Another One for the White Board: The Transition Away from LIBOR

In my ongoing battle to keep apprised of the ever-changing landscape of regulatory compliance, my one true ally is the 4’ x 6’ white board that hangs in my office. While most of the board is dedicated to short-term projects, a small section is reserved specifically for those future to-do list items I don’t want to lose track of. I should have got a bigger white board…

As many of you may already know, the UK’s Financial Conduct Authority announced that publication of the London Interbank Offered Rate (LIBOR) index is not guaranteed beyond 2021. This is significant for financial institutions in the United States as many have variable rate lending products tied to the LIBOR index, such as adjustable rate mortgages, home equity lines of credit, credit cards, etc.

The Alternative Reference Rates Committee (ARRC), a committee of the Federal Reserve, has recommended the Secured Overnight Financing Rate (SOFR) as an alternative to LIBOR. The Federal Reserve Bank of New York publishes the SOFR index here.

If you’re looking for something to add to that tiny bit of remaining open space on your white board, make note of the advance disclosure requirements you may have in connection with this transition:
• If your financial institution has an adjustable rate mortgage (ARM) product tied to LIBOR, §1026.20 of Regulation Z requires notice in advance of a rate adjustment with a corresponding change in payment. This notice must be provided at least 60 days, but not more than 120 days, before the first payment at the adjusted level is due.
• If your financial institution’s home equity line of credit (HELOC) product is tied to LIBOR, §1026.9 of Regulation Z requires a change in terms notice. This notice must be provided at least 15 days before the effective date of the change.
• If your financial institution has a credit card product tied to LIBOR, §1026.9 of Regulation Z requires a change in terms notice. This notice must be provided at least 45 days before the effective date of the change.

For questions about the transition away from LIBOR or any other really exciting regulatory compliance topic, don’t hesitate to contact Michael Christians Consulting, LLC at michael@mchristiansconsulting.com!

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