The CFPB on Tuesday finalized a rule aimed at facilitating the transition away from the LIBOR interest rate index for consumer financial products.
The rule establishes requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans after April 1, 2022, according to the CFPB. No new financial contracts may reference LIBOR as the relevant index after the end of 2021, and starting in June 2023, LIBOR can no longer be used for existing financial contracts.
The transition away from LIBOR was set into motion after a criminal rate-setting conspiracy implicated large international banks and undermined public confidence in the index, and approximately $1.4 trillion of consumer loans are estimated to be currently tied to LIBOR, the bureau stated.
“In issuing today’s rule, the CFPB is playing its part to move the financial system away from this opaque and too easily manipulated index,” said Rohit Chopra, CFPB director. “Creditors and servicers must continue preparing for the end of LIBOR. By developing orderly and clear steps to reduce risks to people who may be impacted by the transition, creditors and their servicers can mitigate compliance, legal, financial, and operational risks and support a healthy recovery.”
A full statement from Chopra on the LIBOR transition rule can be accessed on the CFPB website.