
1, 2013, indicates that a reduction to the original temporary rate 
of 10% is appropriate. Section 1026.59(a)(2)(i) requires that the 
rate be reduced no later than 45 days after completion of the 
review, or no later than August 15, 2013. Because the temporary rate 
would have expired prior to the date on which the rate decrease is 
required to take effect, the card issuer may, at its option, reduce 
the rate to 10% for any portion of the period from July 1, 2013, to 
August 1, 2013, or may continue to impose the 15% rate for that 
entire period. The card issuer is not required to conduct further 
reviews of the 15% rate on purchases.
    C. Same facts as above except that on September 1, 2012, the 
card issuer increases the rate applicable to new purchases to the 
penalty rate on the consumer's account, which is 25%. The card 
issuer conducts reviews of the increased rate in accordance with 
Sec.  1026.59 on January 1, 2013, and July 1, 2013. Based on those 
reviews, the rate applicable to purchases remains at 25%. The card 
issuer's obligation to review the rate increase continues to apply 
after August 1, 2013, because the 25% penalty rate exceeds the 15% 
rate that would have applied if the temporary rate expired in 
accordance with its previously disclosed terms. The card issuer's 
obligation to review the rate terminates if and when the annual 
percentage rate applicable to purchases is reduced to the 15% rate.
    2. Example--relationship to Sec.  1026.59(a). Assume that on 
January 1, 2011, a consumer opens a new credit card account under an 
open-end (not home-secured) consumer credit plan. The annual 
percentage rate applicable to purchases is 15%. Upon providing 45 
days' advance notice and to the extent permitted under Sec.  
1026.55, the card issuer increases the rate applicable to new 
purchases to 18%, effective on September 1, 2012. The card issuer 
conducts reviews of the increased rate in accordance with Sec.  
1026.59 on January 1, 2013, and July 1, 2013, based on the factors 
described in Sec.  1026.59(d)(1)(ii). Based on the January 1, 2013, 
review, the rate applicable to purchases remains at 18%. In the 
review conducted on July 1, 2013, the card issuer determines that, 
based on the relevant factors, the rate it would offer on a 
comparable new account would be 14%. Consistent with Sec.  
1026.59(f), Sec.  1026.59(a) requires that the card issuer reduce 
the rate on the existing account to the 15% rate that was in effect 
prior to the September 1, 2012 rate increase.
    3. Transition from LIBOR. i. General. Effective April 1, 2022, 
in the case where the rate applicable immediately prior to the 
increase was a variable rate with a formula based on a LIBOR index, 
a card issuer may terminate the obligation to review if the card 
issuer reduces the annual percentage rate to a rate determined by a 
replacement formula that is derived from a replacement index value 
on October 18, 2021, plus replacement margin that is equal to the 
annual percentage rate of the LIBOR index value on October 18, 2021, 
plus the margin used to calculate the rate immediately prior to the 
increase (previous formula).
    ii. Examples. A. Assume that on April 1, 2022, the previous 
formula is the 1-month U.S. Dollar LIBOR index plus a margin of 10% 
equal to a 12% annual percentage rate. In this case, the LIBOR index 
value is 2%. The card issuer selects the prime index published in 
the Wall Street Journal as the replacement index. The replacement 
formula used to derive the rate at which the card issuer may 
terminate its obligation to review factors must be set at a 
replacement index plus replacement margin that equals 12%. If the 
prime index is 4% on October 18, 2021, the replacement margin must 
be 8% in the replacement formula. The replacement formula for 
purposes of determining when the card issuer can terminate the 
obligation to review factors is the prime index plus 8%.
    B. Assume that on April 1, 2022, the account was not subject to 
Sec.  1026.59 and the annual percentage rate was the 1-month U.S. 
Dollar LIBOR index plus a margin of 10% equal to 12%. On May 1, 
2022, the card issuer raises the annual percentage rate to the 1-
month U.S. Dollar LIBOR index plus a margin of 12% equal to 14%. On 
June 1, 2022, the card issuer transitions the account from the LIBOR 
index in accordance with Sec.  1026.55(b)(7)(ii). The card issuer 
selects the prime index published in the Wall Street Journal as the 
replacement index with a value on October 18, 2021, of 4%. The 
replacement formula used to derive the rate at which the card issuer 
may terminate its obligation to review factors must be set at the 
value of a replacement index on October 18, 2021, plus replacement 
margin that equals 12%. In this example, the replacement formula is 
the prime index plus 8%.
    4. Selecting a replacement index. In selecting a replacement 
index for purposes of Sec.  1026.59(f)(3), the card issuer must meet 
the conditions for selecting a replacement index that are described 
in Sec.  1026.55(b)(7)(ii) and comment 55(b)(7)(ii)-1. For example, 
a card issuer may select a replacement index that is not newly 
established for purposes of Sec.  1026.59(f)(3), so long as the 
replacement index has historical fluctuations that are substantially 
similar to those of the LIBOR index used in the previous formula, 
considering the historical fluctuations up through the relevant 
date. If the Bureau has made a determination that the replacement 
index and the LIBOR index have historical fluctuations that are 
substantially similar, the relevant date is the date indicated in 
that determination. If the Bureau has not made a determination that 
the replacement index and the LIBOR index have historical 
fluctuations that are substantially similar, the relevant date is 
the later of April 1, 2022, or the date no more than 30 days before 
the card issuer makes a determination that the replacement index and 
the LIBOR index have historical fluctuations that are substantially 
similar. The Bureau has determined that effective April 1, 2022, the 
prime rate published in the Wall Street Journal has historical 
fluctuations that are substantially similar to those of the 1-month 
and 3-month U.S. Dollar LIBOR indices. The Bureau also has 
determined that effective April 1, 2022, the spread-adjusted indices 
based on SOFR recommended by the Alternative Reference Rates 
Committee for consumer products to replace the 1-month, 3-month, or 
6-month U.S. Dollar LIBOR indices have historical fluctuations that 
are substantially similar to those of the 1-month, 3-month, or 6-
month U.S. Dollar LIBOR indices respectively. See comment 
55(b)(7)(ii)-1. Also, for purposes of Sec.  1026.59(f)(3), a card 
issuer may select a replacement index that is newly established as 
described in Sec.  1026.55(b)(7)(ii).
* * * * *

59(h) Exceptions

    1. Transition from LIBOR. The exception to the requirements of 
this section does not apply to rate increases already subject to 
Sec.  1026.59 prior to the transition from the use of a LIBOR index 
as the index in setting a variable rate to the use of a different 
index in setting a variable rate where the change from the use of a 
LIBOR index to a different index occurred in accordance with Sec.  
1026.55(b)(7)(i) or (ii).
* * * * *

Rohit Chopra,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2021-25825 Filed 12-7-21; 8:45 am]
BILLING CODE 4810-AM-P