LIBOR CFPB FAQ CCs 2 – What information does a card issuer that extends credit disclose if providing the change-in-terms notice is permitted before certain SOFR-Based Spread-Adjusted Indices are published?

Compliance > Regulation Z - TILA > LIBOR Transition
Q:  What information does a card issuer that extends credit 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 a card issuer that extends credit is transitioning to SOFR-Based
Spread-Adjusted Indices for 1-month, 3-month, or 6-month LIBOR tenors and the change-in-terms notice is provided before these SOFR-based indices are published, the card issuer 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. Comment 9(c)(2)-2.ii.

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 credit card has a rate based on a 1-month, 3-month, or 6-month LIBOR index;
2. The LIBOR index is being replaced by the applicable SOFR-Based Spread-Adjusted Index;
3. The SOFR-based index will not be published at the time the disclosure is provided;
4. The new periodic rate and APR are unknown at the time the disclosure is provided because these SOFR-based indices have not been published;
5. The SOFR-based indices will be published, and thus the new terms will be known, by the time the replacement of the index takes effect; and
6. The card issuer that extends credit 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 card issuer that extends credit may indicate in the change-in-terms notice: 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)(2)(iv)-2.ii.
 
For example, assume a card issuer that extends credit will replace 1-month LIBOR with the applicable SOFR-Based Spread-Adjusted Index effective July 3, 2023, after the SOFR-based indices will be published. However, under Regulation Z, the card issuer must provide the notice at least 45 days prior to July 3. Because the indices will not be published at the time the notice is provided, the card issuer will not know the periodic rate or APR based on the SOFR-based index at the time the change-in-terms notice is provided. So long as the card issuer is not changing the margin, under these facts and assuming all the conditions summarized above apply, the card issuer can include the permitted information discussed above.
 
 
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
 

Add Feedback