CFPB Consults on Interim Final Rule to Facilitate LIBOR Transition
The Consumer Financial Protection Bureau (CFPB) is seeking comments, until June 12, 2023, on an interim final rule that amends the 2021 LIBOR transition final rule to facilitate orderly wind-down of LIBOR. It also issued a statement for financial institutions with USD LIBOR exposure to complete their transition of the remaining LIBOR contracts before their discontinuation on June 30, 2023 and issued a joint statement, along with certain federal agencies, that outlines the commitment to enforce respective laws and regulations with regard to potential harmful uses of automated systems, including those marketed as “artificial intelligence.” Additionally, CFPB announced a revised methodology for determining the average prime offer rates (APOR) for purposes of federal mortgage rules, which will come in effect on April 21, 2023.
The interim final rule on LIBOR transition amends and updates the facilitating the LIBOR Transition final rule, published on December 08, 2021. The interim final rule amends Regulation Z, which implements the Truth in Lending Act (TILA), to reflect the enactment of the Adjustable Interest Rate (LIBOR) Act and its implementing regulation promulgated by the Board of Governors of the Federal Reserve System (FED). This interim final rule further addresses the planned cessation of most U.S. Dollar (USD) LIBOR tenors after June 30, 2023, by incorporating the Board-selected benchmark replacement for consumer loans into Regulation Z. This interim final rule conforms the terminology from the LIBOR Act and the Board's implementing regulation into relevant Regulation Z open-end and closed-end credit provisions and also addresses treatment of the 12-month USD LIBOR index and its replacement index, including permitting creditors to use alternative language in change-in-terms notice content requirements for situations where the 12-month tenor of the LIBOR index is being replaced consistent with the LIBOR Act. This interim final rule does not in any way alter or modify the CFPB’s determination in the 2021 LIBOR Transition final rule in relation to the prime rate as a replacement index. The interim final rule will come in effect on May 15, 2023.
The joint statement on the use of automated systems highlights that CFPB will work with its partner enforcement agencies, namely the Civil Rights Division of the United States Department of Justice, the Federal Trade Commission, and the U.S. Equal Employment Opportunity Commission, to root out discrimination caused by any tool or system that enables unlawful decision making. The statement follows a series of CFPB actions to ensure advanced technologies do not violate the rights of consumers. Specifically, CFPB has taken steps to protect consumers from black box algorithms, algorithmic marketing and advertising, abusive use of artificial intelligence technology, digital redlining and repeat offenders’ use of artificial intelligence technology. Going forward, CFPB will continue to monitor the development and use of automated systems, including AI-marketed technology, and work closely with the agencies to enforce federal consumer financial protection laws and to protect the rights of American consumers, regardless of whether legal violations occur through traditional means or advanced technologies. CFPB will also release a white paper this spring discussing the current chatbot market and the technology’s limitations, its integration by financial institutions, and the ways chatbots interfere with consumers’ ability to interact with financial institutions.
The revised methodology for APOR aims to address the upcoming unavailability of certain data that CFPB previously relied on to calculate average prime offer rates. CFPB explained the data was unavailable because of a recent decision by Freddie Mac to make changes to its Primary Mortgage Market Survey (PMMS). The average prime offer rates are annual percentage rates derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage loans that have low-risk pricing characteristics. The rates are typically calculated from survey data for four hypothetical mortgage products: 30-year fixed-rate, 15-year fixed-rate, five-year variable-rate, and one-year variable-rate. CFPB will begin using Intercontinental Exchange (ICE) Mortgage Technology data and the bureau’s revised methodology to calculate average prime offer rates. Going forward, CFPB will continue to post the survey data used to calculate average prime offer rates on the website of the Federal Financial Institutions Examination Council (FFIEC) website and continue to identify the source of the data on that page.
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Keywords: Americas, US, Banking, LIBOR Transition, Regulation Z, TILA, APOR, Benchmark Reforms, Lending, Artificial Intelligence, Interest Rate Risk, Regtech, Chatbot, CFPB
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