LIBOR is used as a component of an interest or finance charge in consumer transactions as well as the commercial transactions we have discussed in prior LIBOR Transition posts. On June 4, 2020, the US Consumer Financial Protection Bureau (CFPB), issued a proposed rule that would amend US consumer credit regulations to address the pending elimination of the use of LIBOR as a reference rate. The CFPB also issued updated guidance addressing the same issue.
The changes to the proposed regulation, 12 CFR Part 1026 (referred to generally as Regulation Z), apply to a broad range of consumer credit, including credit cards, open-end mortgages and home equity lines of credit. Generally, consumers must be given notice of changes to their terms of credit, such as an interest rate or finance charge.
Under the proposed amendments, regulations would be amended to suspend that change of notice requirement if the reason for the change was the elimination of the LIBOR reference rate.
On June 5, 2020, the Alternative Reference Rate Committee, the group of private market participants advising the Federal Reserve on the LIBOR transition, issued its own press release welcoming the CFPB’s actions.
Comments are due by August 4, 2020.
Norton Rose Fulbright has assembled a group of its attorneys from around the globe to stay on top of these issues and assist clients in the transition to new reference rates. More information can be found here.