Sunset of LIBOR as reference rate for many financial products may pose risks to borrowers
Today, the Consumer Financial Protection Bureau (CFPB) joined four other federal financial regulatory agencies, along with state bank and state credit union regulators, in issuing a statement that the use of United States Dollar LIBOR (USD LIBOR) panels will end on June 30, 2023. The statement reiterates the agencies’ expectations that financial institutions with USD LIBOR exposure should complete their transition of remaining LIBOR contracts as soon as practicable. Accordingly, the CFPB is urging banks and nonbanks alike to continue their efforts to adequately prepare for the sunset of USD LIBOR.
The financial services industry uses USD LIBOR as a reference interest rate for many consumer financial products, including adjustable rate mortgage loans, reverse mortgages, home equity lines of credit, credit cards, and student loans. The approaching discontinuation of USD LIBOR in June 2023 presents numerous consumer protection, financial, litigation, and operational risks. For instance, if financial institutions do not issue required disclosures, consumers may not know when the transition from USD LIBOR will occur or how the interest rates they pay will be calculated.
Both banks and nonbanks use USD LIBOR in setting consumer credit interest rates. Nonbanks have increasingly become involved in the issuance of consumer credit. For instance, nonbank mortgage lenders originated nearly two-thirds of loans for home purchasers in 2021. The CFPB is committed to helping both banks and nonbanks transition affected consumers from USD LIBOR in a transparent and orderly manner.
In October 2019 and December 2021, the CFPB published blog posts discussing the transition away from USD LIBOR to help consumers understand this market-wide change. In June 2020, the CFPB released an updated Consumer Handbook on Adjustable-Rate Mortgages to help consumers better understand these products and how their payments can change over time.
On December 7, 2021, the CFPB finalized a rule revising Regulation Z (Truth in Lending Act) to facilitate the transition away from the USD LIBOR interest rate index for consumer loans. The rule establishes requirements for how creditors must select replacement indices for existing USD LIBOR-linked consumer loans after April 1, 2022. The CFPB is currently assessing any further steps it needs to take as a result of the subsequent Adjustable Interest Rate Act and the Federal Reserve Board’s implementing regulation identifying benchmark rates based on the Secured Overnight Financing Rate (SOFR) to replace USD LIBOR in certain consumer contracts.
Read the Interagency Statement .
Consumers can submit complaints about financial products and services, by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
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