Facilitating the LIBOR Transition Consistent With the LIBOR Act (Regulation Z), 30598-30632 [2023-09129]

Download as PDF 30598 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations CONSUMER FINANCIAL PROTECTION BUREAU 12 CFR Part 1026 [Docket No. CFPB–2023–0030] RIN 3170–AB19 Facilitating the LIBOR Transition Consistent With the LIBOR Act (Regulation Z) Consumer Financial Protection Bureau. ACTION: Interim final rule with request for public comment. AGENCY: The Consumer Financial Protection Bureau (CFPB or Bureau) is issuing an interim final rule amending Regulation Z, which implements the Truth in Lending Act (TILA), to reflect the enactment of the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act or Act) and its implementing regulation promulgated by the Board of Governors of the Federal Reserve System (Board). This interim final rule further addresses the planned cessation of most U.S. Dollar (USD) LIBOR tenors after June 30, 2023, by incorporating the Boardselected benchmark replacement for consumer loans into Regulation Z. This interim final rule conforms the terminology from the LIBOR Act and the Board’s implementing regulation into relevant Regulation Z open-end and closed-end credit provisions and also addresses treatment of the 12-month USD LIBOR index and its replacement index, including permitting creditors to use alternative language in change-interms notice content requirements for situations where the 12-month tenor of the LIBOR index is being replaced consistent with the LIBOR Act. The CFPB requests public comment on this interim final rule. DATES: This interim final rule is effective May 15, 2023. Comments must be received on or before June 12, 2023. ADDRESSES: You may submit comments, identified by Docket No. CFPB–2023– 0030 or RIN 3170–AB19, by any of the following methods: • Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments. • Email: 2023-LIBOR-IFR@cfpb.gov. Include Docket No. CFPB–2023–0030 or RIN 3170–AB19 in the subject line of the message. • Mail/Hand Delivery/Courier: Comment Intake—LIBOR, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. Because paper mail in the Washington, DC area and at the CFPB is subject to ddrumheller on DSK120RN23PROD with RULES3 SUMMARY: VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 delay, commenters are encouraged to submit comments electronically. Instructions: The CFPB encourages the early submission of comments. All submissions must include the document title and docket number. Please note the number of the topic on which you are commenting at the top of each response (you do not need to address all topics). In general, all comments received will be posted without change to https:// www.regulations.gov. All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Comments will not be edited to remove any identifying or contact information. FOR FURTHER INFORMATION CONTACT: Krista Ayoub, Lanique Eubanks, Angela Fox, or Kristen Phinnessee, Senior Counsels, Office of Regulations, at 202– 435–7700. If you require this document in an alternative electronic format, please contact CFPB_Accessibility@ cfpb.gov. SUPPLEMENTARY INFORMATION: I. Summary of the Interim Final Rule The CFPB is issuing this interim final rule amending Regulation Z, which implements TILA, for both open-end and closed-end credit to make changes consistent with the LIBOR Act and its implementing regulation issued by the Board and further address the planned cessation of LIBOR.1 These changes amend and update the CFPB’s Facilitating the LIBOR Transition (Regulation Z) final rule published in the Federal Register on December 8, 2021 (2021 LIBOR Transition Final Rule).2 In general, the interim final rule makes several conforming terminology changes to align with the LIBOR Act 1 When amending the Official Interpretations, the Office of the Federal Register requires reprinting of certain sections being amended in their entirety rather than providing more targeted amendatory instructions. The sections of regulatory text and the Official Interpretations 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 interim final rule to the regulatory text and the Official Interpretations of Regulation Z. This redline can be found on the Bureau’s website, at https:// www.consumerfinance.gov/compliance/ compliance-resources/other-applicablerequirements/libor-index-transition/. If any conflicts exist between the redline and the text of Regulation Z, its Official Interpretations, or this interim final rule, the documents published in the Federal Register are the controlling documents. 2 86 FR 69716 (Dec. 8, 2021). PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 and the Board’s implementing regulation. In the 2021 LIBOR Transition Final Rule, the CFPB generally had provided examples of certain indices, including spreadadjusted Secured Overnight Financing Rate (SOFR)-based indices, that may meet the applicable Regulation Z standards (referred to hereafter as SOFRbased replacement indices) for the 1month, 3-month, and 6-month tenors of USD LIBOR, but it reserved judgment about whether to include references to a 1-year (or 12-month) USD LIBOR index and its SOFR-based replacement index. The CFPB is now also conforming Regulation Z with the LIBOR Act and the Board’s implementing regulation by adding such references with respect to the SOFRbased replacement for the 12-month tenor of LIBOR. This interim final rule does not in any way alter or modify the Bureau’s determination in the 2021 LIBOR Transition Final Rule in relation to the prime rate as a replacement index. As discussed in part VI, this interim final rule will take effect on May 15, 2023. The CFPB solicits comment on this interim final rule. A. Open-End Credit The CFPB is amending several openend credit provisions in Regulation Z. First, the CFPB is changing the terminology used in the 2021 LIBOR Transition Final Rule to make it consistent with terminology in the LIBOR Act and the Board’s implementing regulation. Specifically, as discussed in further detail below, the CFPB is replacing all references to the ‘‘index based on SOFR recommended by the Alternative Reference Rates Committee for consumer products’’ with ‘‘the Board-selected benchmark replacement for consumer loans’’ and adding a new definition for that term in § 1026.2(a)(28). For this new definition and throughout this interim final rule, the CFPB is using the term 12-month tenor instead of the 1-year tenor with respect to the USD LIBOR index to align with the terminology used in the LIBOR Act and the Board’s implementing regulation. These changes are set forth in § 1026.40(f)(3)(ii) and related comments for home equity lines of credit (HELOCs) and in § 1026.55(b)(7) and related comments for credit card accounts. Second, the CFPB is revising the Official Interpretations to incorporate the Board-selected benchmark replacement for consumer loans to replace the 12-month LIBOR index, as prescribed by the LIBOR Act and the Board’s implementing regulation, as an index that has historical fluctuations E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations that are substantially similar to those of the 12-month USD LIBOR index it is intended to replace. Consistent with the LIBOR Act and the Board’s implementing regulation, the Bureau’s prior determination of the spreadadjusted indices based on SOFR recommended by the Alternative Reference Rates Committee (ARRC) is obsolete given that ‘‘the Board-selected benchmark replacement for consumer loans’’ to replace 1-month, 3-month, and 6-month USD LIBOR indices is the same as the corresponding spread-adjusted index based on SOFR recommended by the ARRC for consumer products. These changes are set forth in § 1026.40(f)(3)(ii) and related comments for HELOCs and in § 1026.55(b)(7) and related comments for credit card accounts. Third, the CFPB is adding the Boardselected benchmark replacement for consumer loans that would replace the 12-month USD LIBOR index to the list of indices where a creditor is allowed to use an alternative method to disclose information about the periodic rate and annual percentage rate (APR) in changein-terms notices for HELOCs and credit card accounts as a result of the replacement of the LIBOR index in certain circumstances. These changes are set forth in comment 9(c)(1)–4 for HELOCs and in comment 9(c)(2)(iv)–2.ii for credit card accounts. Fourth, the CFPB is adding the Boardselected benchmark replacement for consumer loans that would replace the 12-month USD LIBOR index to the list of indices where a card issuer is allowed to use an alternative method for determining whether the card issuer can terminate its obligation under the credit card account rate reevaluation requirements where the rate applicable immediately prior to a rate increase was a variable rate calculated using a LIBOR index. The Bureau also deleted its prior determination in the Official Interpretations given that ‘‘the Boardselected benchmark replacement for consumer loans’’ to replace 1-month, 3month, and 6-month USD LIBOR indices is the same as the corresponding spread-adjusted index based on SOFR recommended by the ARRC for consumer products. These changes are set forth in § 1026.59(f)(3) and comment 59(f)–4. Specifically, as discussed in further detail below, the CFPB is replacing the reference to the ‘‘index based on SOFR recommended by the Alternative Reference Rates Committee for consumer products’’ with a reference to ‘‘the Board-selected benchmark replacement for consumer loans.’’ Second, the CFPB is revising an illustrative example in the Official Interpretations to incorporate the Boardselected benchmark replacement for consumer loans to replace the 12-month LIBOR index, as prescribed by the LIBOR Act, as an index that is comparable to the 12-month USD LIBOR index it is intended to replace for purposes of the closed-end refinancing provisions. These changes are set forth in comment 20(a)(3)–ii.B. B. Closed-End Credit The CFPB is also amending the closed-end credit provisions in Regulation Z. First, the CFPB is changing the terminology used in the CFPB’s 2021 LIBOR Transition Final Rule to make it consistent with terminology in the LIBOR Act. On December 8, 2021, the CFPB issued the 2021 LIBOR Transition Final Rule generally to address the expected discontinuance of most U.S. Dollar (USD) tenors of LIBOR in June 2023.3 The 2021 LIBOR Transition Final Rule, VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 II. Background A. Introduction—Consumer Products Using 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. In the United States, financial institutions have used LIBOR as a common benchmark rate for a variety of adjustable-rate consumer financial products, including mortgages, credit cards, HELOCs, reverse mortgages, 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 12month USD LIBOR plus two percentage points. LIBOR is set to expire on June 30, 2023. 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. B. CFPB’s 2021 LIBOR Transition Final Rule 3 Id. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 30599 among other things, amended open-end and closed-end provisions of Regulation Z to provide examples of replacement indices to USD LIBOR tenors that meet certain Regulation Z standards. For each of these open-end and closed-end provisions, while the CFPB generally provided examples of certain indices, including SOFR-based replacement indices for 1-month, 3month, and 6-month tenors of USD LIBOR, the CFPB reserved judgment about whether to include a SOFR-based replacement index for the 1-year (now being referred to as 12-month in this interim final rule) USD LIBOR index until it obtained additional information. The CFPB stated that once it knew which SOFR-based index the ARRC would recommend to replace the 12month USD LIBOR index for consumer products, the Bureau would consider determining whether the replacement index and replacement margin met the appropriate standards in Regulation Z and would then consider whether to codify that determination in a supplemental final rule, or otherwise announce that determination. Most provisions of the 2021 LIBOR Transition Final Rule were effective on April 1, 2022.4 C. The LIBOR Act On March 15, 2022, Congress enacted the LIBOR Act as part of the Consolidated Appropriations Act, 2022.5 Among other things, the LIBOR Act provides that the Board may identify a replacement index based on SOFR published by the Federal Reserve Bank of New York (or a successor administrator), including tenor spread adjustments, to replace the 1-month, 3month, 6-month, and 12-month tenors of USD LIBOR for any LIBOR contracts that do not otherwise specify a replacement rate fallback provision or method for selecting a fallback rate.6 The LIBOR Act (and the Board’s subsequent final rule, discussed below) identify these replacement indices as the ‘‘Board-selected benchmark replacement’’ index.7 The LIBOR Act provides certain safe harbors for use of a Board-selected benchmark replacement for consumer loans, including stating that the Board4 October 1, 2023, is the effective date for an amendment that removes two ‘‘Legacy’’ postconsummation change-in-terms forms H–4(D)(2) and H–4(D)(4) in appendix H of part 1026 that still reference LIBOR, and prevents these two forms from being used to demonstrate compliance with part 1026.20. 5 Public Law 117–103, div. U, 136 Stat. 825 (2022). 6 LIBOR Act section 104, 136 Stat. 828. 7 LIBOR Act section 103(6), 136 Stat. 826. See also 12 CFR 253.2 and 253.4. E:\FR\FM\11MYR3.SGM 11MYR3 30600 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations selected benchmark replacements constitute replacement indices that have historical fluctuations that are substantially similar to those of LIBOR for purposes of TILA 8 and regulations promulgated under that statute.9 D. Board’s 2022 LIBOR Act Final Rule The Board issued a final rule to implement the LIBOR Act on December 16, 2022, effective February 27, 2023 (Board’s 2022 LIBOR Act Final Rule).10 Among other things, the Board’s final rule established benchmark replacements for contracts governed by U.S. law that reference certain tenors of USD LIBOR, including those of 1month, 3-month, 6-month,11 and 12month tenors, that do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate following the cessation of LIBOR.12 The LIBOR Act, and the Board’s implementing regulation, provide for certain adjustments in general for LIBOR contracts and more specifically for LIBOR contracts that are consumer loans. Consistent with LIBOR Act, the final rule identified each of those indices as a ‘‘Board-selected benchmark replacement’’ for consumer loans, thereby meeting the safe harbor criteria in the LIBOR Act. The final rule provided that the Board-selected benchmark replacements for LIBOR contracts that are consumer loans using 1-month, 3-month, 6-month, or 12-month tenors of USD LIBOR during the one-year period beginning on the LIBOR replacement date shall be the corresponding 1-month, 3-month, 6month, or 12-month CME Term SOFR 8 15 U.S.C. 1601 et seq. harbors provided by the LIBOR Act include, among other things, determination that use of the identified replacement indices constitute a reasonable, comparable, or analogous rate, index, or term for LIBOR, a replacement that is based on a methodology or information that is similar or comparable to LIBOR, and a replacement that has historical fluctuations that are substantially similar to those of LIBOR for purposes of TILA and its implementing regulations. See LIBOR Act section 105(a), 136 Stat. 830. Additionally, the safe harbors from the LIBOR Act provide that use of the identified replacement indices do not constitute, among other things, a breach of a LIBOR contract. See LIBOR Act section 105(b), 136 Stat. 830. Further, the LIBOR Act provides that creditors using the identified replacement indices under the specified conditions in the Act shall not be subject to any claim or cause of action in law or equity or request for equitable relief, or have liability for damages, arising out of the selection or use of the identified replacement index in the Act and the implementation of the identified changes in the Act. See LIBOR Act section 105(c), 136 Stat. 830. 10 88 FR 5204 (Jan. 26, 2023). 11 While the Board uses ‘‘one-, three-, and sixmonth’’ to describe these tenors of USD LIBOR, for consistency with this interim final rule, this notice refers to those tenors as 1-month, 3-month, or 6month tenors, respectively. 12 12 CFR 253.4(b)(2). ddrumheller on DSK120RN23PROD with RULES3 9 Safe VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 plus an amount that transitions linearly for each business day during that period from the difference between the relevant CME Term SOFR and the relevant LIBOR tenor determined as of the day immediately before the LIBOR replacement date to the applicable tenor spread adjustment identified in the final rule.13 After expiration of that first-year period, the rule provided that the Boardselected benchmark replacements shall be the corresponding 1-month, 3-month, 6-month, or 12-month CME Term SOFR plus the applicable tenor spread adjustment identified in the final rule.14 Effectively, the Board-selected benchmark replacements for LIBOR contracts that are consumer loans as set forth in the Board’s final rule are the indices based on SOFR recommended by the ARRC for consumer products for the 1-month, 3-month, 6-month and 12month USD LIBOR tenors.15 III. Legal Authority A. Section 1022 of the Dodd-Frank Act The CFPB is issuing this interim final rule under Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) section 1022(b)(1) 16 and TILA section 105(a). Dodd-Frank Act section 1022(b)(1) authorizes the CFPB 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 thereof.’’ 17 Section 1022(b)(1) of the Dodd-Frank Act also authorizes the CFPB 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 thereof.’’ 18 Among other statutes, Title X of the Dodd-Frank Act and TILA are Federal consumer financial laws.19 Accordingly, in issuing this interim final rule, the CFPB is exercising its authority under DoddFrank Act section 1022(b) to prescribe 13 12 CFR 253.4(b)(2)(i)(B). CFR 253.4(b)(2)(ii)(B). 15 Alt. Reference Rates Comm., ARRC Recommended Fallbacks for Implementation of its Hardwired Fallback Language (Mar. 15, 2023), https://www.newyorkfed.org/medialibrary/ Microsites/arrc/files/2023/ARRC-statement-on-1-36-12-month-USD-LIBOR.pdf. 16 Public Law 111–203, section 1022(b)(1), 124 Stat. 1376, 1980 (2010). 17 12 U.S.C. 5512(b)(1). 18 Id. 19 Dodd-Frank Act section 1002(14), 123 Stat. 1957 (defining ‘‘Federal consumer financial law’’ to include the ‘‘enumerated consumer laws’’ and the provisions of title X of the Dodd-Frank Act); DoddFrank Act section 1002(12)(O), 123 Stat. 1957 (defining ‘‘enumerated consumer laws’’ to include TILA). 14 12 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 rules under TILA and Title X that carry out the purposes and objectives and prevent evasion of those laws. B. The Truth in Lending Act TILA section 105(a), as amended by the Dodd-Frank Act, directs the CFPB 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 CFPB, are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance.20 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. 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 CFPB’s section 105(a) authority by amending that section to provide express authority to prescribe regulations that contain ‘‘additional requirements’’ that the CFPB 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) authority 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).21 For the reasons discussed in this document, the CFPB is amending Regulation Z with respect to certain provisions that impact the transition from LIBOR indices to other indices to carry out TILA’s purposes, including such additional requirements, adjustments, and exceptions as, in the CFPB’s judgment, are necessary and proper to carry out the purposes of TILA, prevent circumvention or evasion 20 15 21 15 E:\FR\FM\11MYR3.SGM U.S.C. 1604(a). U.S.C. 1602(bb). 11MYR3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES3 thereof, or to facilitate compliance. In developing these aspects of this rule pursuant to its authority under TILA section 105(a), the CFPB has considered the purposes of TILA, including ensuring meaningful disclosures, facilitating consumers’ ability to compare credit terms, and helping consumers avoid the uninformed use of credit, and the findings of TILA, including strengthening competition among financial institutions and promoting economic stabilization. IV. Administrative Procedure Act The Administrative Procedure Act (APA) does not require notice and opportunity for public comment if an agency for good cause finds that notice and public comment are impracticable, unnecessary, or contrary to the public interest.22 Similarly, publication of this interim final rule at least 30 days before its effective date is not required where the CFPB has identified good cause for a different effective date.23 The CFPB finds that prior notice and public comment are unnecessary given the specific nature of the changes contained in this interim final rule. First, this interim final rule makes technical changes to conform the nomenclature of Regulation Z to the nomenclature of the LIBOR Act and the Board’s implementing regulation. Most notably, this interim final rule substitutes the phrase ‘‘the Boardselected benchmark replacement for consumer loans’’ for the phrase ‘‘spreadadjusted indices based on SOFR recommended by the ARRC for consumer products.’’ As discussed in part II, in the context of consumer loans, the two phrases are synonymous. In light of the LIBOR Act and the Board’s implementing regulation, there is minimal, if any, basis for substantive disagreement regarding this replacement of superseded nomenclature. Second, this interim final rule acknowledges the determinations made by Congress in the LIBOR Act that the Board-selected benchmark replacements for consumer loans are comparable indices and, for purposes of Regulation Z, have ‘‘historical fluctuations that are substantially similar’’ to the LIBOR indices they replace.24 The enactment of the LIBOR Act and the Board’s implementing rule resolved the ambiguity that existed at the time the CFPB issued its 2021 LIBOR Transition Final Rule as to which, if any, SOFRbased replacement index for the 12month (formerly called the 1-year) tenor U.S.C. 553(b)(B). U.S.C. 553(d)(3). 24 12 U.S.C. 5804(a)(2), (3), (5). would meet these standards. That is the issue that the CFPB needed to reserve judgment about at the time it issued its 2021 LIBOR Transition Final Rule because the ARRC had not yet recommended a SOFR-based replacement index for that tenor; thus, there was no such tenor for the CFPB to analyze at the time. In light of the LIBOR Act and the Board’s implementing regulation, the applicable 1-month, 3-month, 6-month, and 12month tenor of the Board-selected benchmark replacements for consumer loans meet the relevant standards; there is minimal, if any, basis for substantive disagreement on this issue. Third, and closely related to the first three changes, this interim final rule removes prior Bureau determinations that were rendered obsolete by the LIBOR Act and the Board’s implementing regulation. These determinations concerned the comparability of, and the substantial similarity of the historical fluctuations of, the spread-adjusted index based on SOFR recommended by the ARRC for consumer products compared to the LIBOR index it would replace. See comments 40(f)(3)(ii)(A)–2.ii, 40(f)(3)(ii)(B)–1.ii, 55(b)(7)(i)–1.ii., 55(b)(7)(ii)–1.ii, and 59(f)–4. But, as discussed above, the spread-adjusted indices based on SOFR recommended by the ARRC for consumer products are the same as ‘‘the Board-selected benchmark replacement for consumer loans.’’ In light of the LIBOR Act and the Board’s implementing regulation, there is minimal, if any, basis for substantive disagreement on this issue. Fourth, the CFPB’s 2021 LIBOR Transition Proposed Rule already solicited comment on the substance of most of the provisions that are now amended by this interim final rule, making further notice and comment on them duplicative. Specifically, the proposed rule solicited comment on determining that the spread-adjusted index based on SOFR recommended by the ARRC for consumer products for 1month, 3-month, 6-month, and 1-year or 12-month LIBOR would be comparable to, and have historical fluctuations that substantially similar to, the LIBOR index it would replace.25 The CFPB’s 2021 LIBOR Transition Final Rule, promulgated after notice and an opportunity for public comment, made such determinations with respect to the 1-month, 3-month, and 6-month tenors, but explained in the preamble that the Bureau was reserving judgment on making such determinations with 22 5 VerDate Sep<11>2014 20:10 May 10, 2023 respect to the 1-year or 12-month tenor, leaving those determinations open until the CFPB obtained further information.26 The need for further information has since been obviated by the determinations made by Congress in the LIBOR Act discussed above. The CFPB also finds good cause to waive the 30-day delay in effective date. The CFPB is cognizant of the need for these amendments to take effect quickly and thereby remove any confusion that may exist after the Board’s regulations implementing the LIBOR Act became effective on February 27, 2023. In particular, making this interim final rule effective at least 45 days prior to the planned cessation of LIBOR on June 30, 2023, is necessary to ensure that consumers with credit card accounts currently using a LIBOR index can receive timely change-in-terms notices when their account is changed to the Board-selected benchmark replacement. V. Section-by-Section Analysis Section 1026.2 Definitions and Rules of Construction 2(a) Definitions 2(a)(28) The Board-Selected Benchmark Replacement for Consumer Loans This interim final rule adds ‘‘the Board-selected benchmark replacement for consumer loans’’ as a new defined term in § 1026.2(a)(28) to reference a specific replacement index for consumer products when LIBOR becomes unavailable. As discussed in part II above, the LIBOR Act and the Board’s implementing regulation defined ‘‘Board-selected benchmark replacement’’ to mean a benchmark replacement identified by the Board that is based on SOFR, including any tenor spread adjustment by the Board.27 The LIBOR Act, and the Board’s implementing regulation, provide for certain adjustments in general for LIBOR contracts and more specifically for LIBOR contracts that are consumer loans. Accordingly, for purposes of promoting the informed use of consumer credit under Regulation Z, the CFPB is creating a new term that is specific to consumer loans. New § 1026.2(a)(28) defines ‘‘the Boardselected benchmark replacement for consumer loans’’ as the SOFR-based index selected by the Board, to replace, as applicable, the 1-month, 3-month, 6-month, or 12-month tenors of USD LIBOR and uses the term 12-month tenor instead of 1-year tenor to align with the terminology used in the LIBOR 26 See 23 5 25 See 85 FR 36938, 36945–47, 36972, 36987, 36994 (June 18, 2020). Jkt 259001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 30601 86 FR 69716, 69723, 69730 (Dec. 8, 2021). Act section 104(e), 136 Stat. 829 (codified at 12 U.S.C. 5803(e)); 12 CFR 253.4. 27 LIBOR E:\FR\FM\11MYR3.SGM 11MYR3 30602 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations Act and the Board’s implementing regulation. The definition references the LIBOR Act and the Board’s implementing rule for additional clarity. The Board-selected benchmark replacements for consumer loans are tenors of the USD IBOR Cash Fallback index for consumer products, which uses the same methodology that the ARRC recommended for SOFR-based replacement indices for consumer products.28 As such, these terms identify the same index, and the addition of the new defined term and cross-references to it throughout this interim final rule are merely for consistency with the Act and ease of reading. The CFPB solicits feedback on these changes of the interim final rule. Section 1026.9 Requirements Subsequent Disclosure 9(c) Change in Terms ddrumheller on DSK120RN23PROD with RULES3 9(c)(1) Rules Affecting Home-Equity Plans Section 1026.9(c)(1)(i) provides that for HELOCs subject to § 1026.40 whenever any term required to be disclosed in the account-opening disclosures under § 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 creditor must mail or deliver the notice 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 creditor must give the notice, however, before the effective date of the change. A creditor 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 § 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 changein-terms notice is provided.29 28 See 88 FR 5204, 5211–15 (Jan. 26, 2023); see also Alt. Reference Rates Comm., ARRC Recommended Fallbacks for Implementation of its Hardwired Fallback Language (Mar. 15, 2023), https://www.newyorkfed.org/medialibrary/ Microsites/arrc/files/2023/ARRC-statement-on-1-36-12-month-USD-LIBOR.pdf. 29 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 VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 Comment 9(c)(1)–4 provides that if: (1) 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 1month, 3-month, or 6-month U.S. Dollar 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 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 changein-terms notice, but will be published by the time the replacement of the index takes effect on the account, then 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 APR (as calculated using the replacement index), based on the best information reasonably available, clearly stating that the disclosure is an estimate. Comment 9(c)(1)–4 provides the example that, in this situation, 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. For the reasons discussed below, the CFPB is making several changes to comment 9(c)(1)–4. First, the CFPB is replacing references to the spreadadjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans’’ to align terminology in the rule with the LIBOR Act and the Board’s 2022 LIBOR Act Final Rule. As discussed in the section-by-section analysis for § 1026.2(a)(28), this interim final rule also defines the term ‘‘the Boardselected benchmark replacement for consumer loans.’’ Revised comment 9(c)(1)–4 includes a cross-reference to that definition. As discussed above, these terms identify the same index, and the change is merely for consistency with the Act and ease of reading. Second, the CFPB is expanding comment 9(c)(1)–4 to include a replacement index for the 12-month § 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 § 1026.5(c). PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. As discussed in the Background section, in the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for the 1month, 3-month, and 6-month tenors of USD LIBOR, but reserved judgment about whether to include a reference to the 12-month (formerly called the 1year) USD LIBOR index in comment 9(c)(1)–4 until it obtained additional information. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. By operation of the LIBOR Act, all tenors of the Boardselected benchmark replacement constitute a ‘‘comparable index’’ to, and have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they replace.30 Thus, the CFPB is revising comment 9(c)(1)–4 to also apply to the replacement of the 12month USD LIBOR index with the Board-selected benchmark replacement for consumer loans, facilitating compliance with the advance notice requirements for change-in-terms notices. While section 104(f) of the LIBOR Act provides that nothing in the Act ‘‘may be construed to alter or impair— . . . (5) any provision of Federal consumer financial law that—(A) requires creditors to notify borrowers regarding a change-in-terms,’’ the CFPB is not relying on the LIBOR Act for authority to revise comment 9(c)(1)–4. However, in this unique circumstance, the CFPB has previously stated a need to permit creditors permission to provide estimates for change-in-terms notices, and interprets § 1026.5(c) to be consistent with revised comment 9(c)(1)–4 in doing so. 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. Because of the unique circumstances of the LIBOR transition, the CFPB previously amended comment 9(c)(1)–4 to provide permit creditors the ability to provide estimates for disclosures previously excluded from § 1026.5(c). The revisions to comment 9(c)(1)–4 in this interim final rule are consistent with this reasoning. Thus, the revisions to comment 9(c)(1)–4 are consistent with revisions discussed below that provide 30 LIBOR Act section 105(a)(2), (3) and (5), 136 Stat. 830. E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations that if a creditor uses the Board-selected benchmark replacement for consumer loans to replace 12-month USD LIBOR 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 § 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.31 Under § 1026.9(c)(1)(i), the change-interms notice for HELOC accounts subject to § 1026.40 generally must be mailed or delivered at least 15 days prior to the effective date of the change. Also, the Board-selected benchmark replacement for consumer loans to replace the 12-month USD LIBOR, like the 1-month, 3-month, and 6-month USD LIBOR replacement tenors, 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. The revisions to comment 9(c)(1)–4 are intended to facilitate compliance with the 15-day advance notice requirement for changein-terms notices by allowing creditors in the situation described above to provide change-in-terms notices prior to the Board-selected benchmark replacement for consumer loans to replace 12-month USD LIBOR being published, so that creditors are not left without an index to use on the account after the Boardselected benchmark replacement for consumer loans to replace 12-month USD LIBOR is published, but before it becomes effective on the account. As is the case for the Board-selected benchmark replacements for consumer loans for 1-month, 3-month, and 6month USD LIBOR tenors, the Bureau has determined that the information described in revised comment 9(c)(1)–4 sufficiently notifies consumers of the estimated periodic rate and APR as calculated using the Board-selected benchmark replacement for consumer loans to replace 12-month USD LIBOR, even though the Board-selected benchmark replacement for consumer loans is not being published at the time the notice is sent, as long as the Boardselected benchmark replacement for consumer loans is published by the time the replacement of the index takes effect on the account. For example, in this 31 See comments 40(f)(3)(ii)(A)–3 and (B)–3; see also the section-by-section analysis of § 1026.40(f)(3)(ii)(A) for a discussion of the rationale for the Bureau making this determination. VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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. The CFPB solicits comment on these changes in the interim final rule. 9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans 9(c)(2)(iv) Disclosure Requirements TILA section 127(i)(1), which was added by the Credit CARD Act of 2009,32 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.33 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 CFPB, in terms (other than APRs) of the cardholder agreement not later than 45 days prior to the effective date of the change.34 Section 1026.9(c)(2)(i)(A) provides that for open-end plans other than HELOCs subject to § 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, in relevant part, a change in the terms required to be disclosed under § 1026.6(b)(1) and (2), an increase in the required minimum periodic payment, or a change to a term required to be disclosed under § 1026.6(b)(4). The index that is replacing the LIBOR index pursuant to § 1026.55(b)(7)(i) or § 1026.55(b)(7)(ii) is a disclosure required under § 1026.6(b)(2)(i)(A) and (4)(ii)(B) and thus, is a term that meets the definition of a ‘‘significant change in account terms.’’ As a result, a creditor must provide a change-in-terms notice disclosing the index that is replacing the LIBOR index. Section 1026.9(c)(2)(iv) provides the disclosure requirements for this written notice. Comment 9(c)(2)(iv)–2.i provides details about the general disclosure requirements if the creditor is changing the index use to calculate a variable 32 Public Law 111–24, 123 Stat. 1734 (2009). U.S.C. 1637(i)(1). 34 15 U.S.C. 1637(i)(2). 33 15 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 30603 rate. 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 § 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 changein-terms notice is provided.35 Comment 9(c)(2)(iv)–2.ii provides additional details on how a creditor may comply with the disclosure requirements under § 1026.9(c)(2)(iv) when the creditor is replacing a LIBOR index with the SOFR-based spreadadjusted index recommended by the ARRC for consumer products in certain circumstances. This comment provides that if: (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 6month 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 APR based on the replacement index is unknown to the creditor at the time the change-interms 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, then the creditor may comply with any requirement to disclose in the changein-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. Comment 9(c)(2)(iv)–2.ii provides the example that, in this situation, 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. 35 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. E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30604 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations For the reasons discussed below, the CFPB is making several changes to comment 9(c)(2)(iv)–2.ii. First, the CFPB is replacing references to the spreadadjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans’’ to align terminology in the rule with the LIBOR Act and the Board’s 2022 LIBOR Act Final Rule. As discussed in the section-by-section analysis for § 1026.2(a)(28), this interim final rule also defines the term ‘‘the Boardselected benchmark replacement for consumer loans.’’ Revised comment 9(c)(2)(iv)–2.ii includes a crossreference to that definition. As discussed above, these terms identify the same index, and the change is merely for consistency with the Act and ease of reading. Second, the CFPB is expanding comment 9(c)(2)(iv)–2.ii to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. As discussed in the Background section, in the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for 1-month, 3-month, and 6-month tenors of USD LIBOR, but reserved judgment about whether to include a reference to the 12month (formerly called the 1-year) USD LIBOR index in comment 9(c)(2)(iv)–2.ii until it obtained additional information. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. By operation of the LIBOR Act, all tenors of the Board-selected benchmark replacements constitute a ‘‘comparable index’’ to, and have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they replace.36 Thus, the CFPB is revising comment 9(c)(2)(iv)–2.ii to also apply to the replacement of the 12-month USD LIBOR index with the Board-selected benchmark replacement for consumer loans, facilitating compliance with the advance notice requirements for changein-terms notices. While section 104(f) of the LIBOR Act provides that nothing in the Act ‘‘may be construed to alter or impair— . . . (5) any provision of Federal consumer financial law that—(A) requires creditors to notify borrowers regarding a change-in-terms,’’ the CFPB is not relying on the LIBOR Act for authority to revise comment 9(c)(2)(iv)–2.ii. 36 LIBOR Act section 105(a)(2), (3) and (5), 136 Stat. 830. VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 Instead, in this unique circumstance, the CFPB interprets § 1026.5(c) to be consistent with revised 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. Revised comment 9(c)(2)(iv)–2.ii also is consistent with revisions discussed below that provide that if a creditor uses the Board-selected benchmark replacement for consumer loans to replace the 12-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 creditor will be deemed to be in compliance with the conditions in § 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.37 As described above, under § 1026.9(c)(2), the change-in-terms notice for open-end credit that is not subject to § 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, the Board-selected benchmark replacement for consumer loans to replace the 12month USD LIBOR index, like the 1month, 3-month, and 6-month USD LIBOR replacement tenors, 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 interim 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 Board-selected benchmark replacement for consumer loans to replace the 12month USD LIBOR index being published, so that creditors are not left without an index to use on the account after the Board-selected benchmark replacement for consumer loans to replace the 12-month USD LIBOR index is published, but before it becomes effective on the account. As is the case for the Board-selected benchmark replacements for consumer 37 See comments 55(b)(7)(i)–2 and (ii)–3; see also the section-by-section analysis of § 1026.40(f)(3)(ii)(A) for a discussion of the rationale for the Bureau making this determination. PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 loans for 1-month, 3-month, and 6month USD LIBOR tenors, the Bureau has determined that the information described in revised comment 9(c)(2)(iv)–2.ii sufficiently notifies consumers of the estimated rate calculated using the Board-selected benchmark replacement for consumer loans to replace the 12-month USD LIBOR index, even though the Boardselected benchmark replacement for consumer loans to replace the 12-month USD LIBOR index is not being published at the time the notice is sent, as long as the Board-selected benchmark replacement for consumer loans to replace the 12-month USD LIBOR index is published by the time the replacement of the index takes effect on the account. 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. The CFPB solicits comment on these changes in the interim final rule. Section 1026.20 Disclosure Requirements Regarding PostConsummation Events 20(a) Refinancings Section 1026.20 includes disclosure requirements regarding postconsummation events for closed-end credit. Section 1026.20(a) and its Official Interpretations 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. The comment also includes an illustrative example which provides 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 1month, 3-month, or 6-month USD LIBOR index respectively because the E:\FR\FM\11MYR3.SGM 11MYR3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES3 replacement index is a comparable index to the corresponding USD LIBOR index.38 Comment 20(a)–3.iv provides examples of the types of factors that may need to be considered to determine whether a replacement index is comparable to a particular LIBOR index for closed-end transactions. For the reasons discussed below, the CFPB is making several changes to comment 20(a)–3.ii.B. First, the CFPB is replacing references to the term spreadadjusted index based on SOFR recommended by the ARRC for consumer products with the term ‘‘the Board-selected benchmark replacement for consumer loans’’ to align terminology in the rule with the LIBOR Act and the Board’s 2022 LIBOR Act Final Rule. As discussed in the sectionby-section analysis for § 1026.2(a)(28), this interim final rule also defines the term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Revised comment 20(a)–3.ii.B includes a cross-reference to that definition. As discussed above, these terms identify the same index, and the change is merely for consistency with the Act and ease of reading. Second, the CFPB is expanding language in the example set forth in comment 20(a)–3.ii.B to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. As discussed in the Background section, in the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for 1-month, 3-month, and 6-month tenors of USD LIBOR, but reserved judgment about whether to include a reference to the 12month (formerly called the 1-year) USD LIBOR index in comment 20(a)–3.ii.B until it obtained additional information. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. By operation of the LIBOR Act, all tenors of the Board-selected benchmark replacements are considered to constitute a ‘‘comparable index,’’ and have ‘‘historical fluctuations that are substantially similar to,’’ the LIBOR 38 By ‘‘corresponding USD LIBOR index,’’ the Bureau meant the specific USD LIBOR index for which the ARRC recommended the replacement index as a replacement for consumer products. Thus, because the ARRC has recommended, for consumer products, a specific spread-adjusted 6month 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. VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 tenors they replace.39 As such, as with the existing examples in comment 20(a)–3.ii.B for the 1-month, 3-month, and 6-month USD LIBOR tenors, in this interim final rule the CFPB is extending the example to also apply to the replacement of the 12-month USD LIBOR index with the Board-selected benchmark replacement for consumer loans to facilitate the LIBOR transition. The example in revised comment 20(a)– 3.ii.B provides a creditor does not add a variable-rate feature by changing the index of a variable-rate transaction from the 12-month USD LIBOR tenor to the applicable tenor of the Board-selected benchmark replacement. Third, the CFPB is revising comment 20(a)–3.iv by adding an exception for the Board-selected benchmark replacements for consumer loans, as defined in new § 1026.2(a)(28). When using the Board-selected benchmark replacement for consumer loans, a creditor need not consider the types of factors used to determine whether a replacement index is comparable to a particular LIBOR tenor for closed-end credit. Because the Board’s final rule, in implementing the LIBOR Act, has determined that the Board-selected benchmark replacements for consumer loans are indices that are comparable to their respective LIBOR tenors, and the Bureau has determined in this interim final rule that this index meets Regulation Z’s ‘‘comparable’’ standard with respect to a particular LIBOR index, the factors need not be considered. While the CFPB had already applied the factors to the SOFR-based 1month, 3-month, and 6-month LIBOR tenor replacement indices in its 2021 LIBOR Transition Final Rule, by operation of law, the factors now also need not be considered with respect to the Board-selected benchmark replacement for consumer loans for the 12-month LIBOR tenor in order for the index to satisfy Regulation Z’s ‘‘comparable’’ standard. The CFPB solicits comments on these changes in the interim final rule. 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 39 LIBOR Act section 105(a)(2), (3) and (5), 136 Stat. 830. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 30605 any term except in enumerated circumstances set forth in TILA section 137(c).40 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.41 In implementing TILA section 137(c), § 1026.40(f)(3) prohibits a creditor from changing the terms of a HELOC subject to § 1026.40 except in enumerated circumstances set forth in § 1026.40(f)(3). Section 1026.40(f)(3)(ii)(A) provides that a creditor may change the index and margin used under the HELOC 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. Section 1026.40(f)(3)(ii)(A) also provides 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. Section 1026.40(f)(3)(ii)(B) contains LIBORspecific provisions that permit creditors for HELOC plans subject to § 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 April 1, 2022, in certain circumstances. Comment 40(f)(3)(ii)–1 provides detail on the interaction among the unavailability provisions in § 1026.40(f)(3)(ii)(A), the LIBOR-specific provisions in § 1026.40(f)(3)(ii)(B), and the contractual provisions that apply to a HELOC plan. As discussed in more detail below in this section-by-section analysis, this interim final rule makes a number of changes with respect to §§ 1026.40(f)(3)(ii), (f)(3)(ii)(A), (f)(3)(ii)(B), and related Official Interpretations. In general, it: (1) replaces references to the spreadadjusted index based on SOFR recommended by the ARRC for consumer products with the new defined term ‘‘the Board-selected benchmark replacement for consumer loans’’; (2) replaces references to the 1year USD LIBOR index with the 12month USD LIBOR index; (3) expands the Official Interpretations to include a 40 15 41 15 E:\FR\FM\11MYR3.SGM U.S.C. 1647(c). U.S.C. 1647(c)(2)(A). 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30606 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule; (4) provides that the Boardselected benchmark replacements for consumer loans to replace 1-month, 3month, 6-month, and 12-month USD LIBOR indices have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they replace; (5) provides if the creditor selects to use the Board-selected benchmark replacement for consumer loans, the creditor must use the index value of this index and the LIBOR index from a specified timeframe in determining whether the APR is substantially similar; (6) updates guidance on determining whether a replacement index has historical fluctuations that are substantially similar to those of certain USD LIBOR indices in relation to the Board-selected benchmark replacement for consumer loans; and (7) explains when a creditor that uses the Board-selected benchmark replacement for consumer loans satisfies the condition that the replacement index and margin would have resulted in an APR substantially similar to the rate in effect at the time LIBOR becomes unavailable or calculated using the LIBOR index. Interaction among § 1026.40(f)(3)(ii)(A) and (B) and contractual provisions. Comment 40(f)(3)(ii)–1 provides that a creditor may use either the provision in § 1026.40(f)(3)(ii)(A) or § 1026.40(f)(3)(ii)(B) to replace a LIBOR index used under a HELOC plan subject to § 1026.40 so long as the applicable conditions are met for the provision used.42 It provides examples of when a creditor may use these provisions. 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 § 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 42 For further details about these provisions, see the section-by-section analyses of § 1026.40(f)(3)(ii)(A) and (B), infra. VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 explains that the LIBOR-specific provisions in § 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 provided under comment 40(f)(3)(ii)–1.i is that if the replacement index is the SOFR-based spread-adjusted index recommended by the ARRC for consumer products to replace the 1month, 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 CFPB is revising the example in comment 40(f)(3)(ii)–1.i by replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans’’ to align terminology in the rule with the LIBOR Act and the Board’s 2022 LIBOR Act Final Rule. As discussed above, this interim final rule also defines the term ‘‘the Boardselected benchmark replacement for consumer loans.’’ It means the SOFRbased index selected by the Board for consumer loans, as set forth in the LIBOR Act and the Board’s implementing regulation, to replace, as applicable, the 1-month, 3-month, 6month, or 12-month tenors of USD LIBOR. Revised comment 40(f)(3)(ii)– 1.ii includes a cross-reference to this definition. For this new definition and throughout this interim final rule, the CFPB is using the term 12-month tenor instead of 1-year tenor to align with the terminology used in the LIBOR Act and the Board’s implementing regulation. The Board-selected benchmark PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 replacement for consumer loans is the USD IBOR Cash Fallback index for consumer products, which uses the same methodology that the ARRC recommended for SOFR-based replacement indices for consumer products.43 As such, these terms identify the same index, and the change is merely for consistency with the Act and ease of reading. 40(f)(3)(ii)(A) Section 1026.40(f)(3)(ii)(A) provides that a creditor may change the index and margin used under the HELOC 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. Section 1026.40(f)(3)(ii)(A) also provides 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. 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 § 1026.40(f)(3)(ii)(A). It provides that for purposes of replacing a LIBOR index used under a plan pursuant to § 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. The Board-selected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to those of certain USD LIBOR indices. Comment 43 See 88 FR 5204, 5211–15 (Jan. 26, 2023). See also Alt. Reference Rates Comm., Summary of the ARRC’s Fallback Recommendations (Oct. 6, 2021), https://www.newyorkfed.org/medialibrary/ Microsites/arrc/files/2021/spread-adjustmentsnarrative-oct-6-2021. See also Alt. References Rates Comm., ARRC Recommended Fallbacks for Implementation of its Hardwired Fallback Language (Mar. 15, 2023), https://www.newyorkfed.org/ medialibrary/Microsites/arrc/files/2023/ARRCstatement-on-1-3-6-12-month-USD-LIBOR.pdf. E:\FR\FM\11MYR3.SGM 11MYR3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES3 40(f)(3)(ii)(A)–2.ii provides a determination by the Bureau that effective April 1, 2022, the SOFR-based spread-adjusted indices recommended by the ARRC for consumer products to replace the 1-month, 3-month, or 6month USD LIBOR indices have historical fluctuations that are substantially similar to those of the 1month, 3-month, or 6-month USD LIBOR indices respectively.44 It provides that the creditor also must comply with the condition in § 1026.40(f)(3)(ii)(A) that the SOFRbased 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 in order to use this SOFRbased spread-adjusted index for consumer products as the replacement index for the applicable LIBOR index. The CFPB is making several changes to comments 40(f)(3)(ii)(A)–2, –2.i, and –2.ii. First, as discussed in more detail in the section-by-section analysis for § 1026.40(f)(3)(ii) above, and for the reasons discussed therein, the CFPB is revising comment 40(f)(3)(ii)(A)–2.ii by replacing references to the spreadadjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Revised comment 40(f)(3)(ii)(A)–2.ii includes a cross-reference to this definition. Based on these changes, revised comment 40(f)(3)(ii)(A)–2.ii provides that the creditor also must comply with the condition in § 1026.40(f)(3)(ii)(A) requiring the Board-selected benchmark replacement for consumer loans and replacement margin would have resulted in an APR substantially similar to the rate in effect at the time the LIBOR index became unavailable. Second, the CFPB is expanding comment 40(f)(3)(ii)(A)–2.ii to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. Comment 40(f)(3)(ii)(A)–2.ii does not discuss the 12-month (formerly 44 86 FR 69716, 69743 & n.106 (Dec. 8, 2021) (acknowledging that while the spread-adjusted term SOFR rates have not always moved in tandem with LIBOR, the Bureau determined that: (1) the historical fluctuations of 6-month USD LIBOR are substantially similar to those of the 6-month spreadadjusted term SOFR rates; (2) the historical fluctuations of 3-month USD LIBOR are substantially similar to those of 3-month spreadadjusted term SOFR rates; and (3) the historical fluctuations of 1-month USD LIBOR are substantially similar to those of the 1-month spreadadjusted term SOFR rates). VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 called 1-year) USD LIBOR.45 In the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for the 1month, 3-month, and 6-month tenors of USD LIBOR, but reserved 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 obtained additional information. