The use of the LIBOR index is expected to end on June 30, 2023. Per the CFPB’s LIBOR Transition FAQs, “[t]his change will affect some adjustable (or variable) rate loans and lines of credit, such as adjustable-rate mortgages (ARMs), reverse mortgages, home equity lines of credit (HELOCs), credit cards, student loans, and any other consumer loans that use LIBOR as the index.” As such, I thought it may be helpful to provide some helpful FAQs from the CFPB in relation to adjustable-rate mortgages (ARMs) and notice of the transition.
As discussed in this previous post in the Compliance Blog, some contracts may have included “fallback provisions” that provided a new index to replace LIBOR, or a “determining person” who would be empowered to select a replacement index. For contracts that did not contain such provisions, however, the LIBOR Act and its implementing regulations chose the Secured Overnight Financing Rate (SOFR) as the rate that will replace LIBOR after June 30th. So, do credit unions need to provide notices to their members that the index will be changing from LIBOR to SOFR?
Per the CFPB, the sunsetting of the LIBOR index does not automatically trigger the ARM interest rate adjustment notice requirements. FAQ #9 provides the following:
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