The change-in-terms notice may be a complete new set of the initial disclosures containing the changed term if the change is highlighted in some way on the notice, or if the notice is accompanied by a letter or some other insert that indicates or draws attention to the term that is changed. The identified USD IBOR Consumer Cash Fallbacks tenors to replace certain tenors of LIBOR have historical fluctuations that are substantially similar. Is there an example index identified in Regulation Z as meeting Condition 2 of the Margin and Index Change Conditions for the 12-month LIBOR tenor? Origination disclosure requirements for the adjustable-rate loan program disclosure, particularly the loan program example (12 CFR 1026.19(b)(2)); Refinancing provisions governing whether changing to a particular replacement index is considered a refinancing, and triggering, for example, new transaction disclosures and new ATR/QM determinations, as applicable (12 CFR 1026.20(a); Comments 20(a)-3.ii and 3.iv); Servicing disclosure requirements on the content and format of mortgage servicing notices, such as interest rate adjustment notices and periodic statements (12 CFR 1026.20(c), (d), and .41, as well as Appendix H-4(D)); and. Conditions on index and margin changes. 12 CFR 1026.20(c). The LIBOR Transition Rule provided an analysis the CFPB used to determine that these Prime tenors meet the criteria for the Historical Fluctuation Comparison condition, as discussed above. Additionally, the relevant factors considered may depend on the replacement index being considered and the LIBOR index being replaced. 12 CFR 1026.20(d). When card issuers complete the LIBOR transition, are they required to complete rate reevaluations on the account? The new rules limit the points and fees lenders can charge when they want to make a qualified mortgage. Comment 55(b)(2)-3. Comment 55(b)(7)(i)-2. Creditors may, at their option, immediately begin using the revised CHARM booklet, or a suitable substitute, to comply with the requirements in Regulation Z. 5. For example, index values for the 30-day Average SOFR Index, published by the Federal Reserve Board of New York, are available beginning on May 2, 2018. NOTE: The questions and answers in this section apply to credit card products and services that are not secured by a home. If LIBOR or the replacement index are not available on October 18, 2021, the card issuer identifies the value of the indices on the first day after October 18, 2021 that the values of both indices are available. Comment 20(a)-1. Comment 55(b)(7)(ii)-1.i. See, e.g., 12 CFR 1004.4(a). Further, the Boards implementing regulation of the LIBOR Act has determined that the USD IBOR Consumer Cash Fallbacks replacement tenors for 1-month, 3-month, 6-month, and 12-month LIBOR also meet the Historical Fluctuations Comparison condition. 12 CFR 1026.55(b)(7)(i) and 55(b)(7)(ii). The non-exhaustive list of factors a creditor must look at include whether: Comments 40(f)(3)(ii)(A)-2.iii and 40(f)(3)(ii)(B)-1.iii. On December 7, 2021, the CFPB finalized that rule, largely as proposed. . Therefore, unrequired information about the LIBOR transition may not be included in the ARM notice and LIBOR transition information may not be included on the same piece of paper as the ARM notice. 12 CFR 1026.40(f)(3)(ii)(A) and 40(f)(3)(ii)(B). Of those, they include the Unavailable Provision and the LIBOR-Specific Provision. Regulation Z, 12 CFR 1026.20(c)(2) and (d)(2) require that ARM interest rate adjustment notices disclose the index used in making interest rate adjustments and explain how payments are determined. For ARMs and for Private Student Loans specifically, the ARRC has also published resource guides to help creditors identify actions needed to plan for the transition. For more information on the potential impact, see LIBOR Adjustable-Rate Mortgage FAQ 2, below. For example, assume a card issuer that extends credit will replace 1-month LIBOR with the applicable USD IBOR Consumer Cash Fallbacks tenor effective July 3, 2023, after the USD IBOR Consumer Cash Fallbacks index will be published. The article 1933 Banking Act describes the entire law, including the legislative history of the provisions covered herein.. As with the Glass-Steagall Act of 1932, the common name comes from the names of the Congressional sponsors, Senator Carter . Under the LIBOR-Specific Provision, the card issuer generally must use the values of the indices in effect on October 18, 2021, and must use the margin in effect just prior to when the change-in-terms notice identifying the replacement index is provided. That is secured by an interest in a residential structure, with onetofour units, whether or not that structure is attached to real property; Made primarily for personal, family or household purposes; and. But note, if the creditor changes the interest rate or the schedule for the interest rate adjustments at the same time it changes the index from LIBOR, the interest rate or schedule change may trigger the Initial or Subsequent Interest Rate Adjustment Notices. As discussed above in LIBOR Home Equity Line of Credit FAQ 5, a creditor may only replace the index on a HELOC account if certain conditions are met. Will the CHARM Booklet be affected