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. Section 105(a)(5) of the LIBOR Act provides that, for purposes of TILA and its implementing regulations, a Boardselected benchmark replacement and the selection or use of a Board-selected benchmark replacement as a benchmark replacement with respect to a LIBOR contract constitutes a replacement that has historical fluctuations that are substantially similar to those of the LIBOR index that it is replacing. The Board’s regulation provides that for a LIBOR contract that is a consumer loan, the benchmark replacement shall be the corresponding 1-month, 3-month, 6month, or 12-month CME Term SOFR plus the applicable amounts or tenor spread adjustment.46 The CFPB is relying on the determination in the LIBOR Act and the Board’s implementing regulation that the Boardselected benchmark replacement for consumer loans has historical fluctuations that are substantially similar to the USD LIBOR tenor that it is replacing. Thus, the CFPB is revising comment 40(f)(3)(ii)(A)–2.ii to also apply this determination of the historical fluctuations substantially similar standard to the replacement of the 12-month USD LIBOR index with the Board-selected benchmark replacement for consumer loans. Third, based on the LIBOR Act and the Board’s implementing regulation, the Bureau is removing its prior determination that became effective April 1, 2022, concerning the spreadadjusted indices based on SOFR recommended by the ARRC for consumer products. By operation of the LIBOR Act and the Board’s implementing regulation, all tenors of the Board-selected benchmark replacements have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they 45 See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing comment 59(f)–4 and noting the Bureau’s 2020 notice of proposed rulemaking proposed and solicited comment on allowing use of a specific replacement formula where the index change involved the 1-year tenor in addition to the 1-month, 3-month, and 6-month tenors). 46 12 CFR 253.4(b)(2)(i)(B) and (ii)(B). PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 30607 replace.47 Thus, revised comment 40(f)(3)(ii)(A)–2.ii provides that the Board-selected benchmark replacement for consumer loans to replace the 1month, 3-month, 6-month, and 12month USD LIBOR indices has historical fluctuations that are substantially similar to USD LIBOR tenor they are replacing. The Bureau’s prior determination is obsolete. The ‘‘spread-adjusted indices based on SOFR recommended by the ARRC for consumer products’’ are the same as ‘‘the Board-selected benchmark replacement for consumer loans’’ and the LIBOR Act determined that the latter has historical fluctuations that are substantially similar to the LIBOR tenors they replace. Removing this obsolete determination will avoid confusion. Fourth, to facilitate compliance, this interim final rule revises comment 40(f)(3)(ii)(A)–2 by specifying that the Board-selected benchmark replacements for consumer loans is an exception to the general requirement providing that the historical fluctuations considered when replacing a LIBOR index used under a plan are the historical fluctuations up through the earlier of 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. Accordingly, this interim final rule also revises comment 40(f)(3)(ii)(A)–2.ii to provide that no further determination is required that the Board-selected benchmark replacements for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard. The changes to comment 40(f)(3)(ii)(A)–2 in relation to the Board-selected benchmark replacements for consumer loans do not alter or modify the Bureau’s determination set forth in comment 40(f)(3)(ii)(A)–2.i in relation to the prime rate as the replacement index for the 1-month or 3-month USD LIBOR index, except to provide that no further determination is needed that the prime rate published in the Wall Street Journal meets this standard for these tenors. The CFPB solicits comments on these changes in the interim final rule. Additional guidance on determining whether a replacement index has historical fluctuations that are substantially similar to those of certain USD LIBOR indices. In the 2021 LIBOR Transition Final Rule, the CFPB noted that commenters on the proposed rule had asked for additional guidance on 47 LIBOR E:\FR\FM\11MYR3.SGM Act section 105(a)(5), 136 Stat. 830. 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30608 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations how to determine whether a replacement index has historical fluctuations that are substantially similar to those of a particular LIBOR index, including requesting that the CFPB provide a principles-based standard for making such determinations. The CFPB did not set forth a principles-based standard at that time because these determinations are fact-specific, and they depend on the replacement index being considered and the LIBOR tenor being replaced. Instead, to facilitate compliance with Regulation Z, the CFPB added comment 40(f)(3)(ii)(A)–2.iii to provide a nonexhaustive list of factors to be considered in making these determinations. Specifically, comment 40(f)(3)(ii)(A)2.iii provides that the relevant factors to be considered depend on the replacement index being considered and the LIBOR index being replaced. Comment 40(f)(3)(ii)(A)–2.iii also provides that these determinations may need to consider certain aspects of the historical data itself for a particular replacement index. In the 2021 LIBOR Transition Final Rule, the CFPB considered the relevant factors in determining that: (1) Prime has historical fluctuations that are substantially similar to those of the 1month and 3-month USD LIBOR; and (2) the SOFR-based spread-adjusted indices recommended by the ARRC for consumer products to replace the 1month, 3-month, or 6-month USD LIBOR indices have historical fluctuations that are substantially similar to those of the 1-month, 3month, or 6-month USD LIBOR indices respectively. The CFPB is revising comment 40(f)(3)(ii)(A)–2.iii by adding an exception for the Board-selected benchmark replacements for consumer loans, as defined in new § 1026.2(a)(28). When using the Board-selected benchmark replacements for consumer loans, a creditor need not consider the types of factors used to determine whether a replacement index has historical fluctuations substantially similar to those of a particular LIBOR index. Because the Board’s final rule, in implementing the LIBOR Act, has determined that the Board-selected benchmark replacements for consumer loans are replacement indices that have historical fluctuations that are substantially similar to their respective LIBOR tenors, and the CFPB has determined in this interim final rule that this index meets the Regulation Z ‘‘historical fluctuations are substantially similar’’ standard with respect to a particular LIBOR index, the factors need VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 not be considered. While the CFPB had already applied the factors to the SOFRbased 1-month, 3-month, and 6-month LIBOR tenor replacement indices in its 2021 LIBOR Transition Final Rule, by operation of law, the factors need not be considered with respect to the Boardselected benchmark replacement for consumer loans for the 12-month LIBOR tenor in order for the index to satisfy Regulation Z’s ‘‘historical fluctuations are substantially similar’’ standard. The CFPB solicits comments on these changes in the interim final rule. Substantially similar rate when LIBOR becomes unavailable. Section 1026.40(f)(3)(ii)(A) provides 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. Comment 40(f)(3)(ii)(A)–3 provides that, for comparing rates, a creditor generally must use the value of the replacement index and the LIBOR index on the day that the LIBOR index becomes unavailable. It 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 under comment 40(f)(3)(ii)(A)–3 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)(A)–3 also states that for purposes of § 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 1month, 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 § 1026.40(f)(3)(ii)(A) that PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 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. The CFPB is making several changes to comment 40(f)(3)(ii)(A)–3. First, as discussed in more detail in the sectionby-section analysis for § 1026.40(f)(3)(ii) above, and for the reasons discussed therein, the CFPB is revising comment 40(f)(3)(ii)(A)–3 by replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Second, the CFPB is expanding comment 40(f)(3)(ii)(A)–3 to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. Comment 40(f)(3)(ii)(A)–3 does not discuss the 12-month (formerly called 1-year) USD LIBOR. In the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for the 1month, 3-month, and 6-month tenors of USD LIBOR, but reserved 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. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. Sections 105(a)(2), (a)(3), and (a)(5) of the LIBOR Act provide that, for purposes of TILA and its implementing regulations, a Board-selected benchmark replacement and the selection or use of a Board-selected benchmark replacement as a benchmark replacement with respect to a LIBOR contract constitutes a ‘‘comparable index’’ and ‘‘has historical fluctuations that are substantially similar’’ to those of the USD LIBOR index they are replacing. The Board’s regulation provides that for a LIBOR contract that is a consumer loan, the benchmark replacement shall be the corresponding 1-month, 3-month, 6-month, or 12month CME Term SOFR plus the applicable amounts or tenor spread adjustment.48 The determination in the LIBOR Act and the Board’s implementing regulation applies not only to the Board-selected benchmark replacement for consumer loans that is replacing the 1-month, 3-month, and 6month USD LIBOR, but also to the Board-selected benchmark replacement for consumer loans that is replacing the 12-month tenor of LIBOR. Thus, the 48 12 E:\FR\FM\11MYR3.SGM CFR 253.4(b)(2)(i)(B) and (ii)(B). 11MYR3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES3 CFPB is revising comment 40(f)(3)(ii)(A)–3 to provide that for purposes of § 1026.40(f)(3)(ii)(A), if a creditor uses the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-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 § 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. The CFPB solicits comment on these changes of the interim final rule. 40(f)(3)(ii)(B) Section 1026.40(f)(3)(ii)(B) contains LIBOR-specific provisions that permit creditors for HELOC plans subject to § 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 April 1, 2022, in certain circumstances. The CFPB explained in the 2021 LIBOR Transition Final Rule how as a practical matter, § 1026.40(f)(3)(ii)(B) allows creditors for HELOCs to provide the 15day change-in-terms notices required under § 1026.9(c)(1) prior to the LIBOR indices becoming unavailable, and thus allows those creditors to avoid being left without a LIBOR index to use in calculating the variable rate before the replacement index and margin become effective. Also, § 1026.40(f)(3)(ii)(B) allows 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 CFPB 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. Section 1026.40(f)(3)(ii)(B) provides that if a variable rate on a HELOC subject to § 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 April 1, 2022, as long as: (1) the historical fluctuations in the LIBOR index and replacement index were substantially similar; and (2) the VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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 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. Section 1026.40(f)(3)(ii)(B) also 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. As set forth in § 1026.40(f)(3)(ii)(B), 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 1month, 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)(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 § 1026.40(f)(3)(ii)(B). It provides that for purposes of replacing a LIBOR index used under a plan pursuant to § 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 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 30609 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. The CFPB is making two changes to § 1026.40(f)(3)(ii)(B). As discussed in more detail in the section-by-section analysis for § 1026.40(f)(3)(ii) above, and for the reasons discussed therein, the CFPB is revising § 40(f)(3)(ii)(B) by replacing references to the spreadadjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans’’ and is using the term 12-month tenor instead of 1-year tenor with respect to the USD LIBOR index. The Board-selected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to those of certain USD LIBOR indices. Comment 40(f)(3)(ii)(B)–1.ii provides a determination by the Bureau that, effective April 1, 2022, the SOFR-based spread-adjusted indices recommended by the ARRC for consumer products to replace the 1-month, 3-month, or 6month USD LIBOR indices have historical fluctuations that are substantially similar to those of the 1month, 3-month, or 6-month USD LIBOR indices respectively. Comment 40(f)(3)(ii)(B)–1.ii also provides that in order to use this SOFR-based spreadadjusted index for consumer products as the replacement index for the applicable LIBOR index, the creditor also must satisfy the condition in § 1026.40(f)(3)(ii)(B) that the SOFRbased 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. Because of the exception in § 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 E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30610 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations similar to the rate based on the LIBOR index. For the same reasons as discussed in the section-by-section analysis of § 1026.40(f)(3)(ii)(A) with respect to revised comments 40(f)(3)(ii)(A)–2, –2.i, and –2.ii, the interim final rule makes similar changes to comments 40(f)(3)(ii)(B)–1, –1.i, and –1.ii. First, the CFPB is revising comments 40(f)(3)(ii)(B)–1.ii by replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Revised comment 40(f)(3)(ii)(B)– 1.ii includes a cross-reference to this definition. Based on these changes, revised comment 40(f)(3)(ii)(B)–1.ii provides that the creditor also must comply with the condition in § 1026.40(f)(3)(ii)(B) requiring the Board-selected benchmark replacement for consumer loans and replacement margin to 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. Second, the CFPB is expanding comment 40(f)(3)(ii)(B)–1.ii to include a replacement index for the 12-month USD LIBOR not previously addressed in the 2021 LIBOR Transition Final Rule. Comment 40(f)(3)(ii)(B)–1.ii does not discuss the 12-month (formerly called 1year) USD LIBOR.49 In the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for the 1month, 3-month, and 6-month tenors of USD LIBOR, but reserved judgment about whether to include a reference to the 1-year USD LIBOR index in comment 40(f)(3)(ii)(B)–1.ii. until it obtained additional information. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. Section 105(a)(5) of the LIBOR Act provides that, for purposes of TILA and its implementing regulations, a Boardselected benchmark replacement and the selection or use of a Board-selected benchmark replacement as a benchmark replacement with respect to a LIBOR contract constitutes a replacement that has historical fluctuations that are substantially similar to those of the 49 See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing comment 59(f)–4 and noting the Bureau’s 2020 notice of proposed rulemaking proposed and solicited comment on allowing use of a specific replacement formula where the index change involved the 1-year tenor in addition to the 1-month, 3-month, and 6-month tenors). VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 LIBOR index that it is replacing. The Board’s regulation provides that for a LIBOR contract that is a consumer loan, the benchmark replacement shall be the corresponding 1-month, 3-month, 6month, or 12-month CME Term SOFR plus the applicable amounts or tenor spread adjustment.50 The CFPB is relying on the determination in the LIBOR Act and the Board’s implementing regulation that the Boardselected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to the USD LIBOR tenor they are replacing. Thus, the CFPB is revising comment 40(f)(3)(ii)(B)–1.ii to also apply this determination of the historical fluctuations substantially similar standard to the replacement of the 12-month USD LIBOR index with the Board-selected benchmark replacement for consumer loans. Third, based on the LIBOR Act and the Board’s implementing regulation, the Bureau is removing its prior determination that became effective April 1, 2022, concerning the spreadadjusted indices based on SOFR recommended by the ARRC for consumer products. By operation of the LIBOR Act and the Board’s implementing regulation, all Boardselected benchmark replacements have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they replace.51 Thus, revised comment 40(f)(3)(ii)(B)–1.ii provides that the Board-selected benchmark replacement for consumer loans to the replace 1-month, 3-month, 6-month, and 12-month USD LIBOR index has historical fluctuations that are substantially similar to USD LIBOR tenor they are replacing. The Bureau’s prior determination is obsolete. The ‘‘spread-adjusted indices based on SOFR recommended by the ARRC for consumer products’’ are the same as ‘‘the Board-selected benchmark replacement for consumer loans’’ and the LIBOR Act determined that the latter has historical fluctuations that are substantially similar to the LIBOR tenors they replace. Removing this obsolete determination will avoid confusion. Fourth, to facilitate compliance, this interim final rule revises comment 40(f)(3)(ii)(B)–1 by specifying that the Board-selected benchmark replacements for consumer loans are an exception to the general requirement providing that the historical fluctuations considered when replacing a LIBOR index under a plan are the historical fluctuations up 50 12 CFR 253.4(b)(2)(i)(B) and (ii)(B). Act section 105(a)(5), 136 Stat. 830. 51 LIBOR PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 through the relevant date set forth in comment 40(f)(3)(ii)(B)–1. Accordingly, this interim final rule also revises comment 40(f)(3)(ii)(B)–1.ii to provide that no further determination is required that the Board-selected benchmark replacement for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard. The changes to comment 40(f)(3)(ii)(B)–1 in relation to the Board-selected benchmark replacements for consumer loans do not alter or modify the Bureau’s determination set forth in comment 40(f)(3)(ii)(B)–1.i in relation to the prime rate as the replacement index for the 1-month or 3-month USD LIBOR index, except to provide that no further determination is needed that the prime rate published in the Wall Street Journal meets this standard for these tenors. The CFPB solicits comments on these changes of the interim final rule. Additional guidance on determining whether a replacement index has historical fluctuations that are substantially similar to those of certain USD LIBOR indices. For the same reasons as discussed in the section-bysection analysis of § 1026.40(f)(3)(ii)(A) with respect to revised comment 40(f)(3)(ii)(A)–2.iii, the interim final rule makes similar changes to comment 40(f)(3)(ii)(B)–1.iii, which provides 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. The CFPB is making two changes to comment 40(f)(3)(ii)(B)–1.iii. First, the CFPB is making a technical correction in comment 40(f)(3)(ii)(B)–1.iii to change ‘‘substantial’’ to ‘‘substantially’’ when considering the relevant factors in determining whether a replacement index has historical fluctuations substantially similar to those of a particular LIBOR index. Second, similar to changes in revised comment 40(f)(3)(ii)(A)–2.iii above, the CFPB is revising comment 40(f)(3)(ii)(B)–1.iii by adding an exception for the Boardselected benchmark replacements for consumer loans, as defined in new § 1026.2(a)(28). When using the Boardselected benchmark replacements for consumer loans, a creditor need not consider the types of factors that have historical fluctuations substantially similar to those of a particular LIBOR index. Because the Board’s final rule, in implementing the LIBOR Act, has determined that the Board-selected benchmark replacements for consumer loans are indices that have historical fluctuations that are substantially similar to their respective LIBOR tenors, E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations and the CFPB has determined in this interim final rule that this index meets the Regulation Z ‘‘historical fluctuations are substantially similar’’ standard with respect to a particular LIBOR index, the factors need not be considered. While the CFPB had already applied the factors to the SOFR-based 1-month, 3month, and 6-month LIBOR tenor replacement indices in its 2021 LIBOR Transition Final Rule, by operation of law, the factors need not be considered with respect to the Board-selected benchmark replacement for consumer loans for the 12-month LIBOR tenor in order for the index to satisfy Regulation Z’s ‘‘historical fluctuations are substantially similar’’ standard. The CFPB solicits comments on these changes of the interim final rule. Substantially similar rate. Pursuant to § 1026.40(f)(3)(ii)(B), if the replacement index is the SOFR-based spreadadjusted index recommended by the ARRC for consumer products to replace the 1-month, 3-month, 6-month, or 1year 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)(B)–3 also provides that for purposes of § 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 1month, 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 § 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. For the same reasons discussed in the section-by-section analysis of § 1026.40(f)(3)(ii)(A) above for revised comment 40(f)(3)(ii)(A)–3, the CFPB is making several changes to comment 40(f)(3)(ii)(B)–3. First, the CFPB is revising comment 40(f)(3)(ii)(B)–3 by replacing references to the spreadadjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 Second, the CFPB is expanding comment 40(f)(3)(ii)(B)–3 to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. This interim final rule revises comment 40(f)(3)(ii)(B)–3 to provide that the APR based on the replacement index is substantially similar to the rate based on the LIBOR index for purposes of § 1026.40(f)(3)(ii)(B) if a creditor uses the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-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 § 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 Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month USD LIBOR index as the replacement index still must comply with the condition in § 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. The CFPB solicits comments on these changes in the interim final rule. 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).52 TILA section 171(b)(2) provides that the prohibition under TILA section 171(a) does not apply to an increase in a 52 15 PO 00000 U.S.C. 1666i–1(a). Frm 00015 Fmt 4701 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.53 In implementing these provisions of TILA section 171, § 1026.55(a) prohibits a card issuer from increasing an APR or certain enumerated fees or charges set forth in § 1026.55(a) on a credit card account under an open-end (not homesecured) consumer credit plan, except as provided in § 1026.55(b). Section 1026.55(b)(7) provides a card issuer may increase an APR pursuant to certain exceptions. Section 1026.55(b)(7)(i) discusses the exception for index replacement and margin changes and provides 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 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. Section 1026.55(b)(7)(i) also provides 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. Section 1026.55(b)(7)(ii) contains LIBOR-specific provisions that 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 April 1, 2022, in certain circumstances. Comment 55(b)(7)–1 addresses the interaction among the unavailability provisions in § 1026.55(b)(7)(i), the LIBOR-specific provisions in § 1026.55(b)(7)(ii), and the contractual provisions applicable to the credit card account. As discussed in more detail below in this section-by-section analysis, this interim final rule makes a number of changes to §§ 1026.55(b)(7)(i) and (b)(7)(ii) and the Official Interpretations below. In general, it: (1) replaces references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new defined term ‘‘the Board-selected benchmark replacement for consumer 53 15 Sfmt 4700 30611 E:\FR\FM\11MYR3.SGM U.S.C. 1666i–1(b)(2). 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30612 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations loans’’; (2) replaces the reference to the 1-year USD LIBOR index with the 12month USD LIBOR index; (3) expands the Official Interpretations to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule; (4) provides that the Boardselected benchmark replacements for consumer loans to replace 1-month, 3month, 6-month, and 12-month USD LIBOR indices have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they replace; (5) provides if the creditor uses the Board-selected benchmark replacement for consumer loans, the creditor must use the index value of this index and the LIBOR index from a specified timeframe in determining whether the APR is substantially similar; and (6) explains when a card issuer that uses the Board-selected benchmark replacement for consumer loans satisfies the condition 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 or calculated using the LIBOR index. Interaction among § 1026.55(b)(7)(i) and (ii) and contractual provisions. Comment 55(b)(7)–1 provides that a card issuer may use either the provision in § 1026.55(b)(7)(i) or § 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. It provides examples illustrating when a card issuer may use these provisions. 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 § 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 § 1026.55(b)(7)(ii) provide that a card VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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 provided under comment 55(b)(7)–1.i is that if the replacement index is the SOFR-based spread-adjusted index recommended by the ARRC for consumer products to replace the 1month, 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 SOFRbased 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 as discussed in the section-by-section analysis of § 1026.40(f)(3) with respect to revised comment 40(f)(3)(ii)–1.i, this interim final rule makes similar changes to comment 55(b)(7)–1.i. The CFPB is revising the example in comment 55(b)(7)–1.i by replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans’’ to align terminology with the LIBOR Act and the Board’s 2022 LIBOR Act Final Rule. 55(b)(7)(i) Section 1026.55(b)(7)(i) contains an exception to the general rule in § 1026.55(a) restricting rate increases for index replacement and margin changes. Section 1026.55(b)(7)(i) provides 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 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 PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 the time the original index became unavailable. Section 1026.55(b)(7)(i) also 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 a rate substantially similar to the rate in effect when the original index became unavailable. Comment 55(b)(7)(i)–1 provides that for purposes of replacing a LIBOR index used under a plan pursuant to § 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. The Board-selected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to those of certain USD LIBOR indices. Comment 55(b)(7)(i)–1.ii provides a determination by the Bureau that effective April 1, 2022, the SOFR-based spread-adjusted indices recommended by the ARRC for consumer products to replace the 1month, 3-month, or 6-month USD LIBOR indices have historical fluctuations that are substantially similar to those of the 1-month, 3month, or 6-month USD LIBOR indices respectively. It provides that the card issuer also must comply with the condition in § 1026.55(b)(7)(i) that the SOFR-based spread-adjusted index for consumer products and replacement margin will produce an APR substantially similar to the rate in effect at the time the LIBOR index became unavailable in order to use this SOFRbased spread-adjusted index for consumer products as the replacement index for the applicable LIBOR index. For the same reasons as discussed in the section-by-section analysis of § 1026.40(f)(3)(ii)(A) with respect to revised comments 40(f)(3)(ii)(A)–2, –2.i, and –2.ii, the interim final rule makes similar changes to comments 55(b)(7)(i)–1, –1.i, and –1.ii. First, the CFPB is revising comment 55(b)(7)(i)– 1.ii by replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Revised comment 55(b)(7)(i)–1.ii includes a cross-reference to this definition. Based on these changes, E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations revised comment 55(b)(7)(i)–1.ii provides that the card issuer also must comply with the condition in § 1026.55(b)(7)(i) requiring the Boardselected benchmark replacement for consumer loans and replacement margin result would have resulted in an APR substantially similar to the rate in effect at the time the LIBOR index became unavailable. The substantially similar standard for the APR is discussed in further detail below in relation to comment 55(b)(7)(i)–2. Second, the CFPB is expanding comment 55(b)(7)(i)–1.ii to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. Comment 55(b)(7)(i)–1.ii does not discuss the 12-month (formerly called 1-year) USD LIBOR.54 In the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for the 1month, 3-month, and 6-month tenors of USD LIBOR, but reserved judgment about whether to include a reference to the 1-year USD LIBOR index in comment 55(b)(7)(i)–1.ii until it obtained additional information. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. Section 105(a)(5) of the LIBOR Act provides that, for purposes of TILA and its implementing regulations, a Boardselected benchmark replacement and the selection or use of a Board-selected benchmark replacement as a benchmark replacement with respect to a LIBOR contract constitutes a replacement that has historical fluctuations that are substantially similar to those of the LIBOR index that it is replacing. The Board’s regulation provides that for a LIBOR contract that is a consumer loan, the benchmark replacement shall be the corresponding 1-month, 3-month, 6month, or 12-month CME Term SOFR plus the applicable amounts or tenor spread adjustment.55 The CFPB is relying on the determination in the LIBOR Act and the Board’s implementing regulation that the Boardselected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to the USD LIBOR tenor that it is replacing. Thus, the CFPB is revising comment 55(b)(7)(i)–1.ii to also apply 54 See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing comment 59(f)–4 and noting the Bureau’s 2020 notice of proposed rulemaking proposed and solicited comment on allowing use of a specific replacement formula where the index change involved the 1-year tenor in addition to the 1-month, 3-month, and 6-month tenors). 55 12 CFR 253.4(b)(2)(i)(B) and (ii)(B). VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 this determination of the historical fluctuations substantially similar standard to the replacement of the 12month USD LIBOR index with the Board-selected benchmark replacement for consumer loans. Third, based on the LIBOR Act and the Board’s implementing regulation, the Bureau is removing its prior determination, that became effective April 1, 2022, concerning the spreadadjusted indices based on SOFR recommended by the ARRC for consumer products. By operation of the LIBOR Act and the Board’s implementing regulation, all tenors of the Board-selected benchmark replacements have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they replace.56 Thus, revised comment 55(b)(7)(i)–1.ii provides that the Boardselected benchmark replacements for consumer loans to replace the 1-month, 3-month, 6-month, and 12-month USD LIBOR index has historical fluctuations that are substantially similar to USD LIBOR tenor they are replacing. The Bureau’s prior determination is obsolete. The ‘‘spread-adjusted indices based on SOFR recommended by the ARRC for consumer products’’ are the same as ‘‘the Board-selected benchmark replacement for consumer loans’’ and the LIBOR Act determined that the latter has historical fluctuations that are substantially similar to the LIBOR tenors they replace. Removing this obsolete determination will avoid confusion. Fourth, to facilitate compliance, this interim final rule revises comment 55(b)(7)(i)–1.ii by specifying that the Board-selected benchmark replacements for consumer loans are an exception to the requirement providing that the historical fluctuations considered when replacing a LIBOR index under a plan are the historical fluctuations up through the relevant date set forth in comment 55(b)(7)(i)–1.ii. Accordingly, this interim final rule also revises comment 55(b)(7)(i)–1.ii to provide that no further determination is required that the Board-selected benchmark replacements for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard. The changes to comment 55(b)(7)(i)–1 in relation to the Board-selected benchmark replacements for consumer loans do not alter or modify the Bureau’s determination set forth in comment 55(b)(7)(i)–1.i in relation to the prime rate as the replacement index for the 1-month or 3-month USD LIBOR index, except to provide that no further 56 LIBOR PO 00000 Act section 105(a)(5), 136 Stat. 830. Frm 00017 Fmt 4701 Sfmt 4700 30613 determination is needed that the prime rate published in the Wall Street Journal meets this standard for these tenors. Additional guidance on determining whether a replacement index has historical fluctuations that are substantially similar to those of certain USD LIBOR indices. For the same reasons as discussed in the section-bysection analysis of § 1026.40(f)(3)(ii)(A) with respect to revised comment 40(f)(3)(ii)(A)–2.iii, the interim final rule makes similar changes to comment 55(b)(7)(i)–1.iii, which provides a nonexhaustive 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. The CFPB is making two changes to comment 55(b)(7)(i)–1.iii. First, the CFPB is making a technical correction in comment 55(b)(7)(i)–1.iii to change ‘‘substantial’’ to ‘‘substantially’’ when considering the relevant factors in determining whether a replacement index has historical fluctuations substantially similar to those of a particular LIBOR index. Second, similar to changes in revised comment 40(f)(3)(ii)(A)–2.iii above, the CFPB is revising comment 55(b)(7)(i)–1.iii by adding an exception for the Boardselected benchmark replacements for consumer loans, as defined in new § 1026.2(a)(28). When using the Boardselected benchmark replacements for consumer loans, a creditor need not consider the types of factors that have historical fluctuations substantially similar to those of a particular LIBOR index. Because the Board’s final rule, in implementing the LIBOR Act, has determined that the Board-selected benchmark replacements for consumer loans are indices that have historical fluctuations that are substantially similar to their respective LIBOR tenors, and the CFPB has determined in this interim final rule that this index meets the Regulation Z ‘‘historical fluctuations are substantially similar’’ standard with respect to a particular LIBOR index, the factors need not be considered. While the CFPB had already applied the factors to the SOFR-based 1-month, 3month, and 6-month LIBOR tenor replacement indices in its 2021 LIBOR Transition Final Rule, by operation of law, the factors need not be considered with respect to the Board-selected benchmark replacement for consumer loans for the 12-month LIBOR tenor in order for the index to satisfy Regulation Z’s ‘‘historical fluctuations are substantially similar’’ standard. The CFPB solicits comments on these changes of the interim final rule. E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30614 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations Substantially similar rate when LIBOR becomes unavailable. Section 1026.55(b)(7)(i) provides 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. Comment 55(b)(7)(i)–2 provides that, for comparing rates, 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. It 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 index. The one exception under comment 55(b)(7)(i)–2 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)(i)–2 also provides that for purposes of § 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 6month 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 § 1026.55(b)(7)(i) that the replacement index and replacement margin would have resulted in an APR substantially similar to the rate calculated using the LIBOR index. For the same reasons as discussed in the section-by-section analysis of § 1026.40(f)(3)(ii)(A) with respect to revised comment 40(f)(3)(ii)(A)–3, the interim final rule makes similar changes to comment 55(b)(7)(i)–2. First, the CFPB is revising comment 55(b)(7)(i)–2 by replacing references to the spreadadjusted index based on SOFR recommended by the ARRC for VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Second, the CFPB is expanding comment 55(b)(7)(i)–2 to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. Comment 55(b)(7)(i)–2 does not discuss the 12-month (formerly called 1-year) USD LIBOR. In the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for the 1month, 3-month, and 6-month tenors of USD LIBOR, but reserved 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. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. Sections 105(a)(2), (a)(3), and (a)(5) of the LIBOR Act provide that, for purposes of TILA and its implementing regulations, a Board-selected benchmark replacement and the selection or use of a Boardselected benchmark replacement as a benchmark replacement with respect to a LIBOR contract constitutes a ‘‘comparable index’’ and ‘‘has historical fluctuations that are substantially similar’’ to those of the USD LIBOR index they are replacing. The Board’s regulation provides that for a LIBOR contract that is a consumer loan, the benchmark replacement shall be the corresponding 1-month, 3-month, 6month, or 12-month CME Term SOFR plus the applicable amounts or tenor spread adjustment.57 The determination in the LIBOR Act and the Board’s implementing regulation applies not only to the Board-selected benchmark replacements for consumer loans that are replacing the 1-month, 3-month, and 6-month USD LIBOR, but also to the Board-selected benchmark replacement for consumer loans that is replacing the 12-month tenor of LIBOR. Thus, the CFPB is revising comment 55(b)(7)(i)–2 to provide that for purposes of § 1026.55(b)(7)(i), if a card issuer uses the Board-selected benchmark replacements for consumer loans to replace the 1-month, 3-month, 6-month, or 12-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 § 1026.55(b)(7)(i) that the replacement 57 12 PO 00000 CFR 253.4(b)(2)(i)(B) and (ii)(B). Frm 00018 Fmt 4701 Sfmt 4700 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. The CFPB solicits comment on these changes of the interim final rule. 55(b)(7)(ii) Section 1026.55(b)(7)(ii) contains LIBOR-specific provisions that 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 April 1, 2022, in certain circumstances. The CFPB explained in the 2021 LIBOR Transition Final Rule how, as a practical matter, § 1026.55(b)(7)(ii) allows card issuers to provide the 45-day change-interms notices required under § 1026.9(c)(2) prior to the LIBOR indices becoming unavailable, and thus allows 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, § 1026.55(b)(7)(ii) allows card issuers to provide the change-interms 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 CFPB 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. Section 1026.55(b)(7)(ii) provides that if a variable rate on a credit card account under an open-end (not homesecured) 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 April 1, 2022, 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 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 newly established and therefore does not have any rate history, it may be used if the replacement index value in effect on E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations 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. Section 1026.55(b)(7)(ii) also 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. As set forth in § 1026.55(b)(7)(ii), 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 1month, 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 SOFRbased 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)(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 § 1026.55(b)(7)(ii). It provides that for purposes of replacing a LIBOR index used under a plan pursuant to § 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 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. VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 For the same reasons as discussed in the section-by-section analysis of § 1026.40(f)(3)(ii)(B), the interim final rule is making two changes to § 1026.55(b)(7)(ii). First, the CFPB is revising § 1026.55(b)(7)(ii) by replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Second, the CFPB is using the term 12-month tenor instead of 1-year tenor with respect to the USD LIBOR index. The Board-selected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to those of certain USD LIBOR indices. Comment 55(b)(7)(ii)–1.ii provides a determination by the Bureau that, effective April 1, 2022, the SOFR-based spread-adjusted indices recommended by the ARRC for consumer products to replace the 1-month, 3-month, or 6month USD LIBOR indices have historical fluctuations that are substantially similar to those of the 1month, 3-month, or 6-month USD LIBOR indices respectively. The Bureau made this determination in case some card issuers choose to replace a LIBOR index with the SOFR-based spreadadjusted index recommended by the ARRC for consumer products. Comment 55(b)(7)(ii)–1.ii also provides that in order to use this SOFR-based spreadadjusted index recommended by the ARRC for consumer products discussed above as the replacement index for the applicable LIBOR index, the card issuer also must satisfy the condition in § 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. Comment 55(b)(7)(ii)– 1.ii provides that because of the exception in § 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, 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 as discussed in the section-by-section analysis of § 1026.40(f)(3)(ii)(B) with respect to revised comments 40(f)(3)(ii)(B)–1, –1.i, and –1.ii and discussed below, the PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 30615 interim final rule makes similar changes to comments 55(b)(7)(ii)–1, –1.i, and –1.ii. First, the CFPB is replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Revised comment 55(b)(7)(ii)– 1.ii includes a cross-reference to this definition. Based on these changes, revised comment 55(b)(7)(ii)–1.ii provides that the card issuer also must comply with the condition in § 1026.55(b)(7)(ii) requiring the Boardselected benchmark replacement for consumer loans and replacement margin to 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. The substantially similar standard for this interim final rule is discussed in further detail below in relation to comment 55(b)(7)(ii)–3. Second, the CFPB is expanding comment 55(b)(7)(ii)–1.ii to include a replacement index for the 12-month USD LIBOR not previously addressed in the 2021 LIBOR Transition Final Rule. Comment 55(b)(7)(ii)–1.ii does not discuss the 12-month (formerly called 1year) USD LIBOR.58 In the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for the 1month, 3-month, and 6-month tenors of USD LIBOR, but reserved judgment about whether to include a reference to the 1-year USD LIBOR index in comment 55(b)(7)(ii)–1.ii until it obtained additional information. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. Section 105(a)(5) of the LIBOR Act provides that, for purposes of TILA and its implementing regulations, a Boardselected benchmark replacement and the selection or use of a Board-selected benchmark replacement as a benchmark replacement with respect to a LIBOR contract constitutes a replacement that has historical fluctuations that are substantially similar to those of the LIBOR index that it is replacing. The Board’s regulation provides that for a LIBOR contract that is a consumer loan, the benchmark replacement shall be the corresponding 1-month, 3-month, 658 See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing comment 59(f)–4 and noting the Bureau’s 2020 notice of proposed rulemaking proposed and solicited comment on allowing use of a specific replacement formula where the index change involved the 1-year tenor in addition to the 1-month, 3-month, and 6-month tenors). E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30616 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations month, or 12-month CME Term SOFR plus the applicable amounts or tenor spread adjustment.59 The CFPB is relying on the determination in the LIBOR Act and the Board’s implementing regulation that the Boardselected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to the USD LIBOR tenor that they are replacing. Thus, the CFPB is revising comment 55(b)(7)(ii)–1.ii to also apply this determination of the historical fluctuations substantially similar standard to the replacement of the 12-month USD LIBOR index with the Board-selected benchmark replacement for consumer loans. Third, based on the LIBOR Act and the Board’s implementing regulation, the Bureau is removing its prior determination, that became effective April 1, 2022, concerning the spreadadjusted indices based on SOFR recommended by the ARRC for consumer products. By operation of the LIBOR Act and the Board’s implementing regulation, all tenors of the Board-selected benchmark replacements have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they replace.60 Thus, revised comment 55(b)(7)(ii)–1.ii provides that the Boardselected benchmark replacements for consumer loans to replace the 1-month, 3-month, 6-month, and 12-month USD LIBOR index has historical fluctuations that are substantially similar to USD LIBOR tenor they are replacing. The Bureau’s prior determination is obsolete. The ‘‘spread-adjusted indices based on SOFR recommended by the ARRC for consumer products’’ are the same as ‘‘the Board-selected benchmark replacement for consumer loans’’ and the LIBOR Act determined that the latter has historical fluctuations that are substantially similar to the LIBOR tenors they replace. Removing this obsolete determination will avoid confusion. Fourth, to facilitate compliance, this interim final rule revises comment 55(b)(7)(ii)–1 by specifying that the Board-selected benchmark replacements for consumer loans are an exception to the requirement providing that the historical fluctuations considered when replacing a LIBOR index under a plan are the historical fluctuations up through the relevant date set forth in comment 55(b)(7)(ii)–1.ii. Accordingly, this interim final rule also revises comment 55(b)(7)(ii)–1.ii to provide that no further determination is required to 59 12 CFR 253.4(b)(2)(i)(B) and (ii)(B). Act section 105(a)(5), 136 Stat. 830. 60 LIBOR VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 determine that the Board-selected benchmark replacements for consumer loans meet the ‘‘historical fluctuations are substantially similar’’ standard. The changes to comment 55(b)(7)(ii)–1 in relation to the Board-selected benchmark replacements for consumer loans do not alter or modify the Bureau’s determination set forth in comment 55(b)(7)(ii)–1.i in relation to the prime rate as the replacement index for the 1-month or 3-month USD LIBOR index, except to provide that no further determination is needed that the prime rate published in the Wall Street Journal meets this standard for these tenors. The CFPB solicits comments on these changes of the interim final rule. Additional guidance on determining whether a replacement index has historical fluctuations that are substantially similar to those of certain USD LIBOR indices. For the same reasons as discussed in the section-bysection analysis of § 1026.40(f)(3)(ii)(B) with respect to revised comment 40(f)(3)(ii)(B)–1.iii, the interim final rule makes similar changes to comment 55(b)(7)(ii)–1.iii, which provides a nonexhaustive 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. The CFPB is making two changes to comment 55(b)(7)(ii)–1.iii. First, the CFPB is making a technical correction in comment 55(b)(7)(ii)–1.iii to change ‘‘substantial’’ to ‘‘substantially’’ when considering the relevant factors in determining whether a replacement index has historical fluctuations substantially similar to those of a particular LIBOR index. Second, similar to changes in revised comment 40(f)(3)(ii)(B)–1.iii above, the CFPB is revising comment 55(b)(7)(ii)–1.iii by adding an exception for the Boardselected benchmark replacements for consumer loans, as defined in new § 1026.2(a)(28). When using the Boardselected benchmark replacement for consumers loans, a creditor need not consider the types of factors that have historical fluctuations substantially similar to those of a particular LIBOR index. Because the Board’s final rule, in implementing the LIBOR Act, has determined that the Board-selected benchmark replacements for consumer loans are indices that have historical fluctuations that are substantially similar to their respective LIBOR tenors, and the CFPB has determined in this interim final rule that this index meets the Regulation Z ‘‘historical fluctuations are substantially similar’’ standard with respect to a particular LIBOR index, the PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 factors need not be considered. While the CFPB had already applied the factors to the SOFR-based 1-month, 3month, and 6-month LIBOR tenor replacement indices in its 2021 LIBOR Transition Final Rule, by operation of law, the factors need not be considered with respect to the Board-selected benchmark replacement for consumer loans for the 12-month LIBOR tenor in order for the index to satisfy Regulation Z’s ‘‘historical fluctuations are substantially similar’’ standard. The CFPB solicits comments on these changes of the interim final rule. Substantially similar rate. Pursuant to § 1026.55(b)(7)(ii), if the replacement index is the SOFR-based spreadadjusted index recommended by the ARRC for consumer products to replace the 1-month, 3-month, 6-month, or 1year 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)(ii)–3 also provides for purposes of § 1026.55(b)(7)(ii), if a card issuer uses the SOFR-based spreadadjusted 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 § 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. For the same reasons discussed in the section-by-section analysis of § 1026.40(f)(3)(ii)(B) above for revised comment 40(f)(3)(ii)(B)–3, this interim final rule implements a number of changes to comment 55(b)(7)(ii)–3. First, the CFPB is revising comment 55(b)(7)(ii)–3 by replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term ‘‘the Board-selected benchmark replacement for consumer loans.’’ Second, the CFPB is expanding comment 55(b)(7)(ii)–3 to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. This interim final rule revises comment 55(b)(7)(ii)–3 to provide that for purposes of E:\FR\FM\11MYR3.SGM 11MYR3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations § 1026.55(b)(7)(ii), if a card issuer uses the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-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 § 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 Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month USD LIBOR index as the replacement index still must comply with the condition in § 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. The CFPB solicits comments on these changes in the interim final rule. Section 1026.59 Increases Reevaluation of Rate 59(f) Termination of the Obligation To Review Factors ddrumheller on DSK120RN23PROD with RULES3 59(f)(3) TILA section 148, which was added by the Credit CARD Act of 2009,61 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.62 Section 1026.59 implements this provision. The provisions in § 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 61 Public 62 15 Law 111–24, 123 Stat. 1734 (2009). U.S.C. 1665c. VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 appropriate based on that review, reduce the APR. Section 1026.59(f) provides that this obligation to review the rate increase 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.’’ As discussed in the CFPB’s 2021 LIBOR Transition Final Rule, because the discontinuation of LIBOR means that after discontinuation, the card issuer will not have a LIBOR index for use in the ‘‘previous formula’’ to determine the rate that applied prior to the increase, the existing methods to terminate the obligation to review would not apply. Section 1026.59(f)(3) provides, effective April 1, 2022, a replacement formula that card issuers can use to terminate the obligation to review factors under § 1026.59(a) when the rate applicable immediately prior to the increase was a variable rate with a formula based on a LIBOR index. Section 1026.59(f)(3) applies to situations in which a LIBOR index is used as the index in the ‘‘previous formula’’ (i.e., the formula used to determine the rate at which the obligation to review factors ceases).63 Under § 1026.59(f)(3), the replacement formula, which includes 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.64 Section 1026.59(f)(3) also provides that a card issuer must satisfy the conditions set forth in § 1026.55(b)(7)(ii) for selecting a replacement index. Under § 1026.59(f)(3), 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 63 Section 1026.59(f)(3) does not apply to rate increases that may result from the switch from a LIBOR index to another index under § 1026.55(b)(7)(i) or § 1026.55(b)(7)(ii) as those potential rate increases will be excepted from the provisions of § 1026.59. Section 1026.59(f)(3) does, however, cover rate increases that were already subject to the provisions of § 1026.59 and that use a formula under § 1026.59(f) based on a LIBOR index to determine whether to terminate the review obligations under § 1026.59. 