Q: What information does a creditor disclose if providing the change-in-terms notice is permitted before certain SOFR-Based Spread-Adjusted Indices are published?
A: During the LIBOR Transition, if the creditor is transitioning to a SOFR-Based Spread-Adjusted Index for 1-month, 3-month, or 6-month LIBOR, and the change-in-terms notice is provided before the SOFR indices are published, the creditor may use alternative language in the notice to disclose the periodic rate and APR (as calculated using the replacement index) and add certain indications that the periodic rate and APR provided in the notice are estimates.
The ability to use the alternative language to disclose the periodic rate and the APR and indicate the periodic rate and the APR are estimates on the change-in-terms notice applies under the following conditions:
1. The HELOC is a variable rate product based on either the 1-month, 3-month, or 6-month tenor of LIBOR prior to the transition;
2. The LIBOR index is being replaced with the applicable SOFR-Based Spread-Adjusted Index for that LIBOR tenor;
3. The applicable SOFR-based index will be unpublished at the time the disclosure is provided;
4. The periodic rate and APR are unknown because the SOFR-based indices have not been published;
5. The SOFR-based indices will be published, and thus the new periodic rate and APR will be known, by the time the replacement of the index takes effect; and
6. The creditor is not changing the margin in conjunction with these changes.
Under these conditions, to satisfy any requirement to disclose the periodic rate and APR (or changes in these rates) as calculated using the replacement index, the creditor may provide information in the change-in-terms notice that indicates for the consumer 1) that information about the periodic rate and APR is not yet available, 2) the creditor estimates that at the time the index is replaced, the periodic rate and APR will be substantially similar to what it would have been had the index not been replaced, and 3) the periodic rate and APR will vary with the
market based on a SOFR index. Comment 9(c)(1)-4.
For example, assume a creditor will change the index for a variable rate product to the SOFR-Based Spread-Adjusted Index for 1-month LIBOR effective July 3, 2023, after the SOFR-based index replacement for 1-month LIBOR will be published. However, under Regulation Z, the creditor must provide the notice at least 15 days prior to July 3. Because the indices will not be published at the time the notice is provided, the creditor will not know the periodic rate or APR based on the replacement SOFR-based index at the time the change-in-terms notice is provided. So long as the creditor is not changing the margin, under these facts and assuming all the conditions summarized above apply, the creditor can indicate on the change-in-terms notice the permitted information discussed above.