by the LIBOR transition? The LIBOR Transition Rule and Interim Final Rule provided examples of replacement indices that meet the Historical Fluctuation Comparison Condition, discussed above in LIBOR Home Equity Line of Credit FAQ 5, when replacing certain LIBOR indices for HELOC products. Specifically, the interest rate adjustment notices may need to identify LIBOR, not the replacement index, as the index applicable to the account at the time the notices are provided, even if the payment adjustment (based on LIBOR) will occur after the account has subsequently transitioned from LIBOR. What information does a card issuer that extends credit disclose if providing the change-in-terms notice is permitted before the USD IBOR Consumer Cash Fallbacks index is published? If sending voluntary notices identifying the future replacement index with the required ARM servicing disclosures that identify LIBOR as the currently applicable index, is there any language that can be added to the required disclosures to explain the difference? The Consumer Financial Protection Bureau (CFPB) is a regulatory agency charged with overseeing financial products and services that are offered to consumers. Newly established is not defined in Regulation Z and is a fact-specific determination. A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early. For example, if a creditor of a legacy contract is providing the forms after they have transitioned the contract from 12-month LIBOR tenor to the 12-month USD IBOR Consumer Cash Fallbacks tenor, the creditor would disclose the 12-month USD IBOR Consumer Cash Fallbacks index and identify that the 12-month USD IBOR Consumer Cash Fallbacks index is published daily on the Refinitiv website. While this example refers to the index as 12-month USD IBOR Consumer Cash Fallbacks, the creditor may alternatively choose to reference one of the other commonly used names for the index, such as the name used in Fannie Mae or Freddie Mac adjustable-rate mortgage contracts. Comments 55(b)(7)(i)-2 and 55(b()7)(ii)-2. Also, at the time the notice is provided, assume no other terms required to be disclosed in a change-in-terms notice are changing. During the LIBOR transition, if a card issuer that extends credit is transitioning to the USD IBOR Consumer Cash Fallbacks tenor that replaces 1-month, 3-month, 6-month or 12-month LIBOR tenors and the change-in-terms notice is provided before these tenors are published, the card issuer may use alternative language in the notice to disclose the periodic rate and APR (as calculated using the replacement index) and add certain indications that the periodic rate and APR provided in the notice are estimates. Assume this results in the same periodic rate and APR at the time the change-in-terms notice is provided, and no other terms required to be disclosed in the notice will change. 3) Other Closed-End Products and Services (e.g., Auto Loans, Personal Installment Loans): 2) HELOCs (including Open-End Reverse Mortgages): 3) Other Open-End (not Home-Secured) Products and Services (e.g., overdraft lines of credit): These regulatory provisions are discussed in greater detail in the FAQs below. See LIBOR Home Equity Line of Credit FAQ 4 for a discussion of modifications a creditor can make if this occurs. The margin used is still that in effect just prior to when the change-in-terms notice identifying the replacement index is provided. Because the indices will not be published at the time the notice is provided, the card issuer will not know the periodic rate or APR based on the USD IBOR Consumer Cash Fallbacks tenor at the time the change-in-terms notice is provided. Federal Register :: Protections for Borrowers Affected by the COVID-19 Under these facts, on the rate adjustment date (May 15, 2023), for this particular consumers account, the creditor has not yet taken those contractual steps to change the index. The tabular format is not required for disclosing other changes in the change-in-terms notice, such as changes to the margin or the periodic rate. Updated Dec. 7, 2021 . Information about the index and using these values can be found here . If this occurs, a creditor may make modifications in disclosing the periodic rate and the APR in the change-in-terms notice. the ARRC has published recommended best practices for consumer loans, . Are HELOC Application Disclosures impacted by the LIBOR transition? Index change requirements, including limitations on changing an index and the requirements for identifying a replacement index, as well as LIBOR-specific provisions (12 CFR 1026.40(f)(1) and 40(f)(3)(ii)); Change-in-terms notice requirements (12 CFR 1026.9(c)(1)); Application Disclosure requirements, particularly the loan program example (12 CFR 1026.40(d)(12)); and. 13. In Regulation Z, the term creditor includes card issuers that extend credit. Yes. 4. As a result, for most accounts, the ARM interest rate adjustment notices will continue on the same schedule established prior to the LIBOR transition. However, the rule provides some flexibility for servicers to communicate additional information to the consumer when sending the notices, so long as that information is not provided within the ARM notice itself. For alternative mortgage transaction