64 For purposes of § 1026.59(f)(3) ‘‘replacement index,’’ as defined in 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. PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 30617 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 in § 1026.59(f)(3) is that if the replacement index is the spreadadjusted index based on SOFR recommended by the ARRC for consumer products to replace the 1month, 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 SOFRbased 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. Additionally, comment 59(f)–4 provides methods for identifying the replacement index to be used in the formula by providing instructions for determining the relevant date through which the card issuer must determine that historical fluctuations between the indices are substantially similar. Comment 59(f)–4 provides that 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, but if the Bureau has not made such a determination, 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. Comment 59(f)–4 states the Bureau’s determination that the prime rate published in the Wall Street Journal has historical fluctuations that are substantially similar to those of the 1month and 3-month USD LIBOR indices and that the spread-adjusted indices based on SOFR 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, 3month, or 6-month USD LIBOR indices respectively. For the reasons discussed below, and as discussed in the section-by-section analysis of § 1026.59(f)(3) and comment 59(f)–4 below, this interim final rule implements several revisions related to rate reevaluation provisions. First, as discussed in more detail in the sectionby-section analysis for § 1026.55(b)(7) above, and for the reasons discussed therein, the CFPB is revising § 1026.59(f)(3) by replacing references to the spread-adjusted index based on SOFR recommended by the ARRC for consumer products with the new term E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30618 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations ‘‘the Board-selected benchmark replacement for consumer loans’’ to align terminology in the rule with the LIBOR Act and the Board’s 2022 LIBOR Act Final Rule. As discussed in the section-by-section analysis for § 1026.2(a)(28), this interim final rule also defines the term ‘‘the Boardselected benchmark replacement for consumer loans.’’ Revised comment 59(f)–4 includes a cross-reference to that definition. As discussed above, these terms identify the same index, and the change is merely for consistency with the Act and ease of reading. Second, the CFPB is expanding comment 59(f)–4 to include a replacement index for the 12-month USD LIBOR, which was not previously addressed in the 2021 LIBOR Transition Final Rule. Comment 59(f)–4 does not discuss the 12-month (formerly called 1year) USD LIBOR.65 In the 2021 LIBOR Transition Final Rule, the CFPB generally provided examples of SOFRbased replacement indices for the 1month, 3-month, and 6-month tenors of USD LIBOR, but reserved judgment about whether to include a reference to the 1-year USD LIBOR index in comment 59(f)–4 until it obtained additional information. Since the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board issued its final rule implementing the Act. Section 105(a)(5) of the LIBOR Act provides that, for purposes of TILA and its implementing regulations, a Board-selected benchmark replacement and the selection or use of a Board-selected benchmark replacement as a benchmark replacement with respect to a LIBOR contract constitutes a replacement that has historical fluctuations that are substantially similar to those of the LIBOR index that it is replacing. The Board’s regulation provides that for a LIBOR contract that is a consumer loan, the benchmark replacement shall be the corresponding 1-month, 3-month, 6month, or 12-month CME Term SOFR plus the applicable amounts or tenor spread adjustment.66 The CFPB is relying on the determination in the LIBOR Act and the Board’s implementing regulation that the Boardselected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to the USD LIBOR tenor that 65 See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing comment 59(f)–4 and noting the Bureau’s 2020 notice of proposed rulemaking proposed and solicited comment on allowing use of a specific replacement formula where the index change involved the 1-year tenor in addition to the 1-month, 3-month, and 6-month tenors). 66 12 CFR 253.4(b)(2)(i)(B) and (ii)(B). VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 they are replacing. While section 104(f) of the LIBOR Act provides that nothing in the Act ‘‘may be construed to alter or impair— . . . (5) any provision of Federal consumer financial law that— (A) . . . govern the reevaluation of rate increases on credit card accounts under open-end (not home-secured) consumer credit plans,’’ 67 the CFPB is not relying on the LIBOR Act for its authority to provide an alternative method for determining whether the card issuer can terminate its obligation under the credit card account rate reevaluation requirements where the rate applicable immediately prior to a rate increase was a variable rate calculated using a LIBOR index. Instead, the CFPB is revising § 1026.59(f)(3) and comment 59(f)–4 pursuant to its authority to implement TILA section 148, as discussed above. Third, based on the LIBOR Act and the Board’s implementing regulation, the Bureau is removing its prior determination, that became effective April 1, 2022, concerning the spreadadjusted indices based on SOFR recommended by the ARRC for consumer products. By operation of the LIBOR Act and the Board’s implementing regulation, all tenors of the Board-selected benchmark replacements for consumer loans have ‘‘historical fluctuations that are substantially similar to’’ the LIBOR tenors they replace.68 Thus, the CFPB is revising comment 59(f)–4 to provide that the Board-selected benchmark replacements for consumer loans to replace the 1-month, 3-month, 6-month, and 12-month USD LIBOR index have historical fluctuations that are substantially similar to USD LIBOR tenor they are replacing. The Bureau’s prior determination is obsolete. The ‘‘spread-adjusted indices based on SOFR recommended by the ARRC for consumer products’’ are the same as ‘‘the Board-selected benchmark replacement for consumer loans’’ and the LIBOR Act determined that the latter has historical fluctuations that are substantially similar to the LIBOR tenors they replace. Removing this obsolete determination will avoid confusion. Fourth, to facilitate compliance, this interim final rule revises comment 59(f)–4 by specifying that the Boardselected benchmark replacements for consumer loans are an exception to the requirement providing that the historical fluctuations considered when replacing a LIBOR index under a plan are the historical fluctuations up through the relevant date as set forth in 67 LIBOR 68 LIBOR PO 00000 Act section 104(f), 136 Stat. 829. Act section 105(a)(5), 136 Stat. 830. Frm 00022 Fmt 4701 Sfmt 4700 comment 59(f)–4. Accordingly, this interim final rule also revises comment 59(f)–4 to provide that no further determination is required that the Board-selected benchmark replacement for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard. The changes to comment 59(f)–4 in relation to the Board-selected benchmark replacements for consumer loans do not alter or modify the Bureau’s determination set forth in comment 59(f)–4 in relation to the prime rate as the replacement index for the 1-month or 3-month USD LIBOR index, except to provide that no further determination is needed that the prime rate published in the Wall Street Journal meets this standard for these tenors. The CFPB solicits comments on these changes in the interim final rule. VI. Effective Date The final rule will take effect on May 15, 2023, which should be approximately 45 days before the expected discontinuation of LIBOR. VII. Dodd-Frank Act Section 1022(b) Analysis A. Overview In developing the interim final rule, the CFPB has considered the interim final rule’s potential benefits, costs, and impacts.69 The CFPB requests comment on the analysis presented below as well as submissions of additional data that could inform the CFPB’s analysis of the benefits, costs, and impacts. In developing the interim final rule, the CFPB has consulted with, or offered to consult with, the appropriate prudential regulators and other Federal agencies regarding consistency with any prudential, market, or systemic objectives administered by such agencies. The CFPB is issuing an interim final rule amending Regulation Z, which implements TILA, to reflect the enactment of the LIBOR Act and its implementing regulation promulgated by the Board. This interim final rule further addresses the planned cessation of most USD LIBOR tenors after June 30, 2023, by incorporating the Board69 Specifically, section 1022(b)(2)(A) of the DoddFrank Act 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 proposed rules on insured depository institutions and insured credit unions with less than $10 billion in total assets as described in section 1026 of the Dodd-Frank Act; and the impact on consumers in rural areas. The applicability of section 1022(b)(2)(A) to this rulemaking is unclear, but the Bureau has performed the described analysis. E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations selected benchmark replacements for consumer loans into Regulation Z. This interim final rule conforms the terminology from the LIBOR Act and the Board’s implementing regulation into relevant Regulation Z open-end and closed-end credit provisions and also addresses treatment of the 12-month USD LIBOR index and its replacement index, including permitting creditors to use alternative language in change-interms notice content requirements for situations where the 12-month tenor of the LIBOR index is being replaced consistent with the LIBOR Act. The CFPB is making four categories of amendments to various provisions in Regulation Z to make changes consistent with the LIBOR Act to address the anticipated sunset of LIBOR. First, (the ‘‘terminology amendments’’) the CFPB is changing the terminology used in the CFPB’s 2021 LIBOR Transition Final Rule to make it consistent with terminology in the LIBOR Act. Specifically, for both-open and closed-end credit as discussed in further detail below, the CFPB is replacing all references to the ‘‘index based on SOFR recommended by the Alternative Reference Rates Committee for consumer products’’ with references to the ‘‘the Board-selected benchmark replacement for consumer loans’’ and adding a new definition for that term in the Official Interpretations. The CFPB is also replacing all references to the ‘‘1year’’ USD LIBOR with references to the ‘‘12-month’’ USD LIBOR. Second, (‘‘12-month historical fluctuations amendments’’) for both open- and closed-end credit, the CFPB is revising the Official Interpretations to incorporate the Board-selected benchmark replacement for consumer loans to replace the 12-month LIBOR, as prescribed by the LIBOR Act, as an index that has historical fluctuations that are substantially similar to those of the 12-month USD LIBOR index it is intended to replace. The Bureau’s prior determination that the spread-adjusted indices based on SOFR recommended by the ARRC to replace 1-month, 3month, and 6-month USD LIBOR have historical fluctuations that are substantially similar to the indices they are intended to replace is obsolete, given that the Board-selected benchmark replacement for consumer loans to replace 1-month, 3-month, and 6-month USD LIBOR indices is the same as the corresponding spread-adjusted index based on SOFR recommended by the ARRC. Third, (‘‘12-month LIBOR notice requirements amendments’’) the CFPB is adding the Board-selected benchmark replacement for consumer loans that VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 would replace the 12-month USD LIBOR index to the list of indices where a creditor is allowed to use an alternative method to disclose information about the periodic rate and APR in change-in-terms notices for HELOCs and credit card accounts as a result of the replacement of the LIBOR index in certain circumstances. Fourth, (‘‘12-month LIBOR rate reevaluation amendments’’) the CFPB is adding the Board-selected benchmark replacement for consumer loans that would replace the 12-month USD LIBOR index to the list of indices where a card issuer is allowed to use an alternative method for determining whether the card issuer can terminate its obligation under the credit card account rate reevaluation requirements where the rate applicable immediately prior to a rate increase was a variable rate calculated using a LIBOR index. The Bureau also deleted its prior determination in the Official Interpretations that the spread-adjusted indices based on SOFR recommended by the ARRC to replace 1-month, 3month, and 6-month USD LIBOR have historical fluctuations that are substantially similar to the indices they are intended to replace, given that ‘‘the Board-selected benchmark replacement for consumer loans’’ to replace 1-month, 3-month, and 6-month USD LIBOR indices is the same as the corresponding spread-adjusted index based on SOFR recommended by the ARRC for consumer products. B. Data Limitations and Quantification of Benefits, Costs, and Impacts The discussion below relies on information that the CFPB has obtained from industry, other regulatory agencies, and publicly available sources. 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 CFPB’s expertise in consumer financial markets, together with the limited data that are available, provide insight into these benefits, costs, and impacts. C. Baseline for Analysis In evaluating the potential benefits, costs, and impacts of the interim final rule, the CFPB takes as a baseline the current legal framework regarding the LIBOR transition. Therefore, the baseline for the analysis of the interim final rule includes the amendments to Regulation Z in the CFPB’s 2021 LIBOR PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 30619 Transition Final Rule, the LIBOR Act, and the Board’s implementing regulation as law. When finalized, the rule will affect the market as described below as long as it is in effect. However, with or without the interim final rule, the transfer from LIBOR would be complete by June 30, 2023, when LIBOR is set to expire. Therefore, the analysis below of the benefits, costs, and impacts of the interim final rule applies mostly to the period between May 15, 2023 (when the interim final rule takes effect) and June 30, 2023 (when LIBOR is set to expire). D. Potential Benefits and Costs of the Interim Final Rule to Consumers and Covered Persons Reliable data on the indices credit products are linked to are not generally available, so the CFPB cannot estimate the dollar value of debt tied to LIBOR in the distinct credit markets that will be impacted by this interim final rule. However, the ARRC has estimated that in 2021 there was $1.3 trillion of mortgage debt and $100 billion of nonmortgage debt tied to LIBOR.70 1. ‘‘Terminology Amendments’’ For clarity, the CFPB is replacing references to the index based on ‘‘SOFR recommended by the Alternative Reference Rates Committee for consumer products’’ with references to the ‘‘the Board-selected benchmark replacement for consumer loans.’’ The CFPB believes that, even absent these amendments, nearly all creditors would likely correctly construe the term ‘‘SOFR recommended by the Alternative References Rate Committee for consumer products’’ to mean the ‘‘the Board-selected benchmark replacement for consumer loans.’’ Therefore, the CFPB believes that, in the vast majority of cases, the amendments will not change the indices creditors would switch to, the timing of those changes, or the disclosures they provide to consumers. Therefore, the amendments will impose very few costs on consumers or firms. The amendments will provide some benefits to firms and consumers by decreasing uncertainty. 2. ‘‘12-Month Historical Fluctuations’’ Amendments For both open- and closed-end credit, the CFPB is including the Boardselected benchmark replacement for consumer loans to replace 12-month LIBOR, as prescribed by the LIBOR Act, 70 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-transitionprogress-report-mar-21.pdf. E:\FR\FM\11MYR3.SGM 11MYR3 30620 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES3 as an index that has historical fluctuations that are substantially similar to those of the 12-month USD LIBOR index it is intended to replace. Under both the interim final rule and the baseline, the LIBOR Act and the Board’s implementing regulation determine that the Board-selected benchmark replacement for consumer loans to replace 12-month LIBOR has historical fluctuations that are substantially similar to those of the 12month USD LIBOR index it is intended to replace. Therefore, by operation of law, the amendments to Regulation Z by this interim final rule will not change whether the Board-selected benchmark replacement for consumer loans to replace 12-month LIBOR has historical fluctuations that are substantially similar to those of the 12-month USD LIBOR index it is intended to replace. Hence these amendments will impose very few costs on consumers or firms. The amendments will provide some benefits to firms and consumers by decreasing uncertainty. 3. ‘‘12-Month LIBOR Notice Requirements’’ Amendments These amendments by the interim final rule will add the Board-selected benchmark replacement for consumer loans for 12-month USD LIBOR, in addition to those Board-selected benchmark replacements for consumer loans for 1-month, 3-month, and 6month USD LIBOR, as another circumstance where creditors may follow comments 9(c)(1)–4 (for HELOCs) and 9(c)(2)(iv)–2.ii (for credit cards) for how to disclose information about the periodic rate and APR in a change-interms notice for HELOCs and credit cards, assuming the other conditions in the comment are met. Without these amendments, it is not clear how creditors could provide required change-in-terms notices to switch consumers from the 12-month USD LIBOR index to the Board-selected benchmark replacement for consumer loans to replace 12-month USD LIBOR index, prior to the publication of the Board-selected benchmark replacement for consumer loans to replace 12-month USD LIBOR index. Therefore, it is not clear what creditors would do under the baseline absent these amendments. Some creditors may be legally required to switch consumers to the Board-selected benchmark replacements for consumer loans. Presumably, they would still do so even absent these amendments, 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 VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 the change-in-terms notice prior to the Board-selected benchmark replacements for consumer loans being published. Alternatively, if they decide not to send out the change-in-terms notice until after the Board-selected benchmark replacements for consumer loans are published, they might face legal uncertainty in how to calculate the rate after the LIBOR index is discontinued, but prior to the Board-selected benchmark replacements for consumer loans becoming effective on the account. Other creditors could choose under the baseline to switch to the Boardselected benchmark replacements for consumer loans even if not required to do so. For these creditors, these amendments would decrease costs by providing additional clarity and certainty about the required change-interms notices. These amendments will likely also decrease litigation costs for these creditors after the transition from 12-month LIBOR to the Board-selected benchmark replacement for consumer loans. Consumers with loans from these creditors would have their loans switched from 12-month LIBOR to the Board-selected benchmark replacement for consumer loans both under these amendments and under the baseline. The CFPB expects that, under these amendments 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 CFPB estimates that these amendments will have no significant benefits, costs, or impacts for these consumers. It is possible that there may be creditors that would switch to the Board-selected benchmark replacements for consumer loans under these amendments that might be deterred by existing change-in-terms notice requirements from switching consumers to the Board-selected benchmark replacement for consumer loans without this amendment. Therefore, without this amendment these creditors would choose different indices to replace LIBOR indices. Because these creditors would prefer to switch to the Boardselected benchmark replacement for consumer loans and this provision will allow them to do so, the CFPB expects that this provision would generate substantial benefits for these creditors. However, based on its market intelligence, the CFPB believes there to be very few such creditors, if any, as market participants have informed the CFPB that other factors will dominate the determination about which index to switch to. The CFPB expects that, based partly on a final rule promulgated by the PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 U.S. Department of Housing and Urban Development (HUD),71 most Home Equity Conversion Mortgages (HECMs) will transition to one of the Boardselected benchmark replacement for consumer loans under this interim final rule and under the baseline. The CFPB expects that most non-HECM HELOCS and credit cards will switch to the Prime rate under this interim final rule and under the baseline, because most HELOC creditors and credit card issuers prefer to have their portfolio based on a single index and they have portfolios that are already mostly linked to the Prime rate. Under these amendments, consumers with loans from these creditors will have their loans switched to the Boardselected benchmark replacement for consumer loans. Under the baseline, consumers with loans from these creditors would have their loans switched to other indices. Therefore, after the transition, these consumers’ APRs will be tied to the Board-selected benchmark replacement for consumer loans, while under the baseline they would be tied to other indices. Because these other replacement indices creditors would switch to are not identical to the Board-selected benchmark replacement for consumer loans, they will not move identically to the Board-selected benchmark replacement for consumer loans, so affected consumers’ payments would be different under the 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 Board-selected benchmark replacement for consumer loans. Consumers with these indices would then pay a cost due to this provision until the next rate reset. On some dates in which indexed rates reset, some replacement indices may have decreased relative to the Board-selected benchmark replacement for consumer loans. Consumers with these indices would then benefit from this 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 provision and that arise because of differences in index movements will vary across consumers and over time. However, the CFPB expects ex-ante for these benefits and costs to be small on average, because the rates creditors switch to must be 71 See E:\FR\FM\11MYR3.SGM 88 FR 12822 (Mar. 1, 2023). 11MYR3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES3 substantially similar to existing LIBORbased 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. As discussed above, the CFPB also expects for these benefits and costs to small because the CFPB believes there will likely be few, if any, loans that transition to different indices because of the interim final rule. 4. ‘‘12-Month LIBOR Rate Reevaluation Amendments’’ The CFPB is amending § 1026.59(f)(3) and comment 59(f)–4 to conform to the LIBOR Act and the Board’s implementing regulation. Specifically, revised comment 59(f)–4 provides that the Board-selected benchmark replacements for consumer loans to replace 1-month, 3-month, 6-month, and 12-month USD LIBOR index have historical fluctuations that are substantially similar to those of the USD LIBOR tenors they are replacing. Section 105(a)(5) of the LIBOR Act provides that, for purposes of TILA and its implementing regulations, a Boardselected benchmark replacement and the selection or use of a Board-selected benchmark replacement as a benchmark replacement with respect to a LIBOR contract constitutes a replacement that has historical fluctuations that are substantially similar to those of the LIBOR index that it is replacing. The Board’s regulation provides that for a LIBOR contract that is a consumer loan, the benchmark replacement shall be the corresponding 1-month, 3-month, 6month, or 12-month CME Term SOFR plus the applicable amounts or tenor spread adjustment. The CFPB is relying on the determination in the LIBOR Act and the Board’s implementing regulation that the Board-selected benchmark replacement for consumer loans has historical fluctuations that are substantially similar to the USD LIBOR tenor that it is replacing. The determination in the LIBOR Act and the Board’s implementing regulation that the Board-selected benchmark replacement for consumer loans has historical fluctuations that are substantially similar to the USD LIBOR tenor that it is replacing applies not only to the Board-selected benchmark replacements for consumer loans that are replacing the 1-month, 3-month, and 6-month USD LIBOR, but also to the Board-selected benchmark replacement for consumer loans that is replacing the 12-month tenor of LIBOR. Accordingly, the Board-selected benchmark replacement for consumer loans to VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 replace the 12-month USD LIBOR tenor has historical fluctuations that are substantially similar to the 12-month USD LIBOR tenor for purposes of complying with § 1026.59(f)(3) and comment 59(f)–4. The Bureau also found that its prior determination in relation to the use of SOFR-based spread-adjusted index recommended by the ARRC for consumer products to replace the 1-month, 3-month, or 6month U.S. Dollar LIBOR indices is obsolete given that ‘‘the Board-selected benchmark replacement for consumer loans’’ to replace 1-month, 3-month, and 6-month USD LIBOR indices is the same as the corresponding spread-adjusted index based on SOFR recommended by the ARRC for consumer products to replace the 1-month, 3-month, and 6month U.S. Dollar LIBOR indices. The LIBOR Act and the Board’s implementing regulation would be effective even under the baseline. By operation of the LIBOR Act, all tenors of the Board-selected benchmark replacements for consumer loans have historical fluctuations that are substantially similar to the LIBOR tenors they replace. Therefore, even without these amendments, creditors would likely conclude that the Boardselected benchmark replacement for consumer loans has historical fluctuations that are substantially similar to 12-month USD LIBOR for purposes of § 1026.59(f)(3) and comment 59(f)–4. Therefore, the amendments will likely not impose any significant costs or benefits on consumers. The amendments will likely provide some benefits to creditors by reducing regulatory uncertainty and compliance burden. E. Potential Specific Impacts of This Interim Final Rule 1. Depository Institutions and Credit Unions With $10 Billion or Less in Total Assets, as Described in Section 1026 The CFPB believes that the consideration of benefits and costs of covered persons presented above provides a largely accurate analysis of the impacts of the interim final rule 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 Interim Final Rule on Consumer Access to Credit and on Consumers in Rural Areas Because this interim final rule will affect only existing accounts that are tied to LIBOR and would generally not affect new loans, this interim final rule PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 30621 will not directly impact consumer access to credit. While this interim 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 CFPB believes that any impact on creditors and card issuers from this interim 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 interim 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 CFPB does not have any data or other information to understand whether this is the case. The CFPB requests comment regarding the impact of the amended provisions on consumers in rural areas and how those impacts may differ from those experienced by consumers generally. VIII. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) does not require an initial or final regulatory flexibility analysis in a rulemaking where a general notice of proposed rulemaking is not required.72 As noted previously, the CFPB has determined that it is unnecessary to publish a general notice of proposed rulemaking for this interim final rule. As an additional basis, the CFPB’s Director certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities, and so an initial or final regulatory flexibility analysis is also not required for that reason.73 The rule will not impose significant costs on creditors, including small entities, for the reasons discussed in the section 1022(b) analysis. IX. Paperwork Reduction Act Under the Paperwork Reduction Act of 1995 (PRA),74 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 CFPB may not conduct or sponsor and, notwithstanding any other provision of law, a person is not required to respond 72 5 73 5 U.S.C. 603(a), 604(a). U.S.C. 605(b). E:\FR\FM\11MYR3.SGM 11MYR3 30622 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations to an information collection unless the information collection displays a valid control number assigned by OMB. The CFPB has determined that this interim final rule would not impose any new or revised information collection requirements (recordkeeping, reporting or disclosure requirements) on covered entities or members of the public that would constitute collections of information requiring OMB approval under the PRA. The CFPB has a continuing interest in the public’s opinions regarding this determination. At any time, comments regarding this determination may be sent to: Consumer Financial Protection Bureau (Attention: PRA Office), 1700 G Street NW, Washington, DC 20552, or by email to CFPB_Public_PRA@cfpb.gov. § 1026.2 Definitions and rules of construction XI. Congressional Review Act ■ Pursuant to the Congressional Review Act,75 the CFPB will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to the rule’s published effective date. The Office of Information and Regulatory Affairs has designated this rule as not a ‘‘major rule’’ as defined by 5 U.S.C. 804(2). As discussed in part IV, the CFPB finds that there is good cause for the rule to take effect without prior notice and comment. Accordingly, this rule may take effect at such time as the CFPB determines. 5 U.S.C. 808(2). 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) 1. The authority citation for part 1026 continues to read as follows: ddrumheller on DSK120RN23PROD with RULES3 ■ Authority: 12 U.S.C. 2601, 2603–2605, 2607, 2609, 2617, 3353, 5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq. Subpart A—General 2. Amend § 1026.2 by adding paragraph (a)(28) to read as follows: ■ 75 5 U.S.C. 801 et seq. VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 (a) * * * (28) The Board-selected benchmark replacement for consumer loans means the SOFR-based index selected by the Board of Governors of the Federal Reserve System to replace, as applicable, the 1-month, 3-month, 6month, or 12-month tenor of U.S. Dollar LIBOR, as set forth in the Board of Governors of the Federal Reserve System’s regulation at 12 CFR part 253, which implements the Adjustable Interest Rate (LIBOR) Act, Public Law 117–103, division U. * * * * * Subpart E—Special Rules for Certain Home Mortgage Transactions 3. Amend § 1026.40 by revising paragraph (f)(3)(ii)(B) to read as follows: § 1026.40 plans. Requirements for home equity * * * * * (f) * * * (3) * * * (ii) * * * (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 PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 similar to the rate based on the LIBOR index. The one exception is that if the replacement index is the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the creditor must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, 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. * * * * * Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students 4. Amend § 1026.55 by revising paragraph (b)(7)(ii) to read as follows: ■ § 1026.55 Limitations on increasing annual percentage rates, fees, and charges. * * * * * (b) * * * (7) * * * (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 E:\FR\FM\11MYR3.SGM 11MYR3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations 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 Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, 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. * * * * * ■ 5. Amend § 1026.59 by revising paragraph (f)(3) to read as follows: Rules Affecting Home-Equity Plans, and 9(c)(2)(iv) Disclosure Requirements. ■ b. Under Section 1026.20—Disclosure Requirements Regarding PostConsummation Events, revise 20(a) Refinancings. ■ c. Under Section 1026.40— Requirements for Home-Equity Plans, revise Paragraph 40(f)(3)(ii), Paragraph 40(f)(3)(ii)(A), and Paragraph 40(f)(3)(ii)(B). ■ d. Under Section 1026.55— Limitations on Increasing Annual Percentage Rates, Fees, and Charges, revise 55(b)(7) Index replacement and margin change exception, Paragraph 55(b)(7)(i), and Paragraph 55(b)(7)(ii). ■ e. Under Section 1026.59— Reevaluation of Rate Increases, revise 59(f) Termination of Obligation to Review Factors. The revisions and additions read as follows: § 1026.59 Supplement I to Part 1026—Official Interpretations Reevaluation of rate increases. ddrumheller on DSK120RN23PROD with RULES3 * * * * * (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 § 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 Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, must use the index value on the first date that index is published, as the index values to use to determine the replacement formula. * * * * * ■ 6. In Supplement I to part 1026: ■ a. Under Section 1026.9—Subsequent Disclosure Requirements, revise 9(c)(1) VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 * * * * * 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 § 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 § 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 § 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 § 1026.6(a) or increases the minimum payment, unless an exception under § 1026.9(c)(1)(ii) applies; for example, the creditor must give advance notice if the creditor initially disclosed a 25day 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 the Boardselected benchmark replacement for PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 30623 consumer loans in specified circumstances. If a creditor is replacing a LIBOR index with the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-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 Board-selected benchmark replacement for consumer loans has not been published at the time the creditor provides the changein-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) 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. See § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. * * * * * 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 § 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 § 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 the Boardselected benchmark replacement for consumer loans in specified circumstances. If a creditor is replacing a LIBOR index with the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the creditor is not changing the E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30624 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations 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 Board-selected benchmark replacement for consumer loans has not been published at the time the creditor provides the changein-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) 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. See § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. 3. Changing from a variable rate to a nonvariable 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 § 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 § 1026.9(c) if the creditor provides the disclosures required by § 1026.9(c)(2)(v)(B) or (c)(2)(v)(D) in connection with changing a variable rate to a lower nonvariable rate. Similarly, a creditor is not required to provide a notice under § 1026.9(c) when changing a variable rate to a lower nonvariable 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 § 1026.9(c) when changing a variable rate to a lower nonvariable rate in order to comply with § 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 § 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 § 1026.9(c) if the creditor provides the disclosures required by § 1026.9(c)(2)(v)(B) or (c)(2)(v)(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 § 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 § 1026.9(c) when changing a nonvariable rate to a lower variable rate in order to comply with § 1026.55(b)(4). See comment VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 55(b)(2)–4 regarding the limitations in § 1026.55(b)(2) on changing the rate that applies to a protected balance from a nonvariable 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 § 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 § 1026.9(c)(2)(iv) with a notice described in § 1026.9(g)(3). If a creditor is required to provide a notice described in § 1026.9(c)(2)(iv) and a notice described in § 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 § 1026.9(c)(2)(iv) when a variable rate is being changed to a nonvariable 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 § 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 § 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 § 1026.9(c)(2)(iv)(A)(1). 10. Terminology. See § 1026.5(a)(2) for terminology requirements applicable to disclosures required under § 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 PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 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 § 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, § 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. * * * * * 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. E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations 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 § 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 variablerate 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, 6month, or 12-month U.S. Dollar LIBOR index to the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index respectively because the replacement index is a comparable index to the corresponding U.S. Dollar LIBOR index. See § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. 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 § 1026.19(b) also must be given at that time. iv. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), 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 termrate being replaced. The types of relevant factors to establish if a replacement index could meet the ‘‘comparable’’ standard with VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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 Board-selected benchmark replacement for consumer loans is considered comparable with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 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 addon 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. * * * * * Section 1026.40—Requirements for HomeEquity Plans * * * * * Paragraph 40(f)(3)(ii) 1. Replacing LIBOR. A creditor may use either the provision in § 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 § 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 § 1026.40(f)(3)(ii)(A) to PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 30625 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 Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the creditor must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, 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 § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. 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 § 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 § 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 § 1026.40(f)(3)(ii)(A). If the creditor waits E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30626 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations until the LIBOR index used under the plan becomes unavailable to replace the LIBOR index, the creditor has the option of using § 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. Except for the Board-selected benchmark replacement for consumer loans defined in § 1026.2(a)(28), the historical fluctuations considered are 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, and no further determination is required. In order to use this prime rate as the replacement index for the 1-month or 3month U.S. Dollar LIBOR index, the creditor also must comply with the condition in § 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. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117–103, division U, and the Board’s implementing regulation, 12 CFR part 253, the Boardselected benchmark replacement for consumer loans to replace the 1-month, 3month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. As a result, the Board-selected benchmark replacement for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard for the LIBOR index tenor it replaces, and no further determination is required. In order to use the Board-selected benchmark replacement for consumer loans as the replacement index for the applicable LIBOR index, the creditor also must comply VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 with the condition in § 1026.40(f)(3)(ii)(A) that the Board-selected benchmark replacement for consumer loans 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. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), 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 termrate 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) 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. The Boardselected benchmark replacement for consumer loans is considered to meet the ‘‘historical fluctuations are substantially similar’’ standard with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 3. Substantially similar rate when LIBOR becomes unavailable. Under § 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 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 Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the creditor must use the index value on June 30, 2023, for the LIBOR index and, for the Boardselected benchmark replacement for consumer loans, 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 PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 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 § 1026.40(f)(3)(ii)(A), if a creditor uses the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3month, 6-month, or 12-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 § 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-interms notice under § 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. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the historical fluctuations considered are 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 E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations 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, and no further determination is required. In order to use this prime rate as the replacement index for the 1-month or 3month U.S. Dollar LIBOR index, the creditor also must comply with the condition in § 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. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117–103, division U, and the Board’s implementing regulation, 12 CFR part 253, the Boardselected benchmark replacement for consumer loans to replace the 1-month, 3month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. As a result, the Board-selected benchmark replacement for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard for the LIBOR index it replaces, and no further determination is required. In order to use the Board-selected benchmark replacement for consumer loans as the replacement index for the applicable LIBOR index, the creditor also must comply with the condition in § 1026.40(f)(3)(ii)(B) that the Board-selected benchmark replacement for consumer loans 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 § 1026.40(f)(3)(ii)(B), the creditor must use the index value on June 30, 2023, for the LIBOR index and, for the Boardselected benchmark replacement for consumer loans, 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. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the relevant factors to be considered in determining VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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 termrate 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) 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. The Boardselected benchmark replacement for consumer loans is considered to meet the ‘‘historical fluctuations are substantially similar’’ standard with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 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 § 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 § 1026.9(c)(1) disclosing a new margin of 12% for the variable rate pursuant to a written agreement under § 1026.40(f)(3)(iii), and this change in the margin becomes effective on January 1, 2022, pursuant to § 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 § 1026.9(c)(1), disclosing the replacement index and replacement margin for the variable rate that will be effective on April PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 30627 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 § 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 § 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 § 1026.40(f)(3)(ii)(B), if a creditor uses the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3month, 6-month, or 12-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 § 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% E:\FR\FM\11MYR3.SGM 11MYR3 30628 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations 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 § 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 ddrumheller on DSK120RN23PROD with RULES3 * * * * * 55(b)(7) Index Replacement and Margin Change Exception 1. Replacing LIBOR. A card issuer may use either the provision in § 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 § 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 § 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 VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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 Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Boardselected benchmark replacement for consumer loans, 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 § 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 § 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 § 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 § 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. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the historical fluctuations considered are 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 PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 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, and no further determination is required. In order to use this prime rate as the replacement index for the 1-month or 3month U.S. Dollar LIBOR index, the card issuer also must comply with the condition in § 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. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117–103, division U, codified at 12 U.S.C. 5803(e)(2), and the Board’s implementing regulation, 12 CFR 253.4(b)(2), the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. As a result, the Boardselected benchmark replacement for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard for the LIBOR index it replaces, and no further determination is required. In order to use the Board-selected benchmark replacement for consumer loans as the replacement index for the applicable LIBOR index, the card issuer also must comply with the condition in § 1026.55(b)(7)(i) that the Board-selected benchmark replacement for consumer loans 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. iii. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), 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 termrate 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) 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. The Boardselected benchmark replacement for E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations consumer loans is considered to meet the ‘‘historical fluctuations are substantially similar’’ standard with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. 2. Substantially similar rate when LIBOR becomes unavailable. Under § 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 Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, 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 § 1026.55(b)(7)(i), if a card issuer uses the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-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 § 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 VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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-interms notice under § 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. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the historical fluctuations considered are 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, and no further determination is required. In order to use this prime rate as the replacement index for the 1-month or 3month U.S. Dollar LIBOR index, the card issuer also must comply with the condition in § 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. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117–103, division U and the Board’s implementing PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 30629 regulation, 12 CFR part 253, the Boardselected benchmark replacement for consumer loans to replace the 1-month, 3month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. As a result, the Board-selected benchmark replacement for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard for the LIBOR index it replaces, and no further determination is required. In order to use the Board-selected benchmark replacement for consumer loans as the replacement index for the applicable LIBOR index, the card issuer also must comply with the condition in § 1026.55(b)(7)(ii) that the Board-selected benchmark replacement for consumers loans 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 § 1026.55(b)(7)(ii), the card issuer must use the index value on June 30, 2023, for the LIBOR index and, for the Board-selected benchmark replacement for consumer loans, 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. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), 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 termrate 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) 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. The Boardselected benchmark replacement for consumer loans is considered to meet the ‘‘historical fluctuations are substantially similar’’ standard with respect to the LIBOR tenor being replaced, and therefore, these factors need not be considered. E:\FR\FM\11MYR3.SGM 11MYR3 ddrumheller on DSK120RN23PROD with RULES3 30630 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations 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 § 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 § 1026.55(b)(3), a card issuer provides a change-in-terms notice under § 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 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 § 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 VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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 § 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 § 1026.55(b)(4), a card issuer provides a penalty rate notice under § 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 changein-terms notice under § 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 § 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 § 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 PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 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 § 1026.55(b)(7)(ii), if a card issuer uses the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3month, 6-month, or 12-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 § 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 § 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. * E:\FR\FM\11MYR3.SGM * * 11MYR3 * * Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations Section 1026.59—Reevaluation of Rate Increases ddrumheller on DSK120RN23PROD with RULES3 * * * * * 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, § 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 § 1026.9(c)(2)(v)(B), the review requirements in § 1026.59(a) do not apply. If a temporary rate is revoked such that the requirements of § 1026.59(a) apply, § 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 homesecured) 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 § 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 § 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 § 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 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. VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 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 § 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 § 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 § 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 § 1026.59 on January 1, 2013, and July 1, 2013, based on the factors described in § 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 § 1026.59(f), § 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 PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 30631 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 § 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 § 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 § 1026.59(f)(3), the card issuer must meet the conditions for selecting a replacement index that are described in § 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 § 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. Except for the Board-selected benchmark replacement for consumer loans as defined in § 1026.2(a)(28), the historical fluctuations considered are 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, and no further determination is required. By operation of the Adjustable Interest Rate (LIBOR) Act, Public Law 117–103, division U, codified at 12 U.S.C. 5803(e)(2), and the Board’s implementing regulation, 12 CFR 253.4(b)(2), the Board-selected benchmark replacement for consumer loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index has historical fluctuations substantially similar to those of the LIBOR index being replaced. See § 1026.2(a)(28) for the definition of the Board-selected benchmark replacement for consumer loans. E:\FR\FM\11MYR3.SGM 11MYR3 30632 Federal Register / Vol. 88, No. 91 / Thursday, May 11, 2023 / Rules and Regulations See also comment 55(b)(7)(ii)–1. As a result, the Board-selected benchmark replacement for consumer loans meets the ‘‘historical fluctuations are substantially similar’’ standard for the LIBOR index being replaced, and no further determination is required. Also, for purposes of § 1026.59(f)(3), a card issuer may select a replacement index that is newly established as described in § 1026.55(b)(7)(ii). * * * * * Rohit Chopra, Director, Consumer Financial Protection Bureau. [FR Doc. 2023–09129 Filed 5–10–23; 8:45 am] ddrumheller on DSK120RN23PROD with RULES3 BILLING CODE 4810–AM–P VerDate Sep<11>2014 20:10 May 10, 2023 Jkt 259001 PO 00000 Frm 00036 Fmt 4701 Sfmt 9990 E:\FR\FM\11MYR3.SGM 11MYR3

