Q: When card issuers complete the LIBOR transition, are they required to complete rate reevaluations on the account?
A: No, under certain circumstances. Generally under Regulation Z, 12 CFR § 1026.59(a), if a card issuer increases an APR that applies to a credit card account, triggering a change-in-terms notice or a penalty rate increase notice, the card issuer must review the account for certain factors and reduce the account APR, as appropriate. The card issuer must continue to review the account every 6 months (i.e., the rate reevaluation), until the APR is reduced at least to the APR applicable immediately prior to the increase. If the APR applicable immediately prior to the increase was a variable rate, then the APR must be reduced to a variable rate determined by the same formula (index and margin) that was used to calculate the rate applicable immediately prior to the increase.
The LIBOR Transition Rule provides a LIBOR-Specific Rate Reevaluation Exception for rate reevaluation requirements triggered by the LIBOR transition under certain circumstances. Effective April 1, 2022, if the card issuer completes the LIBOR transition by complying with the conditions required for using the LIBOR Transition Rule’s Unavailable Provision or the LIBOR-Specific Provision, the card issuer is excepted from the rate reevaluation requirements for the rate increase that occur as a result of the LIBOR transition for replacement of the LIBOR index and any adjustment to the margin permitted under the Unavailable Provision or the LIBOR-specific Provision as applicable. 12 CFR § 1026.59(h). For more information on these provisions as they apply in the LIBOR transition, see LIBOR Credit Card FAQ 3, above.
Note that the LIBOR-Specific Rate Reevaluation Exception does not apply to rate increases that are already subject to the rate reevaluation requirements prior to the transition from the LIBOR index. Also, if the rate reevaluation requirements are triggered due to causes other than the transition, the card issuer must comply with the rate reevaluation requirements. For example, if the card issuer receives the LIBOR-Specific Rate Reevaluation Exception for the LIBOR transition, but then later increases the APR due to the consumer’s credit risk at that time, the card issuer must then comply with the rate reevaluation requirements.
Further, the LIBOR-Specific Rate Reevaluation Exception does not apply prior to the effective date of the rule. Thus, if a card issuer transitions or otherwise replaced LIBOR prior to April 1, 2022, this exception does not apply.
Additionally, if a card issuer does not meet the conditions required for using the Unavailable or LIBOR-Specific Provisions, the LIBOR-Specific Rate Reevaluation Exception does not apply, and the card issuer must complete the rate reevaluation until a review determines it is no longer required. See LIBOR Credit Card FAQ 13 for more information about how to complete the rate reevaluations when LIBOR is unavailable.