ARMs, limitations on increasing the interest rate or finance charge (12 CFR 1004.4(a)(2)). For example, certain reverse mortgage contracts limit the creditors ability to change the index and the options for replacement indices. The 2023 LIBOR Transition Interim Final Rule identified the 12-month USD IBOR Consumer Cash Fallbacks tenor as an index that is comparable to the 12-month LIBOR tenor. However, they are not exhaustive of the indices that may meet these requirements when compared to LIBOR, and other replacement indices may also be compliant. Index values for May 2, 2018 through February 28, 2020 can be found on the Federal Reserve Board of New Yorks website in this downloadable excel spreadsheet . The LIBOR-Specific Provision allows creditors of LIBOR-based contracts to transition from a LIBOR index (and make respective margin adjustments) on or after April 1, 2022, if certain conditions are met. In the final rule (the 2021 LIBOR Transition Final Rule), the CFPB: On April 28, 2023, the CFPB issued an Interim Final Rule (2023 LIBOR Transition Interim Final Rule) for the LIBOR transition to add an example (in addition to the 1-, 3-, and 6-month replacement index examples) of a 12-month replacement index for LIBOR that meets the Regulation Z conditions discussed above. Regulation Z allows a creditor to change the index and margin only under certain conditions. If the next review is scheduled prior to April 1, 2022, the card issuer continues to use LIBOR as a benchmark. Are there Regulation D alternative mortgage transaction ARM index requirements to be considered by applicable creditors in the LIBOR transition? Under Condition 3 of the Margin and Index Change Conditions, how does a creditor determine if the APR under a potential replacement index is substantially similar to the APR under the accounts LIBOR index? Subsequent Interest Rate Adjustment Notices are triggered only if the adjustment results in a payment change. Download a print-friendly version of the LIBOR Transition FAQs, last updated April 28, 2023. When doing so, it is possible that the required disclosure may reference LIBOR, while the voluntary notice describes how another index will replace the LIBOR index in the future. This month, more than 7,100 people who were charged illegal advance fees by Timemark, Inc. to renegotiate, settle, reduce, or alter the terms of their federal student loans will receive a check in the mail. See LIBOR Credit Card FAQ 2 for a discussion of modifications a card issuer that extends credit can make if this occurs. What if the credit card issuer chooses to replace LIBOR prior to April 1, 2022? For all other indices that are not newly established, card issuers will need to perform their own analysis, and determine if the replacement index meets this condition, as well as the other requirements in Regulation Z discussed above. For example, a creditor may need to consider 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. Assume the creditor provides this notice on February 15, 2023. No. Index values for March 2, 2020 to the present can be found here . For example, for a private education loan, as defined in Regulation Z, 12 CFR 1026.46(b)(5), the new disclosures required include new approval disclosures and new final disclosures. Yes. Title XIV of the Dodd-Frank Act included a number of . One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD). Thus, while additional information may not be included in the notice itself, the information may, but is not required to, be placed on a separate LIBOR transition notice document in the same envelope used to send the Initial Interest Rate Adjustment Notice to the consumer. 12 CFR 1026.40(f)(3)(ii)(A). True False True Because the indices will not be published at the time the notice is provided, the creditor will not know the periodic rate or APR based on the USD IBOR Consumer Cash Fallbacks tenor at the time the change-in-terms notice is provided. The examples provided include the USD IBOR Consumer Cash Fallbacks and Prime indices. Yes. Index values for March 2, 2020, to the present can be found here . The ARRC has also developed several resources to assist industry in the transition, available here . But note, additional information may be provided in the same envelope as the Initial Interest Rate Adjustment Notice. Final Rules | Consumer Financial Protection Bureau Change-in-terms notice requirements (12 CFR 1026.9(c)(2)). Effective October 1, 2022, the notice must disclose any reduction in the margin (although card issuers that extend credit may optionally comply early with this requirement beginning April 1, 2022). CFPB to distribute more than $3.5 million to consumers that were For more information on these provisions as they apply in the LIBOR transition, see LIBOR Credit Card FAQ 3, above. Comment 40(f)(3)(ii)(B)-1.i. As a result, the card issuer will be required to continue to perform rate reevaluations until the APR is reduced as required even after LIBOR is unavailable. 