Agencies

CONSUMER FINANCIAL PROTECTION BUREAU

[Federal Register Volume 88, Number 91 (Thursday, May 11, 2023)]
[Rules and Regulations]
[Pages 30598-30632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09129]



[[Page 30597]]

Vol. 88

Thursday,

No. 91

May 11, 2023

Part V





Consumer Financial Protection Bureau





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





 12 CFR Part 1026





Facilitating the LIBOR Transition Consistent With the LIBOR Act 
(Regulation Z); Interim Final Rule

Federal Register / Vol. 88 , No. 91 / Thursday, May 11, 2023 / Rules 
and Regulations

[[Page 30598]]


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

CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1026

[Docket No. CFPB-2023-0030]
RIN 3170-AB19


Facilitating the LIBOR Transition Consistent With the LIBOR Act 
(Regulation Z)

AGENCY: Consumer Financial Protection Bureau.

ACTION: Interim final rule with request for public comment.

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

SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is 
issuing an interim final rule amending Regulation Z, which implements 
the Truth in Lending Act (TILA), to reflect the enactment of the 
Adjustable Interest Rate (LIBOR) Act (the LIBOR Act or Act) and its 
implementing regulation promulgated by the Board of Governors of the 
Federal Reserve System (Board). This interim final rule further 
addresses the planned cessation of most U.S. Dollar (USD) LIBOR tenors 
after June 30, 2023, by incorporating the Board-selected benchmark 
replacement for consumer loans into Regulation Z. This interim final 
rule conforms the terminology from the LIBOR Act and the Board's 
implementing regulation into relevant Regulation Z open-end and closed-
end credit provisions and also addresses treatment of the 12-month USD 
LIBOR index and its replacement index, including permitting creditors 
to use alternative language in change-in-terms notice content 
requirements for situations where the 12-month tenor of the LIBOR index 
is being replaced consistent with the LIBOR Act. The CFPB requests 
public comment on this interim final rule.

