CFPB Announces LIBOR Transition’s Final Rule, Amending Provisions of Regulation Z

On December 7, 2021, the Consumer Financial Protection Bureau (“CFPB”) published its final rule (“Rule”) facilitating the transition away from LIBOR for open-end and closed-end consumer financial products. The Rule amends provisions of Regulation Z, which implements the Truth in Lending Act to allow for the transition from U.S. dollar LIBOR to the Secured Overnight Financing Rate (“SOFR”) and other alternative reference rates. SOFR is deemed compliant as a replacement index whereas other alternative reference rates must pass the “comparability” or “substantially similar” analyses discussed below.

This rule takes place with the backdrop that certain U.S. dollar LIBOR tenors ceased publication on December 31, 2021 and the remaining tenors will no longer be published after June 2023. The cessation of LIBOR has rightfully received more attention for its impact on commercial credit products because of its omnipresence in that market, but this transition will also have a significant effect on consumer credit products.