12 CFR 1026.40(d)(12)(xi). Protecting your finances during the coronavirus pandemic | Consumer Will the LIBOR transition affect ARM loan program origination disclosures? The LIBOR Transition Rule provided an analysis the CFPB used to determine that Prime meets the criteria in Regulation Z for the Historical Fluctuation Comparison, as discussed above. In addition, the Federal Reserve Board identified a USD IBOR Consumer Cash Fallbacks replacement tenor for the 12-month LIBOR tenor. For more information on the ARM interest rate adjustment notices, see Section 6 of the Mortgage Servicing Small Entity Compliance Guide . 8. Yes. Rulemaking Appraisals for Higher-Priced Mortgage Loans Exemption Threshold Adjustments This final rule increases the dollar threshold exempting certain credit extensions from the special appraisal requirements for higher-priced mortgage loans from $28,500 to $31,000, effective January 1, 2023. What is the Consumer Financial Protection Bureau? - FindLaw Comment 55(b)(7)(ii)-1.ii. 12 CFR 1026.9(c)(2)(v)(A). A plain language executive summary of the rule can be found here. The movements (increases and decreases in value) of the two indices over time are comparable; The replacement index will have a comparable impact on the consumers payments (if there is sufficient data for this analysis); The index levels are comparable (i.e., although indices may increase and decrease at the same rate, is one index always a certain number of basis points higher than another or does it require a spread-adjustment); The replacement index is publicly available; and. For either option in replacing the LIBOR index, the creditor must meet all of the following conditions: 12 CFR 1026.40(f)(3)(ii)(A) and 40(f)(3)(ii)(B). On May 15, 2023, the interest rate will adjust based on the replacement index, not LIBOR, because the transition occurred on April 15, 2023, and the replacement index is the index for the account at the time of the rate adjustment. The historical values used must be reflective of the method of choosing index values for the plan. If a creditor uses one of these indices as a replacement for LIBOR, the creditor must still ensure that the replacement index and margin meets the other conditions discussed in LIBOR Credit Card FAQ 3. Thus, on or after April 1, 2022, a creditor transitioning from LIBOR may use either the Unavailable Provision (waiting until LIBOR is no longer available) or the LIBOR-Specific Provision (transitioning on or after April 1, 2022). 12 CFR 1026.9(c)(2)(iv)(D). 4. Regulation Z, 12 CFR 1026.9(c)(2) requires card issuers that extend credit to provide a credit card change-in-terms notice whenever 1) the terms in the account-opening table change, 2) certain rate disclosures, such as the index or margin, change, 3) there is an increase in the required minimum periodic payment, or 4) there is a change in the acquisition of a security interest. 12 CFR 1004.4(a). 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). Ask a real person any government-related question for free. The Bureau published a Policy Statement on . The creditor is not changing the margin in conjunction with these changes. 4. Conditions on index and margin changes. Of those, they include the Unavailable Provision and the LIBOR-Specific Provision. If it is not the first interest rate change for the loan and the change of index results in a new payment amount, generally the Subsequent Interest Rate Adjustment Notice must be provided (at least 60 days, but no more than 120 days, before the first payment at the adjusted level is due). 3. On or after October 1, 2022, the notice must disclose not only an increase in the margin, but also any decrease in the margin (although creditors may optionally comply early with this requirement beginning April 1, 2022). If using the LIBOR-specific provision, generally the creditor must use the value of the indices in effect on October 18, 2021, and must use the margin in effect just prior to when the change-in-terms notice identifying the replacement index is provided. PDF Ability-to-Repay Rule - Consumer Financial Protection Bureau 12 CFR 1026.9(c)(2)(iv)(D)(1). The notice is provided months prior to the initial reset. The Act also prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts. Mortgage Lending To Federally Insured Credit Unions Status Active This Regulatory Alert supersedes and replaces Regulatory Alert 14-RA-01 (January 2014), to clarify the points and fees limit for each loan amount threshold and types of charges included in the calculation. Under these facts, the card issuer would need to provide a change-in-terms notice disclosing in a tabular format the 1) APR (calculated using the replacement index), and 2) indicate the rate varies with the market based on Prime. 12 CFR 1026.55(b)(7)(ii). The USD IBOR Consumer Cash Fallback tenors are indices identified in the 2023 LIBOR Transition Interim Final Rule as the Board-selected benchmark replacement for consumer loans. 1026.2(a)(28). 