DATES: This interim final rule is effective May 15, 2023. Comments must 
be received on or before June 12, 2023.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2023-
0030 or RIN 3170-AB19, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include Docket No. CFPB-
2023-0030 or RIN 3170-AB19 in the subject line of the message.
     Mail/Hand Delivery/Courier: Comment Intake--LIBOR, c/o 
Legal Division Docket Manager, Consumer Financial Protection Bureau, 
1700 G Street NW, Washington, DC 20552. Because paper mail in the 
Washington, DC area and at the CFPB is subject to delay, commenters are 
encouraged to submit comments electronically.
    Instructions: The CFPB encourages the early submission of comments. 
All submissions must include the document title and docket number. 
Please note the number of the topic on which you are commenting at the 
top of each response (you do not need to address all topics). In 
general, all comments received will be posted without change to https://www.regulations.gov.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Proprietary information or sensitive personal information, such as 
account numbers or Social Security numbers, or names of other 
individuals, should not be included. Comments will not be edited to 
remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Krista Ayoub, Lanique Eubanks, Angela 
Fox, or Kristen Phinnessee, 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 Interim Final Rule

    The CFPB is issuing this interim final rule amending Regulation Z, 
which implements TILA, for both open-end and closed-end credit to make 
changes consistent with the LIBOR Act and its implementing regulation 
issued by the Board and further address the planned cessation of 
LIBOR.\1\ These changes amend and update the CFPB's Facilitating the 
LIBOR Transition (Regulation Z) final rule published in the Federal 
Register on December 8, 2021 (2021 LIBOR Transition Final Rule).\2\ In 
general, the interim final rule makes several conforming terminology 
changes to align with the LIBOR Act and the Board's implementing 
regulation. In the 2021 LIBOR Transition Final Rule, the CFPB generally 
had provided examples of certain indices, including spread-adjusted 
Secured Overnight Financing Rate (SOFR)-based indices, that may meet 
the applicable Regulation Z standards (referred to hereafter as SOFR-
based replacement indices) for the 1-month, 3-month, and 6-month tenors 
of USD LIBOR, but it reserved judgment about whether to include 
references to a 1-year (or 12-month) USD LIBOR index and its SOFR-based 
replacement index. The CFPB is now also conforming Regulation Z with 
the LIBOR Act and the Board's implementing regulation by adding such 
references with respect to the SOFR-based replacement for the 12-month 
tenor of LIBOR. This interim final rule does not in any way alter or 
modify the Bureau's determination in the 2021 LIBOR Transition Final 
Rule in relation to the prime rate as a replacement index. As discussed 
in part VI, this interim final rule will take effect on May 15, 2023. 
The CFPB solicits comment on this interim final rule.
---------------------------------------------------------------------------

    \1\ When amending the Official Interpretations, the Office of 
the Federal Register requires reprinting of certain sections being 
amended in their entirety rather than providing more targeted 
amendatory instructions. The sections of regulatory text and the 
Official Interpretations 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 interim final 
rule to the regulatory text and the Official Interpretations of 
Regulation Z. This redline can be found on the Bureau's website, at 
https://www.consumerfinance.gov/compliance/compliance-resources/other-applicable-requirements/libor-index-transition/. If any 
conflicts exist between the redline and the text of Regulation Z, 
its Official Interpretations, or this interim final rule, the 
documents published in the Federal Register are the controlling 
documents.
    \2\ 86 FR 69716 (Dec. 8, 2021).
---------------------------------------------------------------------------

A. Open-End Credit

    The CFPB is amending several open-end credit provisions in 
Regulation Z. First, the CFPB is changing the terminology used in the 
2021 LIBOR Transition Final Rule to make it consistent with terminology 
in the LIBOR Act and the Board's implementing regulation. Specifically, 
as discussed in further detail below, the CFPB is replacing all 
references to the ``index based on SOFR recommended by the Alternative 
Reference Rates Committee for consumer products'' with ``the Board-
selected benchmark replacement for consumer loans'' and adding a new 
definition for that term in Sec.  1026.2(a)(28). For this new 
definition and throughout this interim final rule, the CFPB is using 
the term 12-month tenor instead of the 1-year tenor with respect to the 
USD LIBOR index to align with the terminology used in the LIBOR Act and 
the Board's implementing regulation. These changes are set forth in 
Sec.  1026.40(f)(3)(ii) and related comments for home equity lines of 
credit (HELOCs) and in Sec.  1026.55(b)(7) and related comments for 
credit card accounts.
    Second, the CFPB is revising the Official Interpretations to 
incorporate the Board-selected benchmark replacement for consumer loans 
to replace the 12-month LIBOR index, as prescribed by the LIBOR Act and 
the Board's implementing regulation, as an index that has historical 
fluctuations

[[Page 30599]]

that are substantially similar to those of the 12-month USD LIBOR index 
it is intended to replace. Consistent with the LIBOR Act and the 
Board's implementing regulation, the Bureau's prior determination of 
the spread-adjusted indices based on SOFR recommended by the 
Alternative Reference Rates Committee (ARRC) is obsolete given that 
``the Board-selected benchmark replacement for consumer loans'' to 
replace 1-month, 3-month, and 6-month USD LIBOR indices is the same as 
the corresponding spread-adjusted index based on SOFR recommended by 
the ARRC for consumer products. These changes are set forth in Sec.  
1026.40(f)(3)(ii) and related comments for HELOCs and in Sec.  
1026.55(b)(7) and related comments for credit card accounts.
    Third, the CFPB is adding the Board-selected benchmark replacement 
for consumer loans that would replace the 12-month USD LIBOR index to 
the list of indices where a creditor is allowed to use an alternative 
method to disclose information about the periodic rate and annual 
percentage rate (APR) in change-in-terms notices for HELOCs and credit 
card accounts as a result of the replacement of the LIBOR index in 
certain circumstances. These changes are set forth in comment 9(c)(1)-4 
for HELOCs and in comment 9(c)(2)(iv)-2.ii for credit card accounts.
    Fourth, the CFPB is adding the Board-selected benchmark replacement 
for consumer loans that would replace the 12-month USD LIBOR index to 
the list of indices where a card issuer is allowed to use an 
alternative method for determining whether the card issuer can 
terminate its obligation under the credit card account rate 
reevaluation requirements where the rate applicable immediately prior 
to a rate increase was a variable rate calculated using a LIBOR index. 
The Bureau also deleted its prior determination in the Official 
Interpretations given that ``the Board-selected benchmark replacement 
for consumer loans'' to replace 1-month, 3-month, and 6-month USD LIBOR 
indices is the same as the corresponding spread-adjusted index based on 
SOFR recommended by the ARRC for consumer products. These changes are 
set forth in Sec.  1026.59(f)(3) and comment 59(f)-4.

B. Closed-End Credit

    The CFPB is also amending the closed-end credit provisions in 
Regulation Z. First, the CFPB is changing the terminology used in the 
CFPB's 2021 LIBOR Transition Final Rule to make it consistent with 
terminology in the LIBOR Act. Specifically, as discussed in further 
detail below, the CFPB is replacing the reference to the ``index based 
on SOFR recommended by the Alternative Reference Rates Committee for 
consumer products'' with a reference to ``the Board-selected benchmark 
replacement for consumer loans.'' Second, the CFPB is revising an 
illustrative example in the Official Interpretations to incorporate the 
Board-selected benchmark replacement for consumer loans to replace the 
12-month LIBOR index, as prescribed by the LIBOR Act, as an index that 
is comparable to the 12-month USD LIBOR index it is intended to replace 
for purposes of the closed-end refinancing provisions. These changes 
are set forth in comment 20(a)(3)-ii.B.

II. Background

A. Introduction--Consumer Products Using 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. In the United States, 
financial institutions have used LIBOR as a common benchmark rate for a 
variety of adjustable-rate consumer financial products, including 
mortgages, credit cards, HELOCs, reverse mortgages, 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 12-month USD LIBOR plus two percentage 
points.
    LIBOR is set to expire on June 30, 2023. 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.

B. CFPB's 2021 LIBOR Transition Final Rule

    On December 8, 2021, the CFPB issued the 2021 LIBOR Transition 
Final Rule generally to address the expected discontinuance of most 
U.S. Dollar (USD) tenors of LIBOR in June 2023.\3\ The 2021 LIBOR 
Transition Final Rule, among other things, amended open-end and closed-
end provisions of Regulation Z to provide examples of replacement 
indices to USD LIBOR tenors that meet certain Regulation Z standards.
---------------------------------------------------------------------------

    \3\ Id.
---------------------------------------------------------------------------

    For each of these open-end and closed-end provisions, while the 
CFPB generally provided examples of certain indices, including SOFR-
based replacement indices for 1-month, 3-month, and 6-month tenors of 
USD LIBOR, the CFPB reserved judgment about whether to include a SOFR-
based replacement index for the 1-year (now being referred to as 12-
month in this interim final rule) USD LIBOR index until it obtained 
additional information. The CFPB stated that once it knew which SOFR-
based index the ARRC would recommend to replace the 12-month USD LIBOR 
index for consumer products, the Bureau would consider determining 
whether the replacement index and replacement margin met the 
appropriate standards in Regulation Z and would then consider whether 
to codify that determination in a supplemental final rule, or otherwise 
announce that determination. Most provisions of the 2021 LIBOR 
Transition Final Rule were effective on April 1, 2022.\4\
---------------------------------------------------------------------------

    \4\ October 1, 2023, is the effective date for an amendment that 
removes two ``Legacy'' post-consummation change-in-terms forms H-
4(D)(2) and H-4(D)(4) in appendix H of part 1026 that still 
reference LIBOR, and prevents these two forms from being used to 
demonstrate compliance with part 1026.20.
---------------------------------------------------------------------------

C. The LIBOR Act

    On March 15, 2022, Congress enacted the LIBOR Act as part of the 
Consolidated Appropriations Act, 2022.\5\ Among other things, the LIBOR 
Act provides that the Board may identify a replacement index based on 
SOFR published by the Federal Reserve Bank of New York (or a successor 
administrator), including tenor spread adjustments, to replace the 1-
month, 3-month, 6-month, and 12-month tenors of USD LIBOR for any LIBOR 
contracts that do not otherwise specify a replacement rate fallback 
provision or method for selecting a fallback rate.\6\ The LIBOR Act 
(and the Board's subsequent final rule, discussed below) identify these 
replacement indices as the ``Board-selected benchmark replacement'' 
index.\7\
---------------------------------------------------------------------------

    \5\ Public Law 117-103, div. U, 136 Stat. 825 (2022).
    \6\ LIBOR Act section 104, 136 Stat. 828.
    \7\ LIBOR Act section 103(6), 136 Stat. 826. See also 12 CFR 
253.2 and 253.4.
---------------------------------------------------------------------------

    The LIBOR Act provides certain safe harbors for use of a Board-
selected benchmark replacement for consumer loans, including stating 
that the Board-

[[Page 30600]]

selected benchmark replacements constitute replacement indices that 
have historical fluctuations that are substantially similar to those of 
LIBOR for purposes of TILA \8\ and regulations promulgated under that 
statute.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 1601 et seq.
    \9\ Safe harbors provided by the LIBOR Act include, among other 
things, determination that use of the identified replacement indices 
constitute a reasonable, comparable, or analogous rate, index, or 
term for LIBOR, a replacement that is based on a methodology or 
information that is similar or comparable to LIBOR, and a 
replacement that has historical fluctuations that are substantially 
similar to those of LIBOR for purposes of TILA and its implementing 
regulations. See LIBOR Act section 105(a), 136 Stat. 830. 
Additionally, the safe harbors from the LIBOR Act provide that use 
of the identified replacement indices do not constitute, among other 
things, a breach of a LIBOR contract. See LIBOR Act section 105(b), 
136 Stat. 830. Further, the LIBOR Act provides that creditors using 
the identified replacement indices under the specified conditions in 
the Act shall not be subject to any claim or cause of action in law 
or equity or request for equitable relief, or have liability for 
damages, arising out of the selection or use of the identified 
replacement index in the Act and the implementation of the 
identified changes in the Act. See LIBOR Act section 105(c), 136 
Stat. 830.
---------------------------------------------------------------------------

D. Board's 2022 LIBOR Act Final Rule

    The Board issued a final rule to implement the LIBOR Act on 
December 16, 2022, effective February 27, 2023 (Board's 2022 LIBOR Act 
Final Rule).\10\ Among other things, the Board's final rule established 
benchmark replacements for contracts governed by U.S. law that 
reference certain tenors of USD LIBOR, including those of 1-month, 3-
month, 6-month,\11\ and 12-month tenors, that do not have terms that 
provide for the use of a clearly defined and practicable replacement 
benchmark rate following the cessation of LIBOR.\12\ The LIBOR Act, and 
the Board's implementing regulation, provide for certain adjustments in 
general for LIBOR contracts and more specifically for LIBOR contracts 
that are consumer loans. Consistent with LIBOR Act, the final rule 
identified each of those indices as a ``Board-selected benchmark 
replacement'' for consumer loans, thereby meeting the safe harbor 
criteria in the LIBOR Act.
---------------------------------------------------------------------------

    \10\ 88 FR 5204 (Jan. 26, 2023).
    \11\ While the Board uses ``one-, three-, and six-month'' to 
describe these tenors of USD LIBOR, for consistency with this 
interim final rule, this notice refers to those tenors as 1-month, 
3-month, or 6-month tenors, respectively.
    \12\ 12 CFR 253.4(b)(2).
---------------------------------------------------------------------------

    The final rule provided that the Board-selected benchmark 
replacements for LIBOR contracts that are consumer loans using 1-month, 
3-month, 6-month, or 12-month tenors of USD LIBOR during the one-year 
period beginning on the LIBOR replacement date shall be the 
corresponding 1-month, 3-month, 6-month, or 12-month CME Term SOFR plus 
an amount that transitions linearly for each business day during that 
period from the difference between the relevant CME Term SOFR and the 
relevant LIBOR tenor determined as of the day immediately before the 
LIBOR replacement date to the applicable tenor spread adjustment 
identified in the final rule.\13\ After expiration of that first-year 
period, the rule provided that the Board-selected benchmark 
replacements shall be the corresponding 1-month, 3-month, 6-month, or 
12-month CME Term SOFR plus the applicable tenor spread adjustment 
identified in the final rule.\14\ Effectively, the Board-selected 
benchmark replacements for LIBOR contracts that are consumer loans as 
set forth in the Board's final rule are the indices based on SOFR 
recommended by the ARRC for consumer products for the 1-month, 3-month, 
6-month and 12-month USD LIBOR tenors.\15\
---------------------------------------------------------------------------

    \13\ 12 CFR 253.4(b)(2)(i)(B).
    \14\ 12 CFR 253.4(b)(2)(ii)(B).
    \15\ Alt. Reference Rates Comm., ARRC Recommended Fallbacks for 
Implementation of its Hardwired Fallback Language (Mar. 15, 2023), 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2023/ARRC-statement-on-1-3-6-12-month-USD-LIBOR.pdf.
---------------------------------------------------------------------------

III. Legal Authority

A. Section 1022 of the Dodd-Frank Act

    The CFPB is issuing this interim final rule under Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank Act) section 
1022(b)(1) \16\ and TILA section 105(a). Dodd-Frank Act section 
1022(b)(1) authorizes the CFPB 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 thereof.'' \17\ Section 1022(b)(1) of the Dodd-Frank 
Act also authorizes the CFPB 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 thereof.'' \18\ Among other statutes, Title X of the 
Dodd-Frank Act and TILA are Federal consumer financial laws.\19\ 
Accordingly, in issuing this interim final rule, the CFPB 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.
---------------------------------------------------------------------------

    \16\ Public Law 111-203, section 1022(b)(1), 124 Stat. 1376, 
1980 (2010).
    \17\ 12 U.S.C. 5512(b)(1).
    \18\ Id.
    \19\ Dodd-Frank Act section 1002(14), 123 Stat. 1957 (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)(O), 123 Stat. 1957 (defining 
``enumerated consumer laws'' to include TILA).
---------------------------------------------------------------------------

B. The Truth in Lending Act

    TILA section 105(a), as amended by the Dodd-Frank Act, directs the 
CFPB 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 CFPB, are necessary or 
proper to effectuate the purposes of TILA, to prevent circumvention or 
evasion thereof, or to facilitate compliance.\20\ 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 1604(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 CFPB's section 105(a) 
authority by amending that section to provide express authority to 
prescribe regulations that contain ``additional requirements'' that the 
CFPB 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) authority 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).\21\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 1602(bb).
---------------------------------------------------------------------------

    For the reasons discussed in this document, the CFPB is amending 
Regulation Z with respect to certain provisions that impact the 
transition from LIBOR indices to other indices to carry out TILA's 
purposes, including such additional requirements, adjustments, and 
exceptions as, in the CFPB's judgment, are necessary and proper to 
carry out the purposes of TILA, prevent circumvention or evasion

[[Page 30601]]

thereof, or to facilitate compliance. In developing these aspects of 
this rule pursuant to its authority under TILA section 105(a), the CFPB 
has considered the purposes of TILA, including ensuring meaningful 
disclosures, facilitating consumers' ability to compare credit terms, 
and helping consumers avoid the uninformed use of credit, and the 
findings of TILA, including strengthening competition among financial 
institutions and promoting economic stabilization.

IV. Administrative Procedure Act

    The Administrative Procedure Act (APA) does not require notice and 
opportunity for public comment if an agency for good cause finds that 
notice and public comment are impracticable, unnecessary, or contrary 
to the public interest.\22\ Similarly, publication of this interim 
final rule at least 30 days before its effective date is not required 
where the CFPB has identified good cause for a different effective 
date.\23\
---------------------------------------------------------------------------

    \22\ 5 U.S.C. 553(b)(B).
    \23\ 5 U.S.C. 553(d)(3).
---------------------------------------------------------------------------

    The CFPB finds that prior notice and public comment are unnecessary 
given the specific nature of the changes contained in this interim 
final rule.
    First, this interim final rule makes technical changes to conform 
the nomenclature of Regulation Z to the nomenclature of the LIBOR Act 
and the Board's implementing regulation. Most notably, this interim 
final rule substitutes the phrase ``the Board-selected benchmark 
replacement for consumer loans'' for the phrase ``spread-adjusted 
indices based on SOFR recommended by the ARRC for consumer products.'' 
As discussed in part II, in the context of consumer loans, the two 
phrases are synonymous. In light of the LIBOR Act and the Board's 
implementing regulation, there is minimal, if any, basis for 
substantive disagreement regarding this replacement of superseded 
nomenclature.
    Second, this interim final rule acknowledges the determinations 
made by Congress in the LIBOR Act that the Board-selected benchmark 
replacements for consumer loans are comparable indices and, for 
purposes of Regulation Z, have ``historical fluctuations that are 
substantially similar'' to the LIBOR indices they replace.\24\ The 
enactment of the LIBOR Act and the Board's implementing rule resolved 
the ambiguity that existed at the time the CFPB issued its 2021 LIBOR 
Transition Final Rule as to which, if any, SOFR-based replacement index 
for the 12-month (formerly called the 1-year) tenor would meet these 
standards. That is the issue that the CFPB needed to reserve judgment 
about at the time it issued its 2021 LIBOR Transition Final Rule 
because the ARRC had not yet recommended a SOFR-based replacement index 
for that tenor; thus, there was no such tenor for the CFPB to analyze 
at the time. In light of the LIBOR Act and the Board's implementing 
regulation, the applicable 1-month, 3-month, 6-month, and 12-month 
tenor of the Board-selected benchmark replacements for consumer loans 
meet the relevant standards; there is minimal, if any, basis for 
substantive disagreement on this issue.
---------------------------------------------------------------------------

    \24\ 12 U.S.C. 5804(a)(2), (3), (5).
---------------------------------------------------------------------------

    Third, and closely related to the first three changes, this interim 
final rule removes prior Bureau determinations that were rendered 
obsolete by the LIBOR Act and the Board's implementing regulation. 
These determinations concerned the comparability of, and the 
substantial similarity of the historical fluctuations of, the spread-
adjusted index based on SOFR recommended by the ARRC for consumer 
products compared to the LIBOR index it would replace. See comments 
40(f)(3)(ii)(A)-2.ii, 40(f)(3)(ii)(B)-1.ii, 55(b)(7)(i)-1.ii., 
55(b)(7)(ii)-1.ii, and 59(f)-4. But, as discussed above, the spread-
adjusted indices based on SOFR recommended by the ARRC for consumer 
products are the same as ``the Board-selected benchmark replacement for 
consumer loans.'' In light of the LIBOR Act and the Board's 
implementing regulation, there is minimal, if any, basis for 
substantive disagreement on this issue.
    Fourth, the CFPB's 2021 LIBOR Transition Proposed Rule already 
solicited comment on the substance of most of the provisions that are 
now amended by this interim final rule, making further notice and 
comment on them duplicative. Specifically, the proposed rule solicited 
comment on determining that the spread-adjusted index based on SOFR 
recommended by the ARRC for consumer products for 1-month, 3-month, 6-
month, and 1-year or 12-month LIBOR would be comparable to, and have 
historical fluctuations that substantially similar to, the LIBOR index 
it would replace.\25\ The CFPB's 2021 LIBOR Transition Final Rule, 
promulgated after notice and an opportunity for public comment, made 
such determinations with respect to the 1-month, 3-month, and 6-month 
tenors, but explained in the preamble that the Bureau was reserving 
judgment on making such determinations with respect to the 1-year or 
12-month tenor, leaving those determinations open until the CFPB 
obtained further information.\26\ The need for further information has 
since been obviated by the determinations made by Congress in the LIBOR 
Act discussed above.
---------------------------------------------------------------------------

    \25\ See 85 FR 36938, 36945-47, 36972, 36987, 36994 (June 18, 
2020).
    \26\ See 86 FR 69716, 69723, 69730 (Dec. 8, 2021).
---------------------------------------------------------------------------

    The CFPB also finds good cause to waive the 30-day delay in 
effective date. The CFPB is cognizant of the need for these amendments 
to take effect quickly and thereby remove any confusion that may exist 
after the Board's regulations implementing the LIBOR Act became 
effective on February 27, 2023. In particular, making this interim 
final rule effective at least 45 days prior to the planned cessation of 
LIBOR on June 30, 2023, is necessary to ensure that consumers with 
credit card accounts currently using a LIBOR index can receive timely 
change-in-terms notices when their account is changed to the Board-
selected benchmark replacement.

V. Section-by-Section Analysis

Section 1026.2 Definitions and Rules of Construction

2(a) Definitions
2(a)(28) The Board-Selected Benchmark Replacement for Consumer Loans
    This interim final rule adds ``the Board-selected benchmark 
replacement for consumer loans'' as a new defined term in Sec.  
1026.2(a)(28) to reference a specific replacement index for consumer 
products when LIBOR becomes unavailable. As discussed in part II above, 
the LIBOR Act and the Board's implementing regulation defined ``Board-
selected benchmark replacement'' to mean a benchmark replacement 
identified by the Board that is based on SOFR, including any tenor 
spread adjustment by the Board.\27\ The LIBOR Act, and the Board's 
implementing regulation, provide for certain adjustments in general for 
LIBOR contracts and more specifically for LIBOR contracts that are 
consumer loans. Accordingly, for purposes of promoting the informed use 
of consumer credit under Regulation Z, the CFPB is creating a new term 
that is specific to consumer loans. New Sec.  1026.2(a)(28) defines 
``the Board-selected benchmark replacement for consumer loans'' as the 
SOFR-based index selected by the Board, to replace, as applicable, the 
1-month, 3-month, 6-month, or 12-month tenors of USD LIBOR and uses the 
term 12-month tenor instead of 1-year tenor to align with the 
terminology used in the LIBOR

[[Page 30602]]

Act and the Board's implementing regulation. The definition references 
the LIBOR Act and the Board's implementing rule for additional clarity. 
The Board-selected benchmark replacements for consumer loans are tenors 
of the USD IBOR Cash Fallback index for consumer products, which uses 
the same methodology that the ARRC recommended for SOFR-based 
replacement indices for consumer products.\28\ As such, these terms 
identify the same index, and the addition of the new defined term and 
cross-references to it throughout this interim final rule are merely 
for consistency with the Act and ease of reading. The CFPB solicits 
feedback on these changes of the interim final rule.
---------------------------------------------------------------------------

    \27\ LIBOR Act section 104(e), 136 Stat. 829 (codified at 12 
U.S.C. 5803(e)); 12 CFR 253.4.
    \28\ See 88 FR 5204, 5211-15 (Jan. 26, 2023); see also Alt. 
Reference Rates Comm., ARRC Recommended Fallbacks for Implementation 
of its Hardwired Fallback Language (Mar. 15, 2023), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2023/ARRC-statement-on-1-3-6-12-month-USD-LIBOR.pdf.
---------------------------------------------------------------------------

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 creditor must mail or deliver the notice 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 creditor must give the notice, however, before the 
effective date of the change.
    A creditor 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.\29\
---------------------------------------------------------------------------

    \29\ 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).
---------------------------------------------------------------------------

    Comment 9(c)(1)-4 provides that if: (1) 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''; (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 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, then 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 APR (as calculated using the replacement index), 
based on the best information reasonably available, clearly stating 
that the disclosure is an estimate. Comment 9(c)(1)-4 provides the 
example that, in this situation, 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.
    For the reasons discussed below, the CFPB is making several changes 
to comment 9(c)(1)-4. First, the CFPB is replacing references to the 
spread-adjusted index based on SOFR recommended by the ARRC for 
consumer products with the new term ``the Board-selected benchmark 
replacement for consumer loans'' to align terminology in the rule with 
the LIBOR Act and the Board's 2022 LIBOR Act Final Rule. As discussed 
in the section-by-section analysis for Sec.  1026.2(a)(28), this 
interim final rule also defines the term ``the Board-selected benchmark 
replacement for consumer loans.'' Revised comment 9(c)(1)-4 includes a 
cross-reference to that definition. As discussed above, these terms 
identify the same index, and the change is merely for consistency with 
the Act and ease of reading.
    Second, the CFPB is expanding comment 9(c)(1)-4 to include a 
replacement index for the 12-month USD LIBOR, which was not previously 
addressed in the 2021 LIBOR Transition Final Rule. As discussed in the 
Background section, in the 2021 LIBOR Transition Final Rule, the CFPB 
generally provided examples of SOFR-based replacement indices for the 
1-month, 3-month, and 6-month tenors of USD LIBOR, but reserved 
judgment about whether to include a reference to the 12-month (formerly 
called the 1-year) USD LIBOR index in comment 9(c)(1)-4 until it 
obtained additional information. Since the CFPB promulgated the 2021 
LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board 
issued its final rule implementing the Act. By operation of the LIBOR 
Act, all tenors of the Board-selected benchmark replacement constitute 
a ``comparable index'' to, and have ``historical fluctuations that are 
substantially similar to'' the LIBOR tenors they replace.\30\ Thus, the 
CFPB is revising comment 9(c)(1)-4 to also apply to the replacement of 
the 12-month USD LIBOR index with the Board-selected benchmark 
replacement for consumer loans, facilitating compliance with the 
advance notice requirements for change-in-terms notices.
---------------------------------------------------------------------------

    \30\ LIBOR Act section 105(a)(2), (3) and (5), 136 Stat. 830.
---------------------------------------------------------------------------

    While section 104(f) of the LIBOR Act provides that nothing in the 
Act ``may be construed to alter or impair-- . . . (5) any provision of 
Federal consumer financial law that--(A) requires creditors to notify 
borrowers regarding a change-in-terms,'' the CFPB is not relying on the 
LIBOR Act for authority to revise comment 9(c)(1)-4. However, in this 
unique circumstance, the CFPB has previously stated a need to permit 
creditors permission to provide estimates for change-in-terms notices, 
and interprets Sec.  1026.5(c) to be consistent with revised comment 
9(c)(1)-4 in doing so. 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. Because of the unique circumstances of the LIBOR transition, 
the CFPB previously amended comment 9(c)(1)-4 to provide permit 
creditors the ability to provide estimates for disclosures previously 
excluded from Sec.  1026.5(c). The revisions to comment 9(c)(1)-4 in 
this interim final rule are consistent with this reasoning. Thus, the 
revisions to comment 9(c)(1)-4 are consistent with revisions discussed 
below that provide

[[Page 30603]]

that if a creditor uses the Board-selected benchmark replacement for 
consumer loans to replace 12-month USD LIBOR 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.\31\
---------------------------------------------------------------------------

    \31\ See comments 40(f)(3)(ii)(A)-3 and (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.
---------------------------------------------------------------------------

    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, the 
Board-selected benchmark replacement for consumer loans to replace the 
12-month USD LIBOR, like the 1-month, 3-month, and 6-month USD LIBOR 
replacement tenors, 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. The 
revisions to comment 9(c)(1)-4 are 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 Board-selected benchmark 
replacement for consumer loans to replace 12-month USD LIBOR being 
published, so that creditors are not left without an index to use on 
the account after the Board-selected benchmark replacement for consumer 
loans to replace 12-month USD LIBOR is published, but before it becomes 
effective on the account.
    As is the case for the Board-selected benchmark replacements for 
consumer loans for 1-month, 3-month, and 6-month USD LIBOR tenors, the 
Bureau has determined that the information described in revised comment 
9(c)(1)-4 sufficiently notifies consumers of the estimated periodic 
rate and APR as calculated using the Board-selected benchmark 
replacement for consumer loans to replace 12-month USD LIBOR, even 
though the Board-selected benchmark replacement for consumer loans is 
not being published at the time the notice is sent, as long as the 
Board-selected benchmark replacement for consumer loans is published by 
the time the replacement of the index takes effect on the account. 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. The CFPB solicits comment on 
these changes in the interim final rule.
9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans
9(c)(2)(iv) Disclosure Requirements
    TILA section 127(i)(1), which was added by the Credit CARD Act of 
2009,\32\ 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.\33\ 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 CFPB, in 
terms (other than APRs) of the cardholder agreement not later than 45 
days prior to the effective date of the change.\34\
---------------------------------------------------------------------------

    \32\ Public Law 111-24, 123 Stat. 1734 (2009).
    \33\ 15 U.S.C. 1637(i)(1).
    \34\ 15 U.S.C. 1637(i)(2).
---------------------------------------------------------------------------

    Section 1026.9(c)(2)(i)(A) provides that for open-end 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, in relevant part, a change in the terms 
required to be disclosed under Sec.  1026.6(b)(1) and (2), an increase 
in the required minimum periodic payment, or a change to a term 
required to be disclosed under Sec.  1026.6(b)(4). The index that is 
replacing the LIBOR index pursuant to Sec.  1026.55(b)(7)(i) or Sec.  
1026.55(b)(7)(ii) is a disclosure required under Sec.  
1026.6(b)(2)(i)(A) and (4)(ii)(B) and thus, is a term that meets the 
definition of a ``significant change in account terms.'' As a result, a 
creditor must provide a change-in-terms notice disclosing the index 
that is replacing the LIBOR index.
    Section 1026.9(c)(2)(iv) provides the disclosure requirements for 
this written notice. Comment 9(c)(2)(iv)-2.i provides details about the 
general disclosure requirements if the creditor is changing the index 
use to calculate a variable rate. 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.\35\
---------------------------------------------------------------------------

    \35\ 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.
---------------------------------------------------------------------------

    Comment 9(c)(2)(iv)-2.ii provides additional details on how a 
creditor may comply with the disclosure requirements under Sec.  
1026.9(c)(2)(iv) 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. This comment provides that if: (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 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, then the 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. Comment 
9(c)(2)(iv)-2.ii provides the example that, in this situation, 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.

