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CFPB issues final rule on transition away from LIBOR
The CFPB today issued a final rule facilitating the transition away from the London Interbank Offered Rate (LIBOR) index for financial products. The rule sets up requirements for creditors to “select replacement indices for existing LIBOR-linked consumer loans after April, 1, 2022.”
NAFCU Vice President of Legislative Affairs Brad Thaler in November wrote to the Senate Banking Committee to offer support for Congressional action to address the legacy of LIBOR contracts. In his letter, Thaler pointed out that while “some credit unions still have a small number of legacy LIBOR contracts in their consumer loan portfolios, some of which do not contain fallback language that would allow for the contract to be amended and continued when LIBOR sunsets.”
According to the final rule, financial contracts may only reference LIBOR as a relevant index until the end of this year; LIBOR can no longer be used for existing financial contracts starting June 2023.
Of note, the NCUA encourages all credit unions to transition away from LIBOR by Dec. 31, 2021. The agency noted in May that “failure to prepare for LIBOR disruptions could undermine a federally insured credit union’s financial stability, and safety and soundness.”
"The criminal manipulation of LIBOR by global financial institutions was extremely costly to our country,” said CFPB Director Rohit Chopra. “LIBOR will soon be a relic of history, and we will be working to ensure that companies make an orderly transition away from this index.”
NAFCU will share with members a full breakdown of the final rule, detailing how this will affect credit unions. Stay tuned to NAFCU Today to get the latest updates on the CFPB.