1. But assume instead the creditor will complete the steps to transition to the replacement index on April 15, 2023, instead of June 1, 2023, before the interest rate is scheduled to adjust (May 15, 2023). For example, some may have contractual provisions that limit when the index can be replaced. Mortgage Servicing Small Entity Compliance Guide. Note, however, that replacement index as used in the formula is not the index for the account, but is the index used specifically for the formula. For example, HUD published a final rule on March 1, 2023 that, among other things, established a spread-adjusted SOFR index as the Secretary-approved replacement index to transition existing forward and HECM ARMs away from LIBOR. The Consumer Financial Protection Bureau (Bureau) is issuing a final rule to implement laws requiring mortgage lenders to consider consumers' ability to repay home loans before extending them credit. PDF CFPB Consumer Laws and Regulations RESPA English Espaol Resources to help you make financial decisions Mortgage and housing assistance For more information on these mortgage servicing disclosures generally, see Section 5 and 6 of the Mortgage Servicing Small Entity Compliance Guide . In some cases, the contract has a scheduled interest rate adjustment that will occur while the creditor is transitioning the account from LIBOR. Were the interest rate adjustment model and sample forms in Appendix H of Regulation Z updated to reflect the LIBOR transition? Access to credit Rulemaking Banking Millions of borrowers are feeling collective disappointment. However, if the card issuer is using a USD IBOR Consumer Cash Fallbacks tenor to replace LIBOR, it must use the LIBOR value on June 30, 2023, and the USD IBOR Consumer Cash Fallbacks tenor value from the first day the index will be published, likely July 3, 2023. Their pre-tax income is Regulation Z provides examples of factors a creditor must use when comparing historical fluctuations for purposes of the LIBOR transition. The questions and answers below pertain to compliance with the LIBOR Transition Rule. 11. About us | Consumer Financial Protection Bureau If a refinancing occurs, the creditor is required to provide a complete new set of disclosures. Initial and Maximum Example: The initial and maximum interest rates and payments based on a $10,000 loan amount and a statement that the payment may increase or decrease substantially depending on rate changes (12 CFR 1026.19(b)(2)(viii)(B)). Comment 20(a)-3.ii.B. For existing adjustable-rate mortgage loans, are there regulatory limitations on selecting the index replacement under Regulation Z? Trade organizations may offer these resources for free or for a membership fee. 12 CFR 1026.9(c)(2)(iv)(D)(3). Thus, if a card issuer transitions or otherwise replaced LIBOR prior to April 1, 2022, this exception does not apply. At the option of the creditor, this disclosure may be either (or both): The LIBOR transition may impact the loan program example disclosure, depending on which index the creditor selects for new accounts. Comments 20(a)-1 and 3; 12 CFR 1026.19(b); (e); (f); and 1026.43. For either provision, if a creditor uses the USD IBOR Consumer Cash Fallbacks tenor to replace the 1-month, 3-month, 6-month, or 12-month tenors of LIBOR, so long as the margin does not change from the margin in effect just prior to when the creditor replaces LIBOR, the creditor will be deemed to be in compliance with this third condition. Essentially, the CFPB is a watchdog agency tasked with protecting consumers from unscrupulous lenders and other financial institutions. If a creditor replaced one of the identified tenors of LIBOR with its respective USD IBOR Consumer Cash Fallbacks tenor, the creditor would not trigger a refinance through that action. As a result, the 1-month, 3-month, and 6-month tenors of USD IBOR Consumer Cash Fallbacks are the same as the replacement indices the ARRC recommended for 1-month, 3-month, and 6-month tenors of LIBOR. 5. 12 CFR 1026.19(b)(1). Outside the table, the card issuer would disclose the new margin value. 12 CFR 1026.9(c)(2)(iv)(D)(2). Index values for May 2, 2018, through February 28, 2020, can be found on the Federal Reserve Board of New Yorks website in this downloadable excel spreadsheet . First, the card issuer determines the LIBOR-based values. What indices are identified in Regulation Z as examples of comparable replacement indices for each LIBOR tenor? Comments 41(c)-1 and -2. To determine whether a replacement index is comparable for purposes of the LIBOR transition, a creditor must use the historical data or future expectations to look at certain factors, which include, but are not limited to, whether: These factors are not an exhaustive list. Are there specific regulatory or statutory requirements creditors need to consider as they prepare to transition impacted consumers away from the LIBOR index? For either provision, if a card issuer uses the applicable USD IBOR Consumer Cash Fallbacks tenors to replace the 1-month, 3-month, 6-month or 12-month tenors of LIBOR, so long as the margin does not change from the margin in effect just prior to when the card issuer replaces the LIBOR index, the card issuer will be deemed to be in compliance with this third condition. If this occurs, creditors may wonder whether they can add information to the required notices. The Bureau is also releasing a proposal to seek comment on whether to adjust the final NOTE: The questions and answers in this section apply to closed-end adjustable-rate mortgage (ARM) products and services. The ARRCs recommended language and instructions for use are available on the ARRCs website . 12 CFR 1026.59(h). Comment 20(a)-3.ii.B. The notice generally must be provided at least 15 days prior to the effective date of the change.