[[Page 30604]]

    For the reasons discussed below, the CFPB is making several changes 
to comment 9(c)(2)(iv)-2.ii. First, the CFPB is replacing references to 
the spread-adjusted index based on SOFR recommended by the ARRC for 
consumer products with the new term ``the Board-selected benchmark 
replacement for consumer loans'' to align terminology in the rule with 
the LIBOR Act and the Board's 2022 LIBOR Act Final Rule. As discussed 
in the section-by-section analysis for Sec.  1026.2(a)(28), this 
interim final rule also defines the term ``the Board-selected benchmark 
replacement for consumer loans.'' Revised comment 9(c)(2)(iv)-2.ii 
includes a cross-reference to that definition. As discussed above, 
these terms identify the same index, and the change is merely for 
consistency with the Act and ease of reading.
    Second, the CFPB is expanding comment 9(c)(2)(iv)-2.ii to include a 
replacement index for the 12-month USD LIBOR, which was not previously 
addressed in the 2021 LIBOR Transition Final Rule. As discussed in the 
Background section, in the 2021 LIBOR Transition Final Rule, the CFPB 
generally provided examples of SOFR-based replacement indices for 1-
month, 3-month, and 6-month tenors of USD LIBOR, but reserved judgment 
about whether to include a reference to the 12-month (formerly called 
the 1-year) USD LIBOR index in comment 9(c)(2)(iv)-2.ii until it 
obtained additional information. Since the CFPB promulgated the 2021 
LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board 
issued its final rule implementing the Act. By operation of the LIBOR 
Act, all tenors of the Board-selected benchmark replacements constitute 
a ``comparable index'' to, and have ``historical fluctuations that are 
substantially similar to'' the LIBOR tenors they replace.\36\ Thus, the 
CFPB is revising comment 9(c)(2)(iv)-2.ii to also apply to the 
replacement of the 12-month USD LIBOR index with the Board-selected 
benchmark replacement for consumer loans, facilitating compliance with 
the advance notice requirements for change-in-terms notices.
---------------------------------------------------------------------------

    \36\ LIBOR Act section 105(a)(2), (3) and (5), 136 Stat. 830.
---------------------------------------------------------------------------

    While section 104(f) of the LIBOR Act provides that nothing in the 
Act ``may be construed to alter or impair-- . . . (5) any provision of 
Federal consumer financial law that--(A) requires creditors to notify 
borrowers regarding a change-in-terms,'' the CFPB is not relying on the 
LIBOR Act for authority to revise comment 9(c)(2)(iv)-2.ii. Instead, in 
this unique circumstance, the CFPB interprets Sec.  1026.5(c) to be 
consistent with revised 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. Revised comment 
9(c)(2)(iv)-2.ii also is consistent with revisions discussed below that 
provide that if a creditor uses the Board-selected benchmark 
replacement for consumer loans to replace the 12-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 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.\37\
---------------------------------------------------------------------------

    \37\ See comments 55(b)(7)(i)-2 and (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, the 
Board-selected benchmark replacement for consumer loans to replace the 
12-month USD LIBOR index, like the 1-month, 3-month, and 6-month USD 
LIBOR replacement tenors, 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 interim 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 Board-selected benchmark 
replacement for consumer loans to replace the 12-month USD LIBOR index 
being published, so that creditors are not left without an index to use 
on the account after the Board-selected benchmark replacement for 
consumer loans to replace the 12-month USD LIBOR index is published, 
but before it becomes effective on the account.
    As is the case for the Board-selected benchmark replacements for 
consumer loans for 1-month, 3-month, and 6-month USD LIBOR tenors, the 
Bureau has determined that the information described in revised comment 
9(c)(2)(iv)-2.ii sufficiently notifies consumers of the estimated rate 
calculated using the Board-selected benchmark replacement for consumer 
loans to replace the 12-month USD LIBOR index, even though the Board-
selected benchmark replacement for consumer loans to replace the 12-
month USD LIBOR index is not being published at the time the notice is 
sent, as long as the Board-selected benchmark replacement for consumer 
loans to replace the 12-month USD LIBOR index is published by the time 
the replacement of the index takes effect on the account. 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. The CFPB solicits comment on these 
changes in the interim final rule.

Section 1026.20 Disclosure Requirements Regarding Post-Consummation 
Events 20(a) Refinancings

    Section 1026.20 includes disclosure requirements regarding post-
consummation events for closed-end credit. Section 1026.20(a) and its 
Official Interpretations 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. 
The comment also includes an illustrative example which provides 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

[[Page 30605]]

replacement index is a comparable index to the corresponding USD LIBOR 
index.\38\ Comment 20(a)-3.iv provides examples of the types of factors 
that may need to be considered to determine whether a replacement index 
is comparable to a particular LIBOR index for closed-end transactions.
---------------------------------------------------------------------------

    \38\ By ``corresponding USD LIBOR index,'' the Bureau meant the 
specific USD LIBOR index for which the ARRC recommended 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.
---------------------------------------------------------------------------

    For the reasons discussed below, the CFPB is making several changes 
to comment 20(a)-3.ii.B. First, the CFPB is replacing references to the 
term spread-adjusted index based on SOFR recommended by the ARRC for 
consumer products with the term ``the Board-selected benchmark 
replacement for consumer loans'' to align terminology in the rule with 
the LIBOR Act and the Board's 2022 LIBOR Act Final Rule. As discussed 
in the section-by-section analysis for Sec.  1026.2(a)(28), this 
interim final rule also defines the term ``the Board-selected benchmark 
replacement for consumer loans.'' Revised comment 20(a)-3.ii.B includes 
a cross-reference to that definition. As discussed above, these terms 
identify the same index, and the change is merely for consistency with 
the Act and ease of reading.
    Second, the CFPB is expanding language in the example set forth in 
comment 20(a)-3.ii.B to include a replacement index for the 12-month 
USD LIBOR, which was not previously addressed in the 2021 LIBOR 
Transition Final Rule. As discussed in the Background section, in the 
2021 LIBOR Transition Final Rule, the CFPB generally provided examples 
of SOFR-based replacement indices for 1-month, 3-month, and 6-month 
tenors of USD LIBOR, but reserved judgment about whether to include a 
reference to the 12-month (formerly called the 1-year) USD LIBOR index 
in comment 20(a)-3.ii.B until it obtained additional information. Since 
the CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR 
Act was enacted, and the Board issued its final rule implementing the 
Act. By operation of the LIBOR Act, all tenors of the Board-selected 
benchmark replacements are considered to constitute a ``comparable 
index,'' and have ``historical fluctuations that are substantially 
similar to,'' the LIBOR tenors they replace.\39\ As such, as with the 
existing examples in comment 20(a)-3.ii.B for the 1-month, 3-month, and 
6-month USD LIBOR tenors, in this interim final rule the CFPB is 
extending the example to also apply to the replacement of the 12-month 
USD LIBOR index with the Board-selected benchmark replacement for 
consumer loans to facilitate the LIBOR transition. The example in 
revised comment 20(a)-3.ii.B provides a creditor does not add a 
variable-rate feature by changing the index of a variable-rate 
transaction from the 12-month USD LIBOR tenor to the applicable tenor 
of the Board-selected benchmark replacement.
---------------------------------------------------------------------------

    \39\ LIBOR Act section 105(a)(2), (3) and (5), 136 Stat. 830.
---------------------------------------------------------------------------

    Third, the CFPB is revising comment 20(a)-3.iv by adding an 
exception for the Board-selected benchmark replacements for consumer 
loans, as defined in new Sec.  1026.2(a)(28). When using the Board-
selected benchmark replacement for consumer loans, a creditor need not 
consider the types of factors used to determine whether a replacement 
index is comparable to a particular LIBOR tenor for closed-end credit. 
Because the Board's final rule, in implementing the LIBOR Act, has 
determined that the Board-selected benchmark replacements for consumer 
loans are indices that are comparable to their respective LIBOR tenors, 
and the Bureau has determined in this interim final rule that this 
index meets Regulation Z's ``comparable'' standard with respect to a 
particular LIBOR index, the factors need not be considered. While the 
CFPB had already applied the factors to the SOFR-based 1-month, 3-
month, and 6-month LIBOR tenor replacement indices in its 2021 LIBOR 
Transition Final Rule, by operation of law, the factors now also need 
not be considered with respect to the Board-selected benchmark 
replacement for consumer loans for the 12-month LIBOR tenor in order 
for the index to satisfy Regulation Z's ``comparable'' standard. The 
CFPB solicits comments on these changes in the interim final rule.

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).\40\ 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.\41\ 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).
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 1647(c).
    \41\ 15 U.S.C. 1647(c)(2)(A).
---------------------------------------------------------------------------

    Section 1026.40(f)(3)(ii)(A) provides that a creditor may change 
the index and margin used under the HELOC 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. Section 1026.40(f)(3)(ii)(A) also provides 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. Section 1026.40(f)(3)(ii)(B) 
contains LIBOR-specific provisions that 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 April 1, 2022, in certain 
circumstances. 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.
    As discussed in more detail below in this section-by-section 
analysis, this interim final rule makes a number of changes with 
respect to Sec. Sec.  1026.40(f)(3)(ii), (f)(3)(ii)(A), (f)(3)(ii)(B), 
and related Official Interpretations. In general, it: (1) replaces 
references to the spread-adjusted index based on SOFR recommended by 
the ARRC for consumer products with the new defined term ``the Board-
selected benchmark replacement for consumer loans''; (2) replaces 
references to the 1-year USD LIBOR index with the 12-month USD LIBOR 
index; (3) expands the Official Interpretations to include a

[[Page 30606]]

replacement index for the 12-month USD LIBOR, which was not previously 
addressed in the 2021 LIBOR Transition Final Rule; (4) provides that 
the Board-selected benchmark replacements for consumer loans to replace 
1-month, 3-month, 6-month, and 12-month USD LIBOR indices have 
``historical fluctuations that are substantially similar to'' the LIBOR 
tenors they replace; (5) provides if the creditor selects to use the 
Board-selected benchmark replacement for consumer loans, the creditor 
must use the index value of this index and the LIBOR index from a 
specified timeframe in determining whether the APR is substantially 
similar; (6) updates guidance on determining whether a replacement 
index has historical fluctuations that are substantially similar to 
those of certain USD LIBOR indices in relation to the Board-selected 
benchmark replacement for consumer loans; and (7) explains when a 
creditor that uses the Board-selected benchmark replacement for 
consumer loans satisfies the condition that the replacement index and 
margin would have resulted in an APR substantially similar to the rate 
in effect at the time LIBOR becomes unavailable or calculated using the 
LIBOR index.
    Interaction among Sec.  1026.40(f)(3)(ii)(A) and (B) and 
contractual provisions. 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.\42\ It provides examples of when a creditor may 
use these provisions. 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 provided under comment 
40(f)(3)(ii)-1.i 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.
---------------------------------------------------------------------------

    \42\ For further details about these provisions, see the 
section-by-section analyses of Sec.  1026.40(f)(3)(ii)(A) and (B), 
infra.
---------------------------------------------------------------------------

    The CFPB is revising the example in comment 40(f)(3)(ii)-1.i by 
replacing references to the spread-adjusted index based on SOFR 
recommended by the ARRC for consumer products with the new term ``the 
Board-selected benchmark replacement for consumer loans'' to align 
terminology in the rule with the LIBOR Act and the Board's 2022 LIBOR 
Act Final Rule. As discussed above, this interim final rule also 
defines the term ``the Board-selected benchmark replacement for 
consumer loans.'' It means the SOFR-based index selected by the Board 
for consumer loans, as set forth in the LIBOR Act and the Board's 
implementing regulation, to replace, as applicable, the 1-month, 3-
month, 6-month, or 12-month tenors of USD LIBOR. Revised comment 
40(f)(3)(ii)-1.ii includes a cross-reference to this definition. For 
this new definition and throughout this interim final rule, the CFPB is 
using the term 12-month tenor instead of 1-year tenor to align with the 
terminology used in the LIBOR Act and the Board's implementing 
regulation. The Board-selected benchmark replacement for consumer loans 
is the USD IBOR Cash Fallback index for consumer products, which uses 
the same methodology that the ARRC recommended for SOFR-based 
replacement indices for consumer products.\43\ As such, these terms 
identify the same index, and the change is merely for consistency with 
the Act and ease of reading.
---------------------------------------------------------------------------

    \43\ See 88 FR 5204, 5211-15 (Jan. 26, 2023). See also Alt. 
Reference Rates Comm., Summary of the ARRC's Fallback 
Recommendations (Oct. 6, 2021), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/spread-adjustments-narrative-oct-6-2021. See also Alt. References Rates Comm., ARRC 
Recommended Fallbacks for Implementation of its Hardwired Fallback 
Language (Mar. 15, 2023), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2023/ARRC-statement-on-1-3-6-12-month-USD-LIBOR.pdf.
---------------------------------------------------------------------------

40(f)(3)(ii)(A)
    Section 1026.40(f)(3)(ii)(A) provides that a creditor may change 
the index and margin used under the HELOC 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. Section 1026.40(f)(3)(ii)(A) also provides 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. 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). It 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.
    The Board-selected benchmark replacements for consumer loans have 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. Comment

[[Page 30607]]

40(f)(3)(ii)(A)-2.ii provides a determination by the Bureau that 
effective April 1, 2022, 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.\44\ It provides that 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 APR substantially similar to the rate 
in effect at the time the LIBOR index became unavailable in order to 
use this SOFR-based spread-adjusted index for consumer products as the 
replacement index for the applicable LIBOR index.
---------------------------------------------------------------------------

    \44\ 86 FR 69716, 69743 & n.106 (Dec. 8, 2021) (acknowledging 
that while the spread-adjusted term SOFR rates have not always moved 
in tandem with LIBOR, the Bureau 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).
---------------------------------------------------------------------------

    The CFPB is making several changes to comments 40(f)(3)(ii)(A)-2, -
2.i, and -2.ii. First, as discussed in more detail in the section-by-
section analysis for Sec.  1026.40(f)(3)(ii) above, and for the reasons 
discussed therein, the CFPB is revising comment 40(f)(3)(ii)(A)-2.ii by 
replacing references to the spread-adjusted index based on SOFR 
recommended by the ARRC for consumer products with the new term ``the 
Board-selected benchmark replacement for consumer loans.'' Revised 
comment 40(f)(3)(ii)(A)-2.ii includes a cross-reference to this 
definition. Based on these changes, revised comment 40(f)(3)(ii)(A)-
2.ii provides that the creditor also must comply with the condition in 
Sec.  1026.40(f)(3)(ii)(A) requiring the Board-selected benchmark 
replacement for consumer loans and replacement margin would have 
resulted in an APR substantially similar to the rate in effect at the 
time the LIBOR index became unavailable.
    Second, the CFPB is expanding comment 40(f)(3)(ii)(A)-2.ii to 
include a replacement index for the 12-month USD LIBOR, which was not 
previously addressed in the 2021 LIBOR Transition Final Rule. Comment 
40(f)(3)(ii)(A)-2.ii does not discuss the 12-month (formerly called 1-
year) USD LIBOR.\45\ In the 2021 LIBOR Transition Final Rule, the CFPB 
generally provided examples of SOFR-based replacement indices for the 
1-month, 3-month, and 6-month tenors of USD LIBOR, but reserved 
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 obtained additional 
information. Since the CFPB promulgated the 2021 LIBOR Transition Final 
Rule, the LIBOR Act was enacted, and the Board issued its final rule 
implementing the Act. Section 105(a)(5) of the LIBOR Act provides that, 
for purposes of TILA and its implementing regulations, a Board-selected 
benchmark replacement and the selection or use of a Board-selected 
benchmark replacement as a benchmark replacement with respect to a 
LIBOR contract constitutes a replacement that has historical 
fluctuations that are substantially similar to those of the LIBOR index 
that it is replacing. The Board's regulation provides that for a LIBOR 
contract that is a consumer loan, the benchmark replacement shall be 
the corresponding 1-month, 3-month, 6-month, or 12-month CME Term SOFR 
plus the applicable amounts or tenor spread adjustment.\46\ The CFPB is 
relying on the determination in the LIBOR Act and the Board's 
implementing regulation that the Board-selected benchmark replacement 
for consumer loans has historical fluctuations that are substantially 
similar to the USD LIBOR tenor that it is replacing. Thus, the CFPB is 
revising comment 40(f)(3)(ii)(A)-2.ii to also apply this determination 
of the historical fluctuations substantially similar standard to the 
replacement of the 12-month USD LIBOR index with the Board-selected 
benchmark replacement for consumer loans.
---------------------------------------------------------------------------

    \45\ See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing 
comment 59(f)-4 and noting the Bureau's 2020 notice of proposed 
rulemaking proposed and solicited comment on allowing use of a 
specific replacement formula where the index change involved the 1-
year tenor in addition to the 1-month, 3-month, and 6-month tenors).
    \46\ 12 CFR 253.4(b)(2)(i)(B) and (ii)(B).
---------------------------------------------------------------------------

    Third, based on the LIBOR Act and the Board's implementing 
regulation, the Bureau is removing its prior determination that became 
effective April 1, 2022, concerning the spread-adjusted indices based 
on SOFR recommended by the ARRC for consumer products. By operation of 
the LIBOR Act and the Board's implementing regulation, all tenors of 
the Board-selected benchmark replacements have ``historical 
fluctuations that are substantially similar to'' the LIBOR tenors they 
replace.\47\ Thus, revised comment 40(f)(3)(ii)(A)-2.ii provides that 
the Board-selected benchmark replacement for consumer loans to replace 
the 1-month, 3-month, 6-month, and 12-month USD LIBOR indices has 
historical fluctuations that are substantially similar to USD LIBOR 
tenor they are replacing. The Bureau's prior determination is obsolete. 
The ``spread-adjusted indices based on SOFR recommended by the ARRC for 
consumer products'' are the same as ``the Board-selected benchmark 
replacement for consumer loans'' and the LIBOR Act determined that the 
latter has historical fluctuations that are substantially similar to 
the LIBOR tenors they replace. Removing this obsolete determination 
will avoid confusion.
---------------------------------------------------------------------------

    \47\ LIBOR Act section 105(a)(5), 136 Stat. 830.
---------------------------------------------------------------------------

    Fourth, to facilitate compliance, this interim final rule revises 
comment 40(f)(3)(ii)(A)-2 by specifying that the Board-selected 
benchmark replacements for consumer loans is an exception to the 
general requirement providing that the historical fluctuations 
considered when replacing a LIBOR index used under a plan are the 
historical fluctuations up through the earlier of 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. Accordingly, 
this interim final rule also revises comment 40(f)(3)(ii)(A)-2.ii to 
provide that no further determination is required that the Board-
selected benchmark replacements for consumer loans meets the 
``historical fluctuations are substantially similar'' standard. The 
changes to comment 40(f)(3)(ii)(A)-2 in relation to the Board-selected 
benchmark replacements for consumer loans do not alter or modify the 
Bureau's determination set forth in comment 40(f)(3)(ii)(A)-2.i in 
relation to the prime rate as the replacement index for the 1-month or 
3-month USD LIBOR index, except to provide that no further 
determination is needed that the prime rate published in the Wall 
Street Journal meets this standard for these tenors. The CFPB solicits 
comments on these changes in the interim final rule.
    Additional guidance on determining whether a replacement index has 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. In the 2021 LIBOR Transition Final Rule, the 
CFPB noted that commenters on the proposed rule had asked for 
additional guidance on

[[Page 30608]]

how to determine whether a replacement index has historical 
fluctuations that are substantially similar to those of a particular 
LIBOR index, including requesting that the CFPB provide a principles-
based standard for making such determinations. The CFPB did not set 
forth a principles-based standard at that time because these 
determinations are fact-specific, and they depend on the replacement 
index being considered and the LIBOR tenor being replaced. Instead, to 
facilitate compliance with Regulation Z, the CFPB added comment 
40(f)(3)(ii)(A)-2.iii to provide a non-exhaustive list of factors to be 
considered in making these determinations. Specifically, comment 
40(f)(3)(ii)(A)2.iii provides that the relevant factors to be 
considered depend on the replacement index being considered and the 
LIBOR index being replaced. Comment 40(f)(3)(ii)(A)-2.iii also provides 
that these determinations may need to consider certain aspects of the 
historical data itself for a particular replacement index. In the 2021 
LIBOR Transition Final Rule, the CFPB considered the relevant 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 CFPB is revising comment 40(f)(3)(ii)(A)-2.iii by adding an 
exception for the Board-selected benchmark replacements for consumer 
loans, as defined in new Sec.  1026.2(a)(28). When using the Board-
selected benchmark replacements for consumer loans, a creditor need not 
consider the types of factors used to determine whether a replacement 
index has historical fluctuations substantially similar to those of a 
particular LIBOR index. Because the Board's final rule, in implementing 
the LIBOR Act, has determined that the Board-selected benchmark 
replacements for consumer loans are replacement indices that have 
historical fluctuations that are substantially similar to their 
respective LIBOR tenors, and the CFPB has determined in this interim 
final rule that this index meets the Regulation Z ``historical 
fluctuations are substantially similar'' standard with respect to a 
particular LIBOR index, the factors need not be considered. While the 
CFPB had already applied the factors to the SOFR-based 1-month, 3-
month, and 6-month LIBOR tenor replacement indices in its 2021 LIBOR 
Transition Final Rule, by operation of law, the factors need not be 
considered with respect to the Board-selected benchmark replacement for 
consumer loans for the 12-month LIBOR tenor in order for the index to 
satisfy Regulation Z's ``historical fluctuations are substantially 
similar'' standard. The CFPB solicits comments on these changes in the 
interim final rule.
    Substantially similar rate when LIBOR becomes unavailable. Section 
1026.40(f)(3)(ii)(A) provides 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. Comment 40(f)(3)(ii)(A)-3 
provides that, for comparing rates, a creditor generally must use the 
value of the replacement index and the LIBOR index on the day that the 
LIBOR index becomes unavailable. It 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 under comment 40(f)(3)(ii)(A)-3 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)(A)-3 also states 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.
    The CFPB is making several changes to comment 40(f)(3)(ii)(A)-3. 
First, as discussed in more detail in the section-by-section analysis 
for Sec.  1026.40(f)(3)(ii) above, and for the reasons discussed 
therein, the CFPB is revising comment 40(f)(3)(ii)(A)-3 by replacing 
references to the spread-adjusted index based on SOFR recommended by 
the ARRC for consumer products with the new term ``the Board-selected 
benchmark replacement for consumer loans.''
    Second, the CFPB is expanding comment 40(f)(3)(ii)(A)-3 to include 
a replacement index for the 12-month USD LIBOR, which was not 
previously addressed in the 2021 LIBOR Transition Final Rule. Comment 
40(f)(3)(ii)(A)-3 does not discuss the 12-month (formerly called 1-
year) USD LIBOR. In the 2021 LIBOR Transition Final Rule, the CFPB 
generally provided examples of SOFR-based replacement indices for the 
1-month, 3-month, and 6-month tenors of USD LIBOR, but reserved 
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. Since the CFPB promulgated the 2021 LIBOR Transition Final 
Rule, the LIBOR Act was enacted, and the Board issued its final rule 
implementing the Act. Sections 105(a)(2), (a)(3), and (a)(5) of the 
LIBOR Act provide that, for purposes of TILA and its implementing 
regulations, a Board-selected benchmark replacement and the selection 
or use of a Board-selected benchmark replacement as a benchmark 
replacement with respect to a LIBOR contract constitutes a ``comparable 
index'' and ``has historical fluctuations that are substantially 
similar'' to those of the USD LIBOR index they are replacing. The 
Board's regulation provides that for a LIBOR contract that is a 
consumer loan, the benchmark replacement shall be the corresponding 1-
month, 3-month, 6-month, or 12-month CME Term SOFR plus the applicable 
amounts or tenor spread adjustment.\48\ The determination in the LIBOR 
Act and the Board's implementing regulation applies not only to the 
Board-selected benchmark replacement for consumer loans that is 
replacing the 1-month, 3-month, and 6-month USD LIBOR, but also to the 
Board-selected benchmark replacement for consumer loans that is 
replacing the 12-month tenor of LIBOR. Thus, the

[[Page 30609]]

CFPB is revising comment 40(f)(3)(ii)(A)-3 to provide that for purposes 
of Sec.  1026.40(f)(3)(ii)(A), if a creditor uses the Board-selected 
benchmark replacement for consumer loans to replace the 1-month, 3-
month, 6-month, or 12-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. The CFPB solicits comment on these changes of the 
interim final rule.
---------------------------------------------------------------------------

    \48\ 12 CFR 253.4(b)(2)(i)(B) and (ii)(B).
---------------------------------------------------------------------------

40(f)(3)(ii)(B)
    Section 1026.40(f)(3)(ii)(B) contains LIBOR-specific provisions 
that 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 
April 1, 2022, in certain circumstances. The CFPB explained in the 2021 
LIBOR Transition Final Rule how as a practical matter, Sec.  
1026.40(f)(3)(ii)(B) allows 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 allows those creditors 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.  1026.40(f)(3)(ii)(B) allows 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 CFPB 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.
    Section 1026.40(f)(3)(ii)(B) provides 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 April 1, 2022, 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 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 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. 
Section 1026.40(f)(3)(ii)(B) also 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. As set 
forth in Sec.  1026.40(f)(3)(ii)(B), 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)(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). It provides 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.
    The CFPB is making two changes to Sec.  1026.40(f)(3)(ii)(B). As 
discussed in more detail in the section-by-section analysis for Sec.  
1026.40(f)(3)(ii) above, and for the reasons discussed therein, the 
CFPB is revising Sec.  40(f)(3)(ii)(B) by replacing references to the 
spread-adjusted index based on SOFR recommended by the ARRC for 
consumer products with the new term ``the Board-selected benchmark 
replacement for consumer loans'' and is using the term 12-month tenor 
instead of 1-year tenor with respect to the USD LIBOR index.
    The Board-selected benchmark replacements for consumer loans have 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. Comment 40(f)(3)(ii)(B)-1.ii provides a 
determination by the Bureau that, effective April 1, 2022, 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)(B)-1.ii also provides that 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 satisfy 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. 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

[[Page 30610]]

similar to the rate based on the LIBOR index.
    For the same reasons as discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(A) with respect to revised comments 
40(f)(3)(ii)(A)-2, -2.i, and -2.ii, the interim final rule makes 
similar changes to comments 40(f)(3)(ii)(B)-1, -1.i, and -1.ii. First, 
the CFPB is revising comments 40(f)(3)(ii)(B)-1.ii by replacing 
references to the spread-adjusted index based on SOFR recommended by 
the ARRC for consumer products with the new term ``the Board-selected 
benchmark replacement for consumer loans.'' Revised comment 
40(f)(3)(ii)(B)-1.ii includes a cross-reference to this definition. 
Based on these changes, revised comment 40(f)(3)(ii)(B)-1.ii provides 
that the creditor also must comply with the condition in Sec.  
1026.40(f)(3)(ii)(B) requiring the Board-selected benchmark replacement 
for consumer loans and replacement margin to 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.
    Second, the CFPB is expanding comment 40(f)(3)(ii)(B)-1.ii to 
include a replacement index for the 12-month USD LIBOR not previously 
addressed in the 2021 LIBOR Transition Final Rule. Comment 
40(f)(3)(ii)(B)-1.ii does not discuss the 12-month (formerly called 1-
year) USD LIBOR.\49\ In the 2021 LIBOR Transition Final Rule, the CFPB 
generally provided examples of SOFR-based replacement indices for the 
1-month, 3-month, and 6-month tenors of USD LIBOR, but reserved 
judgment about whether to include a reference to the 1-year USD LIBOR 
index in comment 40(f)(3)(ii)(B)-1.ii. until it obtained additional 
information. Since the CFPB promulgated the 2021 LIBOR Transition Final 
Rule, the LIBOR Act was enacted, and the Board issued its final rule 
implementing the Act. Section 105(a)(5) of the LIBOR Act provides that, 
for purposes of TILA and its implementing regulations, a Board-selected 
benchmark replacement and the selection or use of a Board-selected 
benchmark replacement as a benchmark replacement with respect to a 
LIBOR contract constitutes a replacement that has historical 
fluctuations that are substantially similar to those of the LIBOR index 
that it is replacing. The Board's regulation provides that for a LIBOR 
contract that is a consumer loan, the benchmark replacement shall be 
the corresponding 1-month, 3-month, 6-month, or 12-month CME Term SOFR 
plus the applicable amounts or tenor spread adjustment.\50\ The CFPB is 
relying on the determination in the LIBOR Act and the Board's 
implementing regulation that the Board-selected benchmark replacements 
for consumer loans have historical fluctuations that are substantially 
similar to the USD LIBOR tenor they are replacing. Thus, the CFPB is 
revising comment 40(f)(3)(ii)(B)-1.ii to also apply this determination 
of the historical fluctuations substantially similar standard to the 
replacement of the 12-month USD LIBOR index with the Board-selected 
benchmark replacement for consumer loans.
---------------------------------------------------------------------------

    \49\ See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing 
comment 59(f)-4 and noting the Bureau's 2020 notice of proposed 
rulemaking proposed and solicited comment on allowing use of a 
specific replacement formula where the index change involved the 1-
year tenor in addition to the 1-month, 3-month, and 6-month tenors).
    \50\ 12 CFR 253.4(b)(2)(i)(B) and (ii)(B).
---------------------------------------------------------------------------

    Third, based on the LIBOR Act and the Board's implementing 
regulation, the Bureau is removing its prior determination that became 
effective April 1, 2022, concerning the spread-adjusted indices based 
on SOFR recommended by the ARRC for consumer products. By operation of 
the LIBOR Act and the Board's implementing regulation, all Board-
selected benchmark replacements have ``historical fluctuations that are 
substantially similar to'' the LIBOR tenors they replace.\51\ Thus, 
revised comment 40(f)(3)(ii)(B)-1.ii provides that the Board-selected 
benchmark replacement for consumer loans to the replace 1-month, 3-
month, 6-month, and 12-month USD LIBOR index has historical 
fluctuations that are substantially similar to USD LIBOR tenor they are 
replacing. The Bureau's prior determination is obsolete. The ``spread-
adjusted indices based on SOFR recommended by the ARRC for consumer 
products'' are the same as ``the Board-selected benchmark replacement 
for consumer loans'' and the LIBOR Act determined that the latter has 
historical fluctuations that are substantially similar to the LIBOR 
tenors they replace. Removing this obsolete determination will avoid 
confusion.
---------------------------------------------------------------------------

    \51\ LIBOR Act section 105(a)(5), 136 Stat. 830.
---------------------------------------------------------------------------

    Fourth, to facilitate compliance, this interim final rule revises 
comment 40(f)(3)(ii)(B)-1 by specifying that the Board-selected 
benchmark replacements for consumer loans are an exception to the 
general requirement providing that the historical fluctuations 
considered when replacing a LIBOR index under a plan are the historical 
fluctuations up through the relevant date set forth in comment 
40(f)(3)(ii)(B)-1. Accordingly, this interim final rule also revises 
comment 40(f)(3)(ii)(B)-1.ii to provide that no further determination 
is required that the Board-selected benchmark replacement for consumer 
loans meets the ``historical fluctuations are substantially similar'' 
standard. The changes to comment 40(f)(3)(ii)(B)-1 in relation to the 
Board-selected benchmark replacements for consumer loans do not alter 
or modify the Bureau's determination set forth in comment 
40(f)(3)(ii)(B)-1.i in relation to the prime rate as the replacement 
index for the 1-month or 3-month USD LIBOR index, except to provide 
that no further determination is needed that the prime rate published 
in the Wall Street Journal meets this standard for these tenors. The 
CFPB solicits comments on these changes of the interim final rule.
    Additional guidance on determining whether a replacement index has 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. For the same reasons as discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A) with respect 
to revised comment 40(f)(3)(ii)(A)-2.iii, the interim final rule makes 
similar changes to comment 40(f)(3)(ii)(B)-1.iii, which provides 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.
    The CFPB is making two changes to comment 40(f)(3)(ii)(B)-1.iii. 
First, the CFPB is making a technical correction in comment 
40(f)(3)(ii)(B)-1.iii to change ``substantial'' to ``substantially'' 
when considering the relevant factors in determining whether a 
replacement index has historical fluctuations substantially similar to 
those of a particular LIBOR index. Second, similar to changes in 
revised comment 40(f)(3)(ii)(A)-2.iii above, the CFPB is revising 
comment 40(f)(3)(ii)(B)-1.iii by adding an exception for the Board-
selected benchmark replacements for consumer loans, as defined in new 
Sec.  1026.2(a)(28). When using the Board-selected benchmark 
replacements for consumer loans, a creditor need not consider the types 
of factors that have historical fluctuations substantially similar to 
those of a particular LIBOR index. Because the Board's final rule, in 
implementing the LIBOR Act, has determined that the Board-selected 
benchmark replacements for consumer loans are indices that have 
historical fluctuations that are substantially similar to their 
respective LIBOR tenors,

[[Page 30611]]

and the CFPB has determined in this interim final rule that this index 
meets the Regulation Z ``historical fluctuations are substantially 
similar'' standard with respect to a particular LIBOR index, the 
factors need not be considered. While the CFPB had already applied the 
factors to the SOFR-based 1-month, 3-month, and 6-month LIBOR tenor 
replacement indices in its 2021 LIBOR Transition Final Rule, by 
operation of law, the factors need not be considered with respect to 
the Board-selected benchmark replacement for consumer loans for the 12-
month LIBOR tenor in order for the index to satisfy Regulation Z's 
``historical fluctuations are substantially similar'' standard. The 
CFPB solicits comments on these changes of the interim final rule.
    Substantially similar rate. Pursuant to Sec.  1026.40(f)(3)(ii)(B), 
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)(B)-3 also provides 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.
    For the same reasons discussed in the section-by-section analysis 
of Sec.  1026.40(f)(3)(ii)(A) above for revised comment 
40(f)(3)(ii)(A)-3, the CFPB is making several changes to comment 
40(f)(3)(ii)(B)-3. First, the CFPB is revising comment 40(f)(3)(ii)(B)-
3 by replacing references to the spread-adjusted index based on SOFR 
recommended by the ARRC for consumer products with the new term ``the 
Board-selected benchmark replacement for consumer loans.''
    Second, the CFPB is expanding comment 40(f)(3)(ii)(B)-3 to include 
a replacement index for the 12-month USD LIBOR, which was not 
previously addressed in the 2021 LIBOR Transition Final Rule. This 
interim final rule revises comment 40(f)(3)(ii)(B)-3 to provide that 
the APR based on the replacement index is substantially similar to the 
rate based on the LIBOR index for purposes of Sec.  
1026.40(f)(3)(ii)(B) if a creditor uses the Board-selected benchmark 
replacement for consumer loans to replace the 1-month, 3-month, 6-
month, or 12-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 Board-selected benchmark replacement for consumer loans to 
replace the 1-month, 3-month, 6-month, or 12-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. The CFPB solicits comments on these changes in the interim final 
rule.

