Regulation Z, implementing the Truth in Lending Act (TILA), would be conformed with legislation enacted last year to complete the transition away from a now-defunct interest rate reference tool under an interim final rule unveiled Friday by the federal consumer financial protection agency.
The interim final rule takes effect May 15; comments will be taken for 30 days.
The Consumer Financial Protection Bureau (CFPB) said the rule amends a regulation adopted in 2021 to facilitate the wind down of the use of the London Interbank Offered Rate (LIBOR), which became defunct at the beginning of 2022. However, loans and other contracts in force still using LIBOR as of then have until June 30 to find an alternative rate. The Federal Reserve developed the Secured Overnight Financing Rate (SOFR) as one alternative. However, SOFR has become a widely used rate in place of LIBOR.
“The interim final rule contains updates to reflect the subsequent enactment of the Adjustable Interest Rate (LIBOR) Act and issuance of an implementing regulation by the Board of Governors of the Federal Reserve Board System,” the bureau said in a release. “This interim final rule will further facilitate the orderly transition of those consumer loans that currently use the LIBOR index to other indices in anticipation of the planned cessation U.S. Dollar (USD) LIBOR after June 30, 2023.”
The bureau said its interim final rule will conform Reg Z (designed to protect consumers against misleading and predatory lending practices) with the 2021 LIBOR Act and the Federal Reserve Board’s implementing regulation. It will do that, the bureau said, by, among other things, adding references to the SOFR-based replacement for the 12-month LIBOR index.
“This interim final rule does not in any way alter or modify the CFPB’s determination in the 2021 LIBOR Transition final rule in relation to the prime rate as a replacement index,” the bureau said. This interim final rule is effective May 15, 2023. Comments must be received on or before 30 days after publication in the Federal Register.