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Joint CBA and ABA Comments on CFPB LIBOR Transition
To Whom It May Concern:
The American Bankers Association (ABA)1 and the Consumer Bankers Association (CBA) are pleased to submit their comments to the Bureau of Consumer Financial Protection (Bureau) on its proposed amendments to Regulation Z (Truth in Lending Act) to address the cessation of the London Inter-Bank Overnight Rate (LIBOR), which is expected to be discontinued after December 31, 2021. To assist in the transition from LIBOR, the Bureau is proposing changes to open-end and closed-end Regulation Z provisions to provide examples of replacement indices for LIBOR that meet certain standards of that regulation. In addition, the Bureau is proposing to permit creditors for home equity lines of credit (HELOCs) and credit card accounts to transition existing accounts that use a LIBOR index to a replacement index on or after March 15, 2021 if certain conditions are met.
ABA and CBA generally support the proposal and appreciate the Bureau’s initiative to provide helpful clarification to Regulation Z in anticipation of LIBOR cessation and reduce some of the uncertainty and expected disruption. The proposed roadmap to choose a compliant replacement index will be useful for compliance with Regulation Z and is also likely to be used by courts and others in interpreting contracts that, for compliance and other reasons, mirror regulatory text. We strongly urge the Bureau to finalize amendments quickly so that there is sufficient opportunity for banks and other creditors to prepare for and proceed with the transition from LIBOR beginning on the March 15, 2021 date proposed by the Bureau. In addition, we recommend that the Bureau take the opportunity to identify additional indices which might meet the Regulation Z standards and to provide a framework in the Commentary for analyzing other indices and an example of methodologies creditors may use to determine whether a replacement index is substantially similar or comparable.
Criteria for Substantially Similar or Comparable Replacement Indices
Regulation Z conditions changes to indices and margins of variable rate HELOCs and credit cards. Under §1026.40(f)(3)(ii), creditors may only change the index and margin of a variable rate HELOC if the original index is “no longer available, the new index has an historical movement substantially similar to that of the original index, and the new index and margin would have resulted in an annual percentage rate substantially similar to the rate in effect at the time the original index became unavailable.”