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).\52\ 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.\53\ 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).
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 1666i-1(a).
    \53\ 15 U.S.C. 1666i-1(b)(2).
---------------------------------------------------------------------------

    Section 1026.55(b)(7) provides a card issuer may increase an APR 
pursuant to certain exceptions. Section 1026.55(b)(7)(i) discusses the 
exception for index replacement and margin changes and provides 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 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. Section 1026.55(b)(7)(i) also 
provides 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.
    Section 1026.55(b)(7)(ii) contains LIBOR-specific provisions that 
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 April 
1, 2022, in certain circumstances. 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.
    As discussed in more detail below in this section-by-section 
analysis, this interim final rule makes a number of changes to 
Sec. Sec.  1026.55(b)(7)(i) and (b)(7)(ii) and the Official 
Interpretations below. In general, it: (1) replaces references to the 
spread-adjusted index based on SOFR recommended by the ARRC for 
consumer products with the new defined term ``the Board-selected 
benchmark replacement for consumer

[[Page 30612]]

loans''; (2) replaces the reference to the 1-year USD LIBOR index with 
the 12-month USD LIBOR index; (3) expands the Official Interpretations 
to include a replacement index for the 12-month USD LIBOR, which was 
not previously addressed in the 2021 LIBOR Transition Final Rule; (4) 
provides that the Board-selected benchmark replacements for consumer 
loans to replace 1-month, 3-month, 6-month, and 12-month USD LIBOR 
indices have ``historical fluctuations that are substantially similar 
to'' the LIBOR tenors they replace; (5) provides if the creditor uses 
the Board-selected benchmark replacement for consumer loans, the 
creditor must use the index value of this index and the LIBOR index 
from a specified timeframe in determining whether the APR is 
substantially similar; and (6) explains when a card issuer that uses 
the Board-selected benchmark replacement for consumer loans satisfies 
the condition 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 or calculated using the 
LIBOR index.
    Interaction among Sec.  1026.55(b)(7)(i) and (ii) and contractual 
provisions. 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. It 
provides examples illustrating when a card issuer may use these 
provisions. 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 provided under comment 55(b)(7)-1.i 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.
    For the same reasons as discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3) with respect to revised comment 
40(f)(3)(ii)-1.i, this interim final rule makes similar changes to 
comment 55(b)(7)-1.i. The CFPB is revising the example in comment 
55(b)(7)-1.i by replacing references to the spread-adjusted index based 
on SOFR recommended by the ARRC for consumer products with the new term 
``the Board-selected benchmark replacement for consumer loans'' to 
align terminology with the LIBOR Act and the Board's 2022 LIBOR Act 
Final Rule.
55(b)(7)(i)
    Section 1026.55(b)(7)(i) contains an exception to the general rule 
in Sec.  1026.55(a) restricting rate increases for index replacement 
and margin changes. Section 1026.55(b)(7)(i) provides 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 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. Section 1026.55(b)(7)(i) also 
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 a rate substantially similar to the 
rate in effect when the original index became unavailable. 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 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.
    The Board-selected benchmark replacements for consumer loans have 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. Comment 55(b)(7)(i)-1.ii provides a 
determination by the Bureau that effective April 1, 2022, 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. It 
provides that 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 will produce an APR 
substantially similar to the rate in effect at the time the LIBOR index 
became unavailable in order to use this SOFR-based spread-adjusted 
index for consumer products as the replacement index for the applicable 
LIBOR index.
    For the same reasons as discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(A) with respect to revised comments 
40(f)(3)(ii)(A)-2, -2.i, and -2.ii, the interim final rule makes 
similar changes to comments 55(b)(7)(i)-1, -1.i, and -1.ii. First, the 
CFPB is revising comment 55(b)(7)(i)-1.ii by replacing references to 
the spread-adjusted index based on SOFR recommended by the ARRC for 
consumer products with the new term ``the Board-selected benchmark 
replacement for consumer loans.'' Revised comment 55(b)(7)(i)-1.ii 
includes a cross-reference to this definition. Based on these changes,

[[Page 30613]]

revised comment 55(b)(7)(i)-1.ii provides that the card issuer also 
must comply with the condition in Sec.  1026.55(b)(7)(i) requiring the 
Board-selected benchmark replacement for consumer loans and replacement 
margin result would have resulted in an APR substantially similar to 
the rate in effect at the time the LIBOR index became unavailable. The 
substantially similar standard for the APR is discussed in further 
detail below in relation to comment 55(b)(7)(i)-2.
    Second, the CFPB is expanding comment 55(b)(7)(i)-1.ii to include a 
replacement index for the 12-month USD LIBOR, which was not previously 
addressed in the 2021 LIBOR Transition Final Rule. Comment 55(b)(7)(i)-
1.ii does not discuss the 12-month (formerly called 1-year) USD 
LIBOR.\54\ In the 2021 LIBOR Transition Final Rule, the CFPB generally 
provided examples of SOFR-based replacement indices for the 1-month, 3-
month, and 6-month tenors of USD LIBOR, but reserved judgment about 
whether to include a reference to the 1-year USD LIBOR index in comment 
55(b)(7)(i)-1.ii until it obtained additional information. Since the 
CFPB promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act 
was enacted, and the Board issued its final rule implementing the Act. 
Section 105(a)(5) of the LIBOR Act provides that, for purposes of TILA 
and its implementing regulations, a Board-selected benchmark 
replacement and the selection or use of a Board-selected benchmark 
replacement as a benchmark replacement with respect to a LIBOR contract 
constitutes a replacement that has historical fluctuations that are 
substantially similar to those of the LIBOR index that it is replacing. 
The Board's regulation provides that for a LIBOR contract that is a 
consumer loan, the benchmark replacement shall be the corresponding 1-
month, 3-month, 6-month, or 12-month CME Term SOFR plus the applicable 
amounts or tenor spread adjustment.\55\ The CFPB is relying on the 
determination in the LIBOR Act and the Board's implementing regulation 
that the Board-selected benchmark replacements for consumer loans have 
historical fluctuations that are substantially similar to the USD LIBOR 
tenor that it is replacing. Thus, the CFPB is revising comment 
55(b)(7)(i)-1.ii to also apply this determination of the historical 
fluctuations substantially similar standard to the replacement of the 
12-month USD LIBOR index with the Board-selected benchmark replacement 
for consumer loans.
---------------------------------------------------------------------------

    \54\ See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing 
comment 59(f)-4 and noting the Bureau's 2020 notice of proposed 
rulemaking proposed and solicited comment on allowing use of a 
specific replacement formula where the index change involved the 1-
year tenor in addition to the 1-month, 3-month, and 6-month tenors).
    \55\ 12 CFR 253.4(b)(2)(i)(B) and (ii)(B).
---------------------------------------------------------------------------

    Third, based on the LIBOR Act and the Board's implementing 
regulation, the Bureau is removing its prior determination, that became 
effective April 1, 2022, concerning the spread-adjusted indices based 
on SOFR recommended by the ARRC for consumer products. By operation of 
the LIBOR Act and the Board's implementing regulation, all tenors of 
the Board-selected benchmark replacements have ``historical 
fluctuations that are substantially similar to'' the LIBOR tenors they 
replace.\56\ Thus, revised comment 55(b)(7)(i)-1.ii provides that the 
Board-selected benchmark replacements for consumer loans to replace the 
1-month, 3-month, 6-month, and 12-month USD LIBOR index has historical 
fluctuations that are substantially similar to USD LIBOR tenor they are 
replacing. The Bureau's prior determination is obsolete. The ``spread-
adjusted indices based on SOFR recommended by the ARRC for consumer 
products'' are the same as ``the Board-selected benchmark replacement 
for consumer loans'' and the LIBOR Act determined that the latter has 
historical fluctuations that are substantially similar to the LIBOR 
tenors they replace. Removing this obsolete determination will avoid 
confusion.
---------------------------------------------------------------------------

    \56\ LIBOR Act section 105(a)(5), 136 Stat. 830.
---------------------------------------------------------------------------

    Fourth, to facilitate compliance, this interim final rule revises 
comment 55(b)(7)(i)-1.ii by specifying that the Board-selected 
benchmark replacements for consumer loans are an exception to the 
requirement providing that the historical fluctuations considered when 
replacing a LIBOR index under a plan are the historical fluctuations up 
through the relevant date set forth in comment 55(b)(7)(i)-1.ii. 
Accordingly, this interim final rule also revises comment 55(b)(7)(i)-
1.ii to provide that no further determination is required that the 
Board-selected benchmark replacements for consumer loans meets the 
``historical fluctuations are substantially similar'' standard. The 
changes to comment 55(b)(7)(i)-1 in relation to the Board-selected 
benchmark replacements for consumer loans do not alter or modify the 
Bureau's determination set forth in comment 55(b)(7)(i)-1.i in relation 
to the prime rate as the replacement index for the 1-month or 3-month 
USD LIBOR index, except to provide that no further determination is 
needed that the prime rate published in the Wall Street Journal meets 
this standard for these tenors.
    Additional guidance on determining whether a replacement index has 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. For the same reasons as discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(A) with respect 
to revised comment 40(f)(3)(ii)(A)-2.iii, the interim final rule makes 
similar changes to comment 55(b)(7)(i)-1.iii, which provides 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.
    The CFPB is making two changes to comment 55(b)(7)(i)-1.iii. First, 
the CFPB is making a technical correction in comment 55(b)(7)(i)-1.iii 
to change ``substantial'' to ``substantially'' when considering the 
relevant factors in determining whether a replacement index has 
historical fluctuations substantially similar to those of a particular 
LIBOR index. Second, similar to changes in revised comment 
40(f)(3)(ii)(A)-2.iii above, the CFPB is revising comment 55(b)(7)(i)-
1.iii by adding an exception for the Board-selected benchmark 
replacements for consumer loans, as defined in new Sec.  1026.2(a)(28). 
When using the Board-selected benchmark replacements for consumer 
loans, a creditor need not consider the types of factors that have 
historical fluctuations substantially similar to those of a particular 
LIBOR index. Because the Board's final rule, in implementing the LIBOR 
Act, has determined that the Board-selected benchmark replacements for 
consumer loans are indices that have historical fluctuations that are 
substantially similar to their respective LIBOR tenors, and the CFPB 
has determined in this interim final rule that this index meets the 
Regulation Z ``historical fluctuations are substantially similar'' 
standard with respect to a particular LIBOR index, the factors need not 
be considered. While the CFPB had already applied the factors to the 
SOFR-based 1-month, 3-month, and 6-month LIBOR tenor replacement 
indices in its 2021 LIBOR Transition Final Rule, by operation of law, 
the factors need not be considered with respect to the Board-selected 
benchmark replacement for consumer loans for the 12-month LIBOR tenor 
in order for the index to satisfy Regulation Z's ``historical 
fluctuations are substantially similar'' standard. The CFPB solicits 
comments on these changes of the interim final rule.

[[Page 30614]]

    Substantially similar rate when LIBOR becomes unavailable. Section 
1026.55(b)(7)(i) provides 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. Comment 55(b)(7)(i)-2 provides that, for 
comparing rates, 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. It 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 index. The one exception under comment 
55(b)(7)(i)-2 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)(i)-2 also provides 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 calculated using the LIBOR index.
    For the same reasons as discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(A) with respect to revised comment 
40(f)(3)(ii)(A)-3, the interim final rule makes similar changes to 
comment 55(b)(7)(i)-2. First, the CFPB is revising comment 55(b)(7)(i)-
2 by replacing references to the spread-adjusted index based on SOFR 
recommended by the ARRC for consumer products with the new term ``the 
Board-selected benchmark replacement for consumer loans.''
    Second, the CFPB is expanding comment 55(b)(7)(i)-2 to include a 
replacement index for the 12-month USD LIBOR, which was not previously 
addressed in the 2021 LIBOR Transition Final Rule. Comment 55(b)(7)(i)-
2 does not discuss the 12-month (formerly called 1-year) USD LIBOR. In 
the 2021 LIBOR Transition Final Rule, the CFPB generally provided 
examples of SOFR-based replacement indices for the 1-month, 3-month, 
and 6-month tenors of USD LIBOR, but reserved 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. Since the CFPB 
promulgated the 2021 LIBOR Transition Final Rule, the LIBOR Act was 
enacted, and the Board issued its final rule implementing the Act. 
Sections 105(a)(2), (a)(3), and (a)(5) of the LIBOR Act provide that, 
for purposes of TILA and its implementing regulations, a Board-selected 
benchmark replacement and the selection or use of a Board-selected 
benchmark replacement as a benchmark replacement with respect to a 
LIBOR contract constitutes a ``comparable index'' and ``has historical 
fluctuations that are substantially similar'' to those of the USD LIBOR 
index they are replacing. The Board's regulation provides that for a 
LIBOR contract that is a consumer loan, the benchmark replacement shall 
be the corresponding 1-month, 3-month, 6-month, or 12-month CME Term 
SOFR plus the applicable amounts or tenor spread adjustment.\57\ The 
determination in the LIBOR Act and the Board's implementing regulation 
applies not only to the Board-selected benchmark replacements for 
consumer loans that are replacing the 1-month, 3-month, and 6-month USD 
LIBOR, but also to the Board-selected benchmark replacement for 
consumer loans that is replacing the 12-month tenor of LIBOR. Thus, the 
CFPB is revising comment 55(b)(7)(i)-2 to provide that for purposes of 
Sec.  1026.55(b)(7)(i), if a card issuer uses the Board-selected 
benchmark replacements for consumer loans to replace the 1-month, 3-
month, 6-month, or 12-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. The CFPB solicits comment on these changes of the interim 
final rule.
---------------------------------------------------------------------------

    \57\ 12 CFR 253.4(b)(2)(i)(B) and (ii)(B).
---------------------------------------------------------------------------

55(b)(7)(ii)
    Section 1026.55(b)(7)(ii) contains LIBOR-specific provisions that 
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 April 
1, 2022, in certain circumstances. The CFPB explained in the 2021 LIBOR 
Transition Final Rule how, as a practical matter, Sec.  
1026.55(b)(7)(ii) allows 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 allows 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) allows 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 CFPB 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.
    Section 1026.55(b)(7)(ii) provides 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 April 1, 2022, 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 
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 newly established and 
therefore does not have any rate history, it may be used if the 
replacement index value in effect on

[[Page 30615]]

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. Section 1026.55(b)(7)(ii) also 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. As set forth in Sec.  1026.55(b)(7)(ii), 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)(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). It provides 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 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.
    For the same reasons as discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(B), the interim final rule is 
making two changes to Sec.  1026.55(b)(7)(ii). First, the CFPB is 
revising Sec.  1026.55(b)(7)(ii) by replacing references to the spread-
adjusted index based on SOFR recommended by the ARRC for consumer 
products with the new term ``the Board-selected benchmark replacement 
for consumer loans.'' Second, the CFPB is using the term 12-month tenor 
instead of 1-year tenor with respect to the USD LIBOR index.
    The Board-selected benchmark replacements for consumer loans have 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. Comment 55(b)(7)(ii)-1.ii provides a 
determination by the Bureau that, effective April 1, 2022, 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 made 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. Comment 55(b)(7)(ii)-
1.ii also provides that in order to use this 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 satisfy 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. Comment 55(b)(7)(ii)-1.ii provides 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, 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 as discussed in the section-by-section 
analysis of Sec.  1026.40(f)(3)(ii)(B) with respect to revised comments 
40(f)(3)(ii)(B)-1, -1.i, and -1.ii and discussed below, the interim 
final rule makes similar changes to comments 55(b)(7)(ii)-1, -1.i, and 
-1.ii. First, the CFPB is replacing references to the spread-adjusted 
index based on SOFR recommended by the ARRC for consumer products with 
the new term ``the Board-selected benchmark replacement for consumer 
loans.'' Revised comment 55(b)(7)(ii)-1.ii includes a cross-reference 
to this definition. Based on these changes, revised comment 
55(b)(7)(ii)-1.ii provides that the card issuer also must comply with 
the condition in Sec.  1026.55(b)(7)(ii) requiring the Board-selected 
benchmark replacement for consumer loans and replacement margin to 
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. The substantially similar standard for this interim final rule is 
discussed in further detail below in relation to comment 55(b)(7)(ii)-
3.
    Second, the CFPB is expanding comment 55(b)(7)(ii)-1.ii to include 
a replacement index for the 12-month USD LIBOR not previously addressed 
in the 2021 LIBOR Transition Final Rule. Comment 55(b)(7)(ii)-1.ii does 
not discuss the 12-month (formerly called 1-year) USD LIBOR.\58\ In the 
2021 LIBOR Transition Final Rule, the CFPB generally provided examples 
of SOFR-based replacement indices for the 1-month, 3-month, and 6-month 
tenors of USD LIBOR, but reserved judgment about whether to include a 
reference to the 1-year USD LIBOR index in comment 55(b)(7)(ii)-1.ii 
until it obtained additional information. Since the CFPB promulgated 
the 2021 LIBOR Transition Final Rule, the LIBOR Act was enacted, and 
the Board issued its final rule implementing the Act. Section 105(a)(5) 
of the LIBOR Act provides that, for purposes of TILA and its 
implementing regulations, a Board-selected benchmark replacement and 
the selection or use of a Board-selected benchmark replacement as a 
benchmark replacement with respect to a LIBOR contract constitutes a 
replacement that has historical fluctuations that are substantially 
similar to those of the LIBOR index that it is replacing. The Board's 
regulation provides that for a LIBOR contract that is a consumer loan, 
the benchmark replacement shall be the corresponding 1-month, 3-month, 
6-

[[Page 30616]]

month, or 12-month CME Term SOFR plus the applicable amounts or tenor 
spread adjustment.\59\ The CFPB is relying on the determination in the 
LIBOR Act and the Board's implementing regulation that the Board-
selected benchmark replacements for consumer loans have historical 
fluctuations that are substantially similar to the USD LIBOR tenor that 
they are replacing. Thus, the CFPB is revising comment 55(b)(7)(ii)-
1.ii to also apply this determination of the historical fluctuations 
substantially similar standard to the replacement of the 12-month USD 
LIBOR index with the Board-selected benchmark replacement for consumer 
loans.
---------------------------------------------------------------------------

    \58\ See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing 
comment 59(f)-4 and noting the Bureau's 2020 notice of proposed 
rulemaking proposed and solicited comment on allowing use of a 
specific replacement formula where the index change involved the 1-
year tenor in addition to the 1-month, 3-month, and 6-month tenors).
    \59\ 12 CFR 253.4(b)(2)(i)(B) and (ii)(B).
---------------------------------------------------------------------------

    Third, based on the LIBOR Act and the Board's implementing 
regulation, the Bureau is removing its prior determination, that became 
effective April 1, 2022, concerning the spread-adjusted indices based 
on SOFR recommended by the ARRC for consumer products. By operation of 
the LIBOR Act and the Board's implementing regulation, all tenors of 
the Board-selected benchmark replacements have ``historical 
fluctuations that are substantially similar to'' the LIBOR tenors they 
replace.\60\ Thus, revised comment 55(b)(7)(ii)-1.ii provides that the 
Board-selected benchmark replacements for consumer loans to replace the 
1-month, 3-month, 6-month, and 12-month USD LIBOR index has historical 
fluctuations that are substantially similar to USD LIBOR tenor they are 
replacing. The Bureau's prior determination is obsolete. The ``spread-
adjusted indices based on SOFR recommended by the ARRC for consumer 
products'' are the same as ``the Board-selected benchmark replacement 
for consumer loans'' and the LIBOR Act determined that the latter has 
historical fluctuations that are substantially similar to the LIBOR 
tenors they replace. Removing this obsolete determination will avoid 
confusion.
---------------------------------------------------------------------------

    \60\ LIBOR Act section 105(a)(5), 136 Stat. 830.
---------------------------------------------------------------------------

    Fourth, to facilitate compliance, this interim final rule revises 
comment 55(b)(7)(ii)-1 by specifying that the Board-selected benchmark 
replacements for consumer loans are an exception to the requirement 
providing that the historical fluctuations considered when replacing a 
LIBOR index under a plan are the historical fluctuations up through the 
relevant date set forth in comment 55(b)(7)(ii)-1.ii. Accordingly, this 
interim final rule also revises comment 55(b)(7)(ii)-1.ii to provide 
that no further determination is required to determine that the Board-
selected benchmark replacements for consumer loans meet the 
``historical fluctuations are substantially similar'' standard. The 
changes to comment 55(b)(7)(ii)-1 in relation to the Board-selected 
benchmark replacements for consumer loans do not alter or modify the 
Bureau's determination set forth in comment 55(b)(7)(ii)-1.i in 
relation to the prime rate as the replacement index for the 1-month or 
3-month USD LIBOR index, except to provide that no further 
determination is needed that the prime rate published in the Wall 
Street Journal meets this standard for these tenors. The CFPB solicits 
comments on these changes of the interim final rule.
    Additional guidance on determining whether a replacement index has 
historical fluctuations that are substantially similar to those of 
certain USD LIBOR indices. For the same reasons as discussed in the 
section-by-section analysis of Sec.  1026.40(f)(3)(ii)(B) with respect 
to revised comment 40(f)(3)(ii)(B)-1.iii, the interim final rule makes 
similar changes to comment 55(b)(7)(ii)-1.iii, which provides 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.
    The CFPB is making two changes to comment 55(b)(7)(ii)-1.iii. 
First, the CFPB is making a technical correction in comment 
55(b)(7)(ii)-1.iii to change ``substantial'' to ``substantially'' when 
considering the relevant factors in determining whether a replacement 
index has historical fluctuations substantially similar to those of a 
particular LIBOR index. Second, similar to changes in revised comment 
40(f)(3)(ii)(B)-1.iii above, the CFPB is revising comment 55(b)(7)(ii)-
1.iii by adding an exception for the Board-selected benchmark 
replacements for consumer loans, as defined in new Sec.  1026.2(a)(28). 
When using the Board-selected benchmark replacement for consumers 
loans, a creditor need not consider the types of factors that have 
historical fluctuations substantially similar to those of a particular 
LIBOR index. Because the Board's final rule, in implementing the LIBOR 
Act, has determined that the Board-selected benchmark replacements for 
consumer loans are indices that have historical fluctuations that are 
substantially similar to their respective LIBOR tenors, and the CFPB 
has determined in this interim final rule that this index meets the 
Regulation Z ``historical fluctuations are substantially similar'' 
standard with respect to a particular LIBOR index, the factors need not 
be considered. While the CFPB had already applied the factors to the 
SOFR-based 1-month, 3-month, and 6-month LIBOR tenor replacement 
indices in its 2021 LIBOR Transition Final Rule, by operation of law, 
the factors need not be considered with respect to the Board-selected 
benchmark replacement for consumer loans for the 12-month LIBOR tenor 
in order for the index to satisfy Regulation Z's ``historical 
fluctuations are substantially similar'' standard. The CFPB solicits 
comments on these changes of the interim final rule.
    Substantially similar rate. Pursuant to Sec.  1026.55(b)(7)(ii), 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)(ii)-3 also provides 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.
    For the same reasons discussed in the section-by-section analysis 
of Sec.  1026.40(f)(3)(ii)(B) above for revised comment 
40(f)(3)(ii)(B)-3, this interim final rule implements a number of 
changes to comment 55(b)(7)(ii)-3. First, the CFPB is revising comment 
55(b)(7)(ii)-3 by replacing references to the spread-adjusted index 
based on SOFR recommended by the ARRC for consumer products with the 
new term ``the Board-selected benchmark replacement for consumer 
loans.''
    Second, the CFPB is expanding comment 55(b)(7)(ii)-3 to include a 
replacement index for the 12-month USD LIBOR, which was not previously 
addressed in the 2021 LIBOR Transition Final Rule. This interim final 
rule revises comment 55(b)(7)(ii)-3 to provide that for purposes of

[[Page 30617]]

Sec.  1026.55(b)(7)(ii), if a card issuer uses the Board-selected 
benchmark replacement for consumer loans to replace the 1-month, 3-
month, 6-month, or 12-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. 
Thus, a card issuer that uses the Board-selected benchmark replacement 
for consumer loans to replace the 1-month, 3-month, 6-month, or 12-
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. The CFPB solicits comments on these changes in the 
interim final rule.

Section 1026.59 Reevaluation of Rate Increases

59(f) Termination of the Obligation To Review Factors
59(f)(3)
    TILA section 148, which was added by the Credit CARD Act of 
2009,\61\ 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.\62\ 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.
---------------------------------------------------------------------------

    \61\ Public Law 111-24, 123 Stat. 1734 (2009).
    \62\ 15 U.S.C. 1665c.
---------------------------------------------------------------------------

    Section 1026.59(f) provides that this obligation to review the rate 
increase 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.'' As discussed in the CFPB's 2021 LIBOR Transition Final 
Rule, because the discontinuation of LIBOR means that after 
discontinuation, the card issuer will not have a LIBOR index for use in 
the ``previous formula'' to determine the rate that applied prior to 
the increase, the existing methods to terminate the obligation to 
review would not apply.
    Section 1026.59(f)(3) provides, effective April 1, 2022, a 
replacement formula that card issuers can use 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. Section 1026.59(f)(3) applies to 
situations in which a LIBOR index is used as the index in the 
``previous formula'' (i.e., the formula used to determine the rate at 
which the obligation to review factors ceases).\63\ Under Sec.  
1026.59(f)(3), the replacement formula, which includes 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.\64\ Section 
1026.59(f)(3) also provides that a card issuer must satisfy the 
conditions set forth in Sec.  1026.55(b)(7)(ii) for selecting a 
replacement index. Under Sec.  1026.59(f)(3), 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 
in Sec.  1026.59(f)(3) is that if the replacement index is the spread-
adjusted index based on SOFR 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, as the index values to use to determine the 
replacement formula.
---------------------------------------------------------------------------

    \63\ Section 1026.59(f)(3) does not apply to rate increases that 
may result from the switch from a LIBOR index to another index under 
Sec.  1026.55(b)(7)(i) or Sec.  1026.55(b)(7)(ii) as those potential 
rate increases will be excepted from the provisions of Sec.  
1026.59. Section 1026.59(f)(3) does, however, cover rate increases 
that were already subject to the provisions of Sec.  1026.59 and 
that 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.
    \64\ For purposes of Sec.  1026.59(f)(3) ``replacement index,'' 
as defined in 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.
---------------------------------------------------------------------------

    Additionally, comment 59(f)-4 provides methods for identifying the 
replacement index to be used in the formula by providing instructions 
for determining the relevant date through which the card issuer must 
determine that historical fluctuations between the indices are 
substantially similar. Comment 59(f)-4 provides that 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, but if the 
Bureau has not made such a determination, 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. Comment 59(f)-4 states the Bureau's determination that 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 USD LIBOR indices and that the spread-adjusted indices based on 
SOFR 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.
    For the reasons discussed below, and as discussed in the section-
by-section analysis of Sec.  1026.59(f)(3) and comment 59(f)-4 below, 
this interim final rule implements several revisions related to rate 
reevaluation provisions. First, as discussed in more detail in the 
section-by-section analysis for Sec.  1026.55(b)(7) above, and for the 
reasons discussed therein, the CFPB is revising Sec.  1026.59(f)(3) by 
replacing references to the spread-adjusted index based on SOFR 
recommended by the ARRC for consumer products with the new term

[[Page 30618]]

``the Board-selected benchmark replacement for consumer loans'' to 
align terminology in the rule with the LIBOR Act and the Board's 2022 
LIBOR Act Final Rule. As discussed in the section-by-section analysis 
for Sec.  1026.2(a)(28), this interim final rule also defines the term 
``the Board-selected benchmark replacement for consumer loans.'' 
Revised comment 59(f)-4 includes a cross-reference to that definition. 
As discussed above, these terms identify the same index, and the change 
is merely for consistency with the Act and ease of reading.
    Second, the CFPB is expanding comment 59(f)-4 to include a 
replacement index for the 12-month USD LIBOR, which was not previously 
addressed in the 2021 LIBOR Transition Final Rule. Comment 59(f)-4 does 
not discuss the 12-month (formerly called 1-year) USD LIBOR.\65\ In the 
2021 LIBOR Transition Final Rule, the CFPB generally provided examples 
of SOFR-based replacement indices for the 1-month, 3-month, and 6-month 
tenors of USD LIBOR, but reserved judgment about whether to include a 
reference to the 1-year USD LIBOR index in comment 59(f)-4 until it 
obtained additional information. Since the CFPB promulgated the 2021 
LIBOR Transition Final Rule, the LIBOR Act was enacted, and the Board 
issued its final rule implementing the Act. Section 105(a)(5) of the 
LIBOR Act provides that, for purposes of TILA and its implementing 
regulations, a Board-selected benchmark replacement and the selection 
or use of a Board-selected benchmark replacement as a benchmark 
replacement with respect to a LIBOR contract constitutes a replacement 
that has historical fluctuations that are substantially similar to 
those of the LIBOR index that it is replacing. The Board's regulation 
provides that for a LIBOR contract that is a consumer loan, the 
benchmark replacement shall be the corresponding 1-month, 3-month, 6-
month, or 12-month CME Term SOFR plus the applicable amounts or tenor 
spread adjustment.\66\ The CFPB is relying on the determination in the 
LIBOR Act and the Board's implementing regulation that the Board-
selected benchmark replacements for consumer loans have historical 
fluctuations that are substantially similar to the USD LIBOR tenor that 
they are replacing. While section 104(f) of the LIBOR Act provides that 
nothing in the Act ``may be construed to alter or impair-- . . . (5) 
any provision of Federal consumer financial law that--(A) . . . govern 
the reevaluation of rate increases on credit card accounts under open-
end (not home-secured) consumer credit plans,'' \67\ the CFPB is not 
relying on the LIBOR Act for its authority to provide an alternative 
method for determining whether the card issuer can terminate its 
obligation under the credit card account rate reevaluation requirements 
where the rate applicable immediately prior to a rate increase was a 
variable rate calculated using a LIBOR index. Instead, the CFPB is 
revising Sec.  1026.59(f)(3) and comment 59(f)-4 pursuant to its 
authority to implement TILA section 148, as discussed above.
---------------------------------------------------------------------------

    \65\ See 85 FR 36938, 36972, 36994 (June 18, 2020) (proposing 
comment 59(f)-4 and noting the Bureau's 2020 notice of proposed 
rulemaking proposed and solicited comment on allowing use of a 
specific replacement formula where the index change involved the 1-
year tenor in addition to the 1-month, 3-month, and 6-month tenors).
    \66\ 12 CFR 253.4(b)(2)(i)(B) and (ii)(B).
    \67\ LIBOR Act section 104(f), 136 Stat. 829.
---------------------------------------------------------------------------

    Third, based on the LIBOR Act and the Board's implementing 
regulation, the Bureau is removing its prior determination, that became 
effective April 1, 2022, concerning the spread-adjusted indices based 
on SOFR recommended by the ARRC for consumer products. By operation of 
the LIBOR Act and the Board's implementing regulation, all tenors of 
the Board-selected benchmark replacements for consumer loans have 
``historical fluctuations that are substantially similar to'' the LIBOR 
tenors they replace.\68\ Thus, the CFPB is revising comment 59(f)-4 to 
provide that the Board-selected benchmark replacements for consumer 
loans to replace the 1-month, 3-month, 6-month, and 12-month USD LIBOR 
index have historical fluctuations that are substantially similar to 
USD LIBOR tenor they are replacing. The Bureau's prior determination is 
obsolete. The ``spread-adjusted indices based on SOFR recommended by 
the ARRC for consumer products'' are the same as ``the Board-selected 
benchmark replacement for consumer loans'' and the LIBOR Act determined 
that the latter has historical fluctuations that are substantially 
similar to the LIBOR tenors they replace. Removing this obsolete 
determination will avoid confusion.
---------------------------------------------------------------------------

    \68\ LIBOR Act section 105(a)(5), 136 Stat. 830.
---------------------------------------------------------------------------

    Fourth, to facilitate compliance, this interim final rule revises 
comment 59(f)-4 by specifying that the Board-selected benchmark 
replacements for consumer loans are an exception to the requirement 
providing that the historical fluctuations considered when replacing a 
LIBOR index under a plan are the historical fluctuations up through the 
relevant date as set forth in comment 59(f)-4. Accordingly, this 
interim final rule also revises comment 59(f)-4 to provide that no 
further determination is required that the Board-selected benchmark 
replacement for consumer loans meets the ``historical fluctuations are 
substantially similar'' standard. The changes to comment 59(f)-4 in 
relation to the Board-selected benchmark replacements for consumer 
loans do not alter or modify the Bureau's determination set forth in 
comment 59(f)-4 in relation to the prime rate as the replacement index 
for the 1-month or 3-month USD LIBOR index, except to provide that no 
further determination is needed that the prime rate published in the 
Wall Street Journal meets this standard for these tenors. The CFPB 
solicits comments on these changes in the interim final rule.

