LIBOR CFPB FAQ CCs 1 – For existing credit card accounts, will the LIBOR transition trigger the Credit Card change-in-terms notice requirements?

Compliance > Regulation Z - TILA > LIBOR Transition
Q:  For existing credit card accounts, will the LIBOR transition trigger the Credit Card change-in-terms notice requirements?
 
A:   Yes.

Regulation Z, 12 CFR § 1026.9(c)(2) requires card issuers that extend credit to provide a credit card change-in-terms notice whenever 1) the terms in the account-opening table change, 2) certain rate disclosures, such as the index or margin, change, 3) there is an increase in the required minimum periodic payment, or 4) there is a change in the acquisition of a security interest. 12 CFR § 1026.9(c)(2)(ii). In general, the notice must be provided at least 45 days prior to the effective date of the change. 12 CFR § 1026.9(c)(2)(i)(A).

For the LIBOR transition, changing the index, or increasing the margin, periodic rate, or APR (calculated using the replacement index) at the time the notice is provided will trigger a change-in-terms notice. Effective October 1, 2022, the notice must disclose any reduction in the margin (although card issuers that extend credit may optionally comply early with this requirement beginning April 1, 2022). 12 CFR § 1026.9(c)(2)(v)(A).

If the changed term is disclosed in the Account-Opening Disclosures table, such as the index or the APR, the change (and any information relevant to the change if required to be disclosed in the account-opening table) must be disclosed in the same tabular format on the change-in-terms notice. The tabular format must be substantially similar to the model form in Appendix G-17. 12 CFR § 1026.9(c)(2)(iv)(D). The tabular format is not required for disclosing other changes in the change-in-terms notice, such as changes to the margin or the periodic rate. 12 CFR § 1026.9(c)(2)(iv)(D)(1). At the option of the card issuer that extended the credit, the change-in-terms notice can be included with the periodic statement, as long as it meets certain criteria and is substantially similar in format to the notices in Appendix G-20 and G-21. 12 CFR § 1026.9(c)(2)(iv)(D)(2). Alternatively, it can be provided separately. 12 CFR § 1026.9(c)(2)(iv)(D)(3).

If a card issuer that extends credit is changing the index used to calculate a variable rate, the card issuer that extends credit generally must disclose in a tabular format the amount of the new rate (as calculated using the replacement index) and indicate that the rate varies and how the rate is determined. Comment 9(c)(2)(v)-2.i.

For example, assume the card issuer that extends credit selected Prime as the replacement index for the LIBOR index for its credit card accounts, which the card issuer completes on October 2, 2022. As a result of the change, the card issuer must reduce the margin to reach an APR that is substantially similar to the APR calculated using the LIBOR index value for the account, as discussed in more detail in the FAQs below. Assume this results in the same periodic rate and APR at the time the change-in-terms notice is provided, and no other terms required to be disclosed in the notice will change. Under these facts, the card issuer would need to provide a change-in-terms notice disclosing in a tabular format the 1) APR (calculated using the replacement index), and 2) indicate the rate varies with the market based on Prime. Outside the table, the card issuer would disclose the new margin value.
 
In certain cases where a card issuer that extends credit is using a SOFR-Based Spread-Adjusted Index as the replacement index, the card issuer that extends credit may be permitted to send the change-in-terms notice before these SOFR-based indices are published and make modifications to the change-in-terms notice in disclosing the periodic rate and the APR. See LIBOR Credit Card FAQ 2 for a discussion of modifications a card issuer that extends credit can make if this occurs.
 
 
 
This Q&A was created based on information from the Consumer Financial Protection Bureau’s website (which may be updated from time to time) that provides Answers to Frequently Asked Questions on the Transition Away from LIBOR.  This information may be found here:  https://files.consumerfinance.gov/f/documents/cfpb_libor-transition_faqs.pdf
 

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