VI. Effective Date

    The final rule will take effect on May 15, 2023, which should be 
approximately 45 days before the expected discontinuation of LIBOR.

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

A. Overview

    In developing the interim final rule, the CFPB has considered the 
interim final rule's potential benefits, costs, and impacts.\69\ The 
CFPB requests comment on the analysis presented below as well as 
submissions of additional data that could inform the CFPB's analysis of 
the benefits, costs, and impacts. In developing the interim final rule, 
the CFPB has consulted with, or offered to consult with, the 
appropriate prudential regulators and other Federal agencies regarding 
consistency with any prudential, market, or systemic objectives 
administered by such agencies.
---------------------------------------------------------------------------

    \69\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
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 proposed rules on insured 
depository institutions and insured credit unions with less than $10 
billion in total assets as described in section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas. The 
applicability of section 1022(b)(2)(A) to this rulemaking is 
unclear, but the Bureau has performed the described analysis.
---------------------------------------------------------------------------

    The CFPB is issuing an interim final rule amending Regulation Z, 
which implements TILA, to reflect the enactment of the LIBOR Act and 
its implementing regulation promulgated by the Board. This interim 
final rule further addresses the planned cessation of most USD LIBOR 
tenors after June 30, 2023, by incorporating the Board-

[[Page 30619]]

selected benchmark replacements for consumer loans into Regulation Z. 
This interim final rule conforms the terminology from the LIBOR Act and 
the Board's implementing regulation into relevant Regulation Z open-end 
and closed-end credit provisions and also addresses treatment of the 
12-month USD LIBOR index and its replacement index, including 
permitting creditors to use alternative language in change-in-terms 
notice content requirements for situations where the 12-month tenor of 
the LIBOR index is being replaced consistent with the LIBOR Act.
    The CFPB is making four categories of amendments to various 
provisions in Regulation Z to make changes consistent with the LIBOR 
Act to address the anticipated sunset of LIBOR.
    First, (the ``terminology amendments'') the CFPB is changing the 
terminology used in the CFPB's 2021 LIBOR Transition Final Rule to make 
it consistent with terminology in the LIBOR Act. Specifically, for 
both-open and closed-end credit as discussed in further detail below, 
the CFPB is replacing all references to the ``index based on SOFR 
recommended by the Alternative Reference Rates Committee for consumer 
products'' with references to the ``the Board-selected benchmark 
replacement for consumer loans'' and adding a new definition for that 
term in the Official Interpretations. The CFPB is also replacing all 
references to the ``1-year'' USD LIBOR with references to the ``12-
month'' USD LIBOR.
    Second, (``12-month historical fluctuations amendments'') for both 
open- and closed-end credit, the CFPB is revising the Official 
Interpretations to incorporate the Board-selected benchmark replacement 
for consumer loans to replace the 12-month LIBOR, as prescribed by the 
LIBOR Act, as an index that has historical fluctuations that are 
substantially similar to those of the 12-month USD LIBOR index it is 
intended to replace. The Bureau's prior determination that the spread-
adjusted indices based on SOFR recommended by the ARRC to replace 1-
month, 3-month, and 6-month USD LIBOR have historical fluctuations that 
are substantially similar to the indices they are intended to replace 
is obsolete, given that the Board-selected benchmark replacement for 
consumer loans to replace 1-month, 3-month, and 6-month USD LIBOR 
indices is the same as the corresponding spread-adjusted index based on 
SOFR recommended by the ARRC.
    Third, (``12-month LIBOR notice requirements amendments'') the CFPB 
is adding the Board-selected benchmark replacement for consumer loans 
that would replace the 12-month USD LIBOR index to the list of indices 
where a creditor is allowed to use an alternative method to disclose 
information about the periodic rate and APR in change-in-terms notices 
for HELOCs and credit card accounts as a result of the replacement of 
the LIBOR index in certain circumstances.
    Fourth, (``12-month LIBOR rate reevaluation amendments'') the CFPB 
is adding the Board-selected benchmark replacement for consumer loans 
that would replace the 12-month USD LIBOR index to the list of indices 
where a card issuer is allowed to use an alternative method for 
determining whether the card issuer can terminate its obligation under 
the credit card account rate reevaluation requirements where the rate 
applicable immediately prior to a rate increase was a variable rate 
calculated using a LIBOR index. The Bureau also deleted its prior 
determination in the Official Interpretations that the spread-adjusted 
indices based on SOFR recommended by the ARRC to replace 1-month, 3-
month, and 6-month USD LIBOR have historical fluctuations that are 
substantially similar to the indices they are intended to replace, 
given that ``the Board-selected benchmark replacement for consumer 
loans'' to replace 1-month, 3-month, and 6-month USD LIBOR indices is 
the same as the corresponding spread-adjusted index based on SOFR 
recommended by the ARRC for consumer products.

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

    The discussion below relies on information that the CFPB has 
obtained from industry, other regulatory agencies, and publicly 
available sources. 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 CFPB's 
expertise in consumer financial markets, together with the limited data 
that are available, provide insight into these benefits, costs, and 
impacts.

C. Baseline for Analysis

    In evaluating the potential benefits, costs, and impacts of the 
interim final rule, the CFPB takes as a baseline the current legal 
framework regarding the LIBOR transition. Therefore, the baseline for 
the analysis of the interim final rule includes the amendments to 
Regulation Z in the CFPB's 2021 LIBOR Transition Final Rule, the LIBOR 
Act, and the Board's implementing regulation as law.
    When finalized, the rule will affect the market as described below 
as long as it is in effect. However, with or without the interim final 
rule, the transfer from LIBOR would be complete by June 30, 2023, when 
LIBOR is set to expire. Therefore, the analysis below of the benefits, 
costs, and impacts of the interim final rule applies mostly to the 
period between May 15, 2023 (when the interim final rule takes effect) 
and June 30, 2023 (when LIBOR is set to expire).

D. Potential Benefits and Costs of the Interim Final Rule to Consumers 
and Covered Persons

    Reliable data on the indices credit products are linked to are not 
generally available, so the CFPB cannot estimate the dollar value of 
debt tied to LIBOR in the distinct credit markets that will be impacted 
by this interim final rule. However, the ARRC has estimated that in 
2021 there was $1.3 trillion of mortgage debt and $100 billion of non-
mortgage debt tied to LIBOR.\70\
---------------------------------------------------------------------------

    \70\ 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. ``Terminology Amendments''
    For clarity, the CFPB is replacing references to the index based on 
``SOFR recommended by the Alternative Reference Rates Committee for 
consumer products'' with references to the ``the Board-selected 
benchmark replacement for consumer loans.''
    The CFPB believes that, even absent these amendments, nearly all 
creditors would likely correctly construe the term ``SOFR recommended 
by the Alternative References Rate Committee for consumer products'' to 
mean the ``the Board-selected benchmark replacement for consumer 
loans.'' Therefore, the CFPB believes that, in the vast majority of 
cases, the amendments will not change the indices creditors would 
switch to, the timing of those changes, or the disclosures they provide 
to consumers. Therefore, the amendments will impose very few costs on 
consumers or firms. The amendments will provide some benefits to firms 
and consumers by decreasing uncertainty.
2. ``12-Month Historical Fluctuations'' Amendments
    For both open- and closed-end credit, the CFPB is including the 
Board-selected benchmark replacement for consumer loans to replace 12-
month LIBOR, as prescribed by the LIBOR Act,

[[Page 30620]]

as an index that has historical fluctuations that are substantially 
similar to those of the 12-month USD LIBOR index it is intended to 
replace.
    Under both the interim final rule and the baseline, the LIBOR Act 
and the Board's implementing regulation determine that the Board-
selected benchmark replacement for consumer loans to replace 12-month 
LIBOR has historical fluctuations that are substantially similar to 
those of the 12-month USD LIBOR index it is intended to replace. 
Therefore, by operation of law, the amendments to Regulation Z by this 
interim final rule will not change whether the Board-selected benchmark 
replacement for consumer loans to replace 12-month LIBOR has historical 
fluctuations that are substantially similar to those of the 12-month 
USD LIBOR index it is intended to replace. Hence these amendments will 
impose very few costs on consumers or firms. The amendments will 
provide some benefits to firms and consumers by decreasing uncertainty.
3. ``12-Month LIBOR Notice Requirements'' Amendments
    These amendments by the interim final rule will add the Board-
selected benchmark replacement for consumer loans for 12-month USD 
LIBOR, in addition to those Board-selected benchmark replacements for 
consumer loans for 1-month, 3-month, and 6-month USD LIBOR, as another 
circumstance where creditors may follow comments 9(c)(1)-4 (for HELOCs) 
and 9(c)(2)(iv)-2.ii (for credit cards) for how to disclose information 
about the periodic rate and APR in a change-in-terms notice for HELOCs 
and credit cards, assuming the other conditions in the comment are met.
    Without these amendments, it is not clear how creditors could 
provide required change-in-terms notices to switch consumers from the 
12-month USD LIBOR index to the Board-selected benchmark replacement 
for consumer loans to replace 12-month USD LIBOR index, prior to the 
publication of the Board-selected benchmark replacement for consumer 
loans to replace 12-month USD LIBOR index. Therefore, it is not clear 
what creditors would do under the baseline absent these amendments.
    Some creditors may be legally required to switch consumers to the 
Board-selected benchmark replacements for consumer loans. Presumably, 
they would still do so even absent these amendments, 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 Board-
selected benchmark replacements for consumer loans being published. 
Alternatively, if they decide not to send out the change-in-terms 
notice until after the Board-selected benchmark replacements for 
consumer loans are published, they might face legal uncertainty in how 
to calculate the rate after the LIBOR index is discontinued, but prior 
to the Board-selected benchmark replacements for consumer loans 
becoming effective on the account.
    Other creditors could choose under the baseline to switch to the 
Board-selected benchmark replacements for consumer loans even if not 
required to do so. For these creditors, these amendments would decrease 
costs by providing additional clarity and certainty about the required 
change-in-terms notices. These amendments will likely also decrease 
litigation costs for these creditors after the transition from 12-month 
LIBOR to the Board-selected benchmark replacement for consumer loans.
    Consumers with loans from these creditors would have their loans 
switched from 12-month LIBOR to the Board-selected benchmark 
replacement for consumer loans both under these amendments and under 
the baseline. The CFPB expects that, under these amendments 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 CFPB estimates that these amendments will have no 
significant benefits, costs, or impacts for these consumers.
    It is possible that there may be creditors that would switch to the 
Board-selected benchmark replacements for consumer loans under these 
amendments that might be deterred by existing change-in-terms notice 
requirements from switching consumers to the Board-selected benchmark 
replacement for consumer loans without this amendment. Therefore, 
without this amendment these creditors would choose different indices 
to replace LIBOR indices. Because these creditors would prefer to 
switch to the Board-selected benchmark replacement for consumer loans 
and this provision will allow them to do so, the CFPB expects that this 
provision would generate substantial benefits for these creditors. 
However, based on its market intelligence, the CFPB believes there to 
be very few such creditors, if any, as market participants have 
informed the CFPB that other factors will dominate the determination 
about which index to switch to. The CFPB expects that, based partly on 
a final rule promulgated by the U.S. Department of Housing and Urban 
Development (HUD),\71\ most Home Equity Conversion Mortgages (HECMs) 
will transition to one of the Board-selected benchmark replacement for 
consumer loans under this interim final rule and under the baseline. 
The CFPB expects that most non-HECM HELOCS and credit cards will switch 
to the Prime rate under this interim final rule and under the baseline, 
because most HELOC creditors and credit card issuers prefer to have 
their portfolio based on a single index and they have portfolios that 
are already mostly linked to the Prime rate.
---------------------------------------------------------------------------

    \71\ See 88 FR 12822 (Mar. 1, 2023).
---------------------------------------------------------------------------

    Under these amendments, consumers with loans from these creditors 
will have their loans switched to the Board-selected benchmark 
replacement for consumer loans. Under the baseline, consumers with 
loans from these creditors would have their loans switched to other 
indices. Therefore, after the transition, these consumers' APRs will be 
tied to the Board-selected benchmark replacement for consumer loans, 
while under the baseline they would be tied to other indices. Because 
these other replacement indices creditors would switch to are not 
identical to the Board-selected benchmark replacement for consumer 
loans, they will not move identically to the Board-selected benchmark 
replacement for consumer loans, so affected consumers' payments would 
be different under the 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 Board-selected benchmark replacement 
for consumer loans. Consumers with these indices would then pay a cost 
due to this provision until the next rate reset. On some dates in which 
indexed rates reset, some replacement indices may have decreased 
relative to the Board-selected benchmark replacement for consumer 
loans. Consumers with these indices would then benefit from this 
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 provision 
and that arise because of differences in index movements will vary 
across consumers and over time. However, the CFPB expects ex-ante for 
these benefits and costs to be small on average, because the rates 
creditors switch to must be

[[Page 30621]]

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. As discussed above, the CFPB also expects for these benefits and 
costs to small because the CFPB believes there will likely be few, if 
any, loans that transition to different indices because of the interim 
final rule.
4. ``12-Month LIBOR Rate Reevaluation Amendments''
    The CFPB is amending Sec.  1026.59(f)(3) and comment 59(f)-4 to 
conform to the LIBOR Act and the Board's implementing regulation. 
Specifically, revised comment 59(f)-4 provides that the Board-selected 
benchmark replacements for consumer loans to replace 1-month, 3-month, 
6-month, and 12-month USD LIBOR index have historical fluctuations that 
are substantially similar to those of the USD LIBOR tenors they are 
replacing. Section 105(a)(5) of the LIBOR Act provides that, for 
purposes of TILA and its implementing regulations, a Board-selected 
benchmark replacement and the selection or use of a Board-selected 
benchmark replacement as a benchmark replacement with respect to a 
LIBOR contract constitutes a replacement that has historical 
fluctuations that are substantially similar to those of the LIBOR index 
that it is replacing. The Board's regulation provides that for a LIBOR 
contract that is a consumer loan, the benchmark replacement shall be 
the corresponding 1-month, 3-month, 6-month, or 12-month CME Term SOFR 
plus the applicable amounts or tenor spread adjustment. The CFPB is 
relying on the determination in the LIBOR Act and the Board's 
implementing regulation that the Board-selected benchmark replacement 
for consumer loans has historical fluctuations that are substantially 
similar to the USD LIBOR tenor that it is replacing.
    The determination in the LIBOR Act and the Board's implementing 
regulation that the Board-selected benchmark replacement for consumer 
loans has historical fluctuations that are substantially similar to the 
USD LIBOR tenor that it is replacing applies not only to the Board-
selected benchmark replacements for consumer loans that are replacing 
the 1-month, 3-month, and 6-month USD LIBOR, but also to the Board-
selected benchmark replacement for consumer loans that is replacing the 
12-month tenor of LIBOR. Accordingly, the Board-selected benchmark 
replacement for consumer loans to replace the 12-month USD LIBOR tenor 
has historical fluctuations that are substantially similar to the 12-
month USD LIBOR tenor for purposes of complying with Sec.  
1026.59(f)(3) and comment 59(f)-4. The Bureau also found that its prior 
determination in relation to the use of SOFR-based spread-adjusted 
index recommended by the ARRC for consumer products to replace the 1-
month, 3-month, or 6-month U.S. Dollar LIBOR indices is obsolete given 
that ``the Board-selected benchmark replacement for consumer loans'' to 
replace 1-month, 3-month, and 6-month USD LIBOR indices is the same as 
the corresponding spread-adjusted index based on SOFR recommended by 
the ARRC for consumer products to replace the 1-month, 3-month, and 6-
month U.S. Dollar LIBOR indices.
    The LIBOR Act and the Board's implementing regulation would be 
effective even under the baseline. By operation of the LIBOR Act, all 
tenors of the Board-selected benchmark replacements for consumer loans 
have historical fluctuations that are substantially similar to the 
LIBOR tenors they replace. Therefore, even without these amendments, 
creditors would likely conclude that the Board-selected benchmark 
replacement for consumer loans has historical fluctuations that are 
substantially similar to 12-month USD LIBOR for purposes of Sec.  
1026.59(f)(3) and comment 59(f)-4. Therefore, the amendments will 
likely not impose any significant costs or benefits on consumers. The 
amendments will likely provide some benefits to creditors by reducing 
regulatory uncertainty and compliance burden.

E. Potential Specific Impacts of This Interim Final Rule

1. Depository Institutions and Credit Unions With $10 Billion or Less 
in Total Assets, as Described in Section 1026
    The CFPB believes that the consideration of benefits and costs of 
covered persons presented above provides a largely accurate analysis of 
the impacts of the interim final rule 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 Interim Final Rule on Consumer Access to Credit and 
on Consumers in Rural Areas
    Because this interim final rule will affect only existing accounts 
that are tied to LIBOR and would generally not affect new loans, this 
interim final rule will not directly impact consumer access to credit. 
While this interim 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 CFPB believes that any impact on creditors and card 
issuers from this interim 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 
interim 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 CFPB does not have any data or other 
information to understand whether this is the case. The CFPB requests 
comment regarding the impact of the amended provisions on consumers in 
rural areas and how those impacts may differ from those experienced by 
consumers generally.

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) does not require an initial or 
final regulatory flexibility analysis in a rulemaking where a general 
notice of proposed rulemaking is not required.\72\ As noted previously, 
the CFPB has determined that it is unnecessary to publish a general 
notice of proposed rulemaking for this interim final rule. As an 
additional basis, the CFPB's Director certifies that this interim final 
rule will not have a significant economic impact on a substantial 
number of small entities, and so an initial or final regulatory 
flexibility analysis is also not required for that reason.\73\ The rule 
will not impose significant costs on creditors, including small 
entities, for the reasons discussed in the section 1022(b) analysis.
---------------------------------------------------------------------------

    \72\ 5 U.S.C. 603(a), 604(a).
    \73\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

IX. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA),\74\ 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 CFPB may not conduct or 
sponsor and, notwithstanding any other provision of law, a person is 
not required to respond

[[Page 30622]]

to an information collection unless the information collection displays 
a valid control number assigned by OMB.
    The CFPB has determined that this interim final rule would not 
impose any new or revised information collection requirements 
(recordkeeping, reporting or disclosure requirements) on covered 
entities or members of the public that would constitute collections of 
information requiring OMB approval under the PRA.
    The CFPB has a continuing interest in the public's opinions 
regarding this determination. At any time, comments regarding this 
determination may be sent to: Consumer Financial Protection Bureau 
(Attention: PRA Office), 1700 G Street NW, Washington, DC 20552, or by 
email to [email protected].

XI. Congressional Review Act

    Pursuant to the Congressional Review Act,\75\ the CFPB will submit 
a report containing this rule and other required information to the 
U.S. Senate, the U.S. House of Representatives, and the Comptroller 
General of the United States prior to the rule's published effective 
date. The Office of Information and Regulatory Affairs has designated 
this rule as not a ``major rule'' as defined by 5 U.S.C. 804(2). As 
discussed in part IV, the CFPB finds that there is good cause for the 
rule to take effect without prior notice and comment. Accordingly, this 
rule may take effect at such time as the CFPB determines. 5 U.S.C. 
808(2).
---------------------------------------------------------------------------

    \75\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

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 A--General

0
2. Amend Sec.  1026.2 by adding paragraph (a)(28) to read as follows:


Sec.  1026.2  Definitions and rules of construction

    (a) * * *
    (28) The Board-selected benchmark replacement for consumer loans 
means the SOFR-based index selected by the Board of Governors of the 
Federal Reserve System to replace, as applicable, the 1-month, 3-month, 
6-month, or 12-month tenor of U.S. Dollar LIBOR, as set forth in the 
Board of Governors of the Federal Reserve System's regulation at 12 CFR 
part 253, which implements the Adjustable Interest Rate (LIBOR) Act, 
Public Law 117-103, division U.
* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

0
3. Amend Sec.  1026.40 by revising paragraph (f)(3)(ii)(B) to read as 
follows:


Sec.  1026.40  Requirements for home equity plans.

* * * * *
    (f) * * *
    (3) * * *
    (ii) * * *
    (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 Board-selected benchmark replacement for consumer loans to replace 
the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index, the 
creditor must use the index value on June 30, 2023, for the LIBOR index 
and, for the Board-selected benchmark replacement for consumer loans, 
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.
* * * * *

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

0
4. Amend Sec.  1026.55 by revising paragraph (b)(7)(ii) to read as 
follows:


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

* * * * *
    (b) * * *
    (7) * * *
    (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

[[Page 30623]]

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 Board-selected 
benchmark replacement for consumer loans to replace the 1-month, 3-
month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer 
must use the index value on June 30, 2023, for the LIBOR index and, for 
the Board-selected benchmark replacement for consumer loans, 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
5. Amend Sec.  1026.59 by revising paragraph (f)(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 Board-selected 
benchmark replacement for consumer loans to replace the 1-month, 3-
month, 6-month, or 12-month U.S. Dollar LIBOR index, the card issuer 
must use the index value on June 30, 2023, for the LIBOR index and, for 
the Board-selected benchmark replacement for consumer loans, must use 
the index value on the first date that index is published, as the index 
values to use to determine the replacement formula.
* * * * *

0
6. In Supplement I to part 1026:
0
a. Under Section 1026.9--Subsequent Disclosure Requirements, revise 
9(c)(1) Rules Affecting Home-Equity Plans, and 9(c)(2)(iv) Disclosure 
Requirements.
0
b. Under Section 1026.20--Disclosure Requirements Regarding Post-
Consummation Events, revise 20(a) Refinancings.
0
c. Under Section 1026.40--Requirements for Home-Equity Plans, revise 
Paragraph 40(f)(3)(ii), Paragraph 40(f)(3)(ii)(A), and Paragraph 
40(f)(3)(ii)(B).
0
d. Under Section 1026.55--Limitations on Increasing Annual Percentage 
Rates, Fees, and Charges, revise 55(b)(7) Index replacement and margin 
change exception, Paragraph 55(b)(7)(i), and Paragraph 55(b)(7)(ii).
0
e. Under Section 1026.59--Reevaluation of Rate Increases, revise 59(f) 
Termination of Obligation to Review Factors.
    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 
the Board-selected benchmark replacement for consumer loans in 
specified circumstances. If a creditor is replacing a LIBOR index 
with the Board-selected benchmark replacement for consumer loans to 
replace the 1-month, 3-month, 6-month, or 12-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 Board-selected benchmark replacement 
for consumer loans 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) 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. See Sec.  
1026.2(a)(28) for the definition of the Board-selected benchmark 
replacement for consumer loans.
* * * * *

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 
the Board-selected benchmark replacement for consumer loans in 
specified circumstances. If a creditor is replacing a LIBOR index 
with the Board-selected benchmark replacement for consumer loans to 
replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR 
index, the creditor is not changing the

[[Page 30624]]

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 Board-selected benchmark replacement for consumer loans 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) 
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. See Sec.  1026.2(a)(28) for the definition of 
the Board-selected benchmark replacement for consumer loans.
    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 (c)(2)(v)(D) in 
connection with changing a variable rate to a lower nonvariable 
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 (c)(2)(v)(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.
* * * * *

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.

[[Page 30625]]

    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, 6-month, or 12-month U.S. Dollar LIBOR index 
to the Board-selected benchmark replacement for consumer loans to 
replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR 
index respectively because the replacement index is a comparable 
index to the corresponding U.S. Dollar LIBOR index. See Sec.  
1026.2(a)(28) for the definition of the Board-selected benchmark 
replacement for consumer loans. 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. Except for the Board-selected benchmark replacement for 
consumer loans as defined in Sec.  1026.2(a)(28), 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) 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 Board-selected 
benchmark replacement for consumer loans is considered comparable 
with respect to the LIBOR tenor being replaced, and therefore, these 
factors need not be considered.
    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.
* * * * *

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 Board-selected benchmark 
replacement for consumer loans to replace the 1-month, 3-month, 6-
month, or 12-month U.S. Dollar LIBOR index, the creditor must use 
the index value on June 30, 2023, for the LIBOR index and, for the 
Board-selected benchmark replacement for consumer loans, 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 Sec.  1026.2(a)(28) for the definition of the 
Board-selected benchmark replacement for consumer loans. 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

[[Page 30626]]

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. Except for the Board-
selected benchmark replacement for consumer loans defined in Sec.  
1026.2(a)(28), the historical fluctuations considered are 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, and no further determination 
is required. 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. By operation of the Adjustable Interest Rate (LIBOR) Act, 
Public Law 117-103, division U, and the Board's implementing 
regulation, 12 CFR part 253, the Board-selected benchmark 
replacement for consumer loans to replace the 1-month, 3-month, 6-
month, or 12-month U.S. Dollar LIBOR index has historical 
fluctuations substantially similar to those of the LIBOR index being 
replaced. See Sec.  1026.2(a)(28) for the definition of the Board-
selected benchmark replacement for consumer loans. As a result, the 
Board-selected benchmark replacement for consumer loans meets the 
``historical fluctuations are substantially similar'' standard for 
the LIBOR index tenor it replaces, and no further determination is 
required. In order to use the Board-selected benchmark replacement 
for consumer loans 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 Board-selected benchmark replacement 
for consumer loans 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. Except for the Board-selected benchmark replacement for 
consumer loans as defined in Sec.  1026.2(a)(28), 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) 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. The Board-selected benchmark replacement for consumer 
loans is considered to meet the ``historical fluctuations are 
substantially similar'' standard with respect to the LIBOR tenor 
being replaced, and therefore, these factors need not be considered.
    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 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 Board-selected benchmark replacement for consumer loans to 
replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR 
index, the creditor must use the index value on June 30, 2023, for 
the LIBOR index and, for the Board-selected benchmark replacement 
for consumer loans, 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 Board-selected 
benchmark replacement for consumer loans to replace the 1-month, 3-
month, 6-month, or 12-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. Except for the Board-
selected benchmark replacement for consumer loans as defined in 
Sec.  1026.2(a)(28), the historical fluctuations considered are 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

[[Page 30627]]

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, and no further determination 
is required. 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. By operation of the Adjustable Interest Rate (LIBOR) Act, 
Public Law 117-103, division U, and the Board's implementing 
regulation, 12 CFR part 253, the Board-selected benchmark 
replacement for consumer loans to replace the 1-month, 3-month, 6-
month, or 12-month U.S. Dollar LIBOR index has historical 
fluctuations substantially similar to those of the LIBOR index being 
replaced. See Sec.  1026.2(a)(28) for the definition of the Board-
selected benchmark replacement for consumer loans. As a result, the 
Board-selected benchmark replacement for consumer loans meets the 
``historical fluctuations are substantially similar'' standard for 
the LIBOR index it replaces, and no further determination is 
required. In order to use the Board-selected benchmark replacement 
for consumer loans 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 Board-selected benchmark replacement 
for consumer loans 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 Board-selected benchmark replacement for 
consumer loans, 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. Except for the Board-selected benchmark replacement for 
consumer loans as defined in Sec.  1026.2(a)(28), 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) 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. The Board-selected benchmark replacement for consumer 
loans is considered to meet the ``historical fluctuations are 
substantially similar'' standard with respect to the LIBOR tenor 
being replaced, and therefore, these factors need not be considered.
    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 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 Board-selected benchmark replacement for consumer loans to 
replace the 1-month, 3-month, 6-month, or 12-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%

[[Page 30628]]

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)(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 Board-selected benchmark replacement for consumer loans to 
replace the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR 
index, the card issuer must use the index value on June 30, 2023, 
for the LIBOR index and, for the Board-selected benchmark 
replacement for consumer loans, 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. Except for the Board-
selected benchmark replacement for consumer loans as defined in 
Sec.  1026.2(a)(28), the historical fluctuations considered are 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, and no further determination 
is required. 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. By operation of the Adjustable Interest Rate (LIBOR) Act, 
Public Law 117-103, division U, codified at 12 U.S.C. 5803(e)(2), 
and the Board's implementing regulation, 12 CFR 253.4(b)(2), the 
Board-selected benchmark replacement for consumer loans to replace 
the 1-month, 3-month, 6-month, or 12-month U.S. Dollar LIBOR index 
has historical fluctuations substantially similar to those of the 
LIBOR index being replaced. See Sec.  1026.2(a)(28) for the 
definition of the Board-selected benchmark replacement for consumer 
loans. As a result, the Board-selected benchmark replacement for 
consumer loans meets the ``historical fluctuations are substantially 
similar'' standard for the LIBOR index it replaces, and no further 
determination is required. In order to use the Board-selected 
benchmark replacement for consumer loans 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 Board-selected 
benchmark replacement for consumer loans 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.
    iii. Except for the Board-selected benchmark replacement for 
consumer loans as defined in Sec.  1026.2(a)(28), 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) 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. The Board-selected benchmark replacement for

[[Page 30629]]

consumer loans is considered to meet the ``historical fluctuations 
are substantially similar'' standard with respect to the LIBOR tenor 
being replaced, and therefore, these factors need not be considered.
    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 Board-selected benchmark 
replacement for consumer loans to replace the 1-month, 3-month, 6-
month, or 12-month U.S. Dollar LIBOR index, the card issuer must use 
the index value on June 30, 2023, for the LIBOR index and, for the 
Board-selected benchmark replacement for consumer loans, 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 Board-selected benchmark 
replacement for consumer loans to replace the 1-month, 3-month, 6-
month, or 12-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. Except for the Board-
selected benchmark replacement for consumer loans as defined in 
Sec.  1026.2(a)(28), the historical fluctuations considered are 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, and no further determination 
is required. 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. By operation of the Adjustable Interest Rate (LIBOR) Act, 
Public Law 117-103, division U and the Board's implementing 
regulation, 12 CFR part 253, the Board-selected benchmark 
replacement for consumer loans to replace the 1-month, 3-month, 6-
month, or 12-month U.S. Dollar LIBOR index has historical 
fluctuations substantially similar to those of the LIBOR index being 
replaced. See Sec.  1026.2(a)(28) for the definition of the Board-
selected benchmark replacement for consumer loans. As a result, the 
Board-selected benchmark replacement for consumer loans meets the 
``historical fluctuations are substantially similar'' standard for 
the LIBOR index it replaces, and no further determination is 
required. In order to use the Board-selected benchmark replacement 
for consumer loans 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 Board-selected benchmark replacement for 
consumers loans 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 Board-selected benchmark replacement for consumer 
loans, 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. Except for the Board-selected benchmark replacement for 
consumer loans as defined in Sec.  1026.2(a)(28), 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) 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. The Board-selected benchmark replacement for consumer 
loans is considered to meet the ``historical fluctuations are 
substantially similar'' standard with respect to the LIBOR tenor 
being replaced, and therefore, these factors need not be considered.

[[Page 30630]]

    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 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 Board-selected 
benchmark replacement for consumer loans to replace the 1-month, 3-
month, 6-month, or 12-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.
* * * * *

[[Page 30631]]

Section 1026.59--Reevaluation of Rate Increases

* * * * *

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 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. 
Except for the Board-selected benchmark replacement for consumer 
loans as defined in Sec.  1026.2(a)(28), the historical fluctuations 
considered are 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, and no further determination 
is required. By operation of the Adjustable Interest Rate (LIBOR) 
Act, Public Law 117-103, division U, codified at 12 U.S.C. 
5803(e)(2), and the Board's implementing regulation, 12 CFR 
253.4(b)(2), the Board-selected benchmark replacement for consumer 
loans to replace the 1-month, 3-month, 6-month, or 12-month U.S. 
Dollar LIBOR index has historical fluctuations substantially similar 
to those of the LIBOR index being replaced. See Sec.  1026.2(a)(28) 
for the definition of the Board-selected benchmark replacement for 
consumer loans.

[[Page 30632]]

See also comment 55(b)(7)(ii)-1. As a result, the Board-selected 
benchmark replacement for consumer loans meets the ``historical 
fluctuations are substantially similar'' standard for the LIBOR 
index being replaced, and no further determination is required. 
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).
* * * * *

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-09129 Filed 5-10-23; 8:45 am]
BILLING CODE 4810-AM-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.