Facilitating the LIBOR Transition (Regulation Z)

CourtConsumer Financial Protection Bureau
Citation85 FR 36938
Published date18 June 2020
Record Number2020-12239
Federal Register, Volume 85 Issue 118 (Thursday, June 18, 2020)
[Federal Register Volume 85, Number 118 (Thursday, June 18, 2020)]
                [Proposed Rules]
                [Pages 36938-36994]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-12239]
                [[Page 36937]]
                Vol. 85
                Thursday,
                No. 118
                June 18, 2020
                Part II
                 Bureau of Consumer Financial Protection
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                12 CFR Part 1026
                Facilitating the LIBOR Transition (Regulation Z); Proposed Rule
                Federal Register / Vol. 85, No. 118 / Thursday, June 18, 2020 /
                Proposed Rules
                [[Page 36938]]
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                BUREAU OF CONSUMER FINANCIAL PROTECTION
                12 CFR Part 1026
                [Docket No. CFPB-2020-0014]
                RIN 3170-AB01
                Facilitating the LIBOR Transition (Regulation Z)
                AGENCY: Bureau of Consumer Financial Protection.
                ACTION: Proposed rule with request for public comment.
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                SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
                proposing to amend Regulation Z, which implements the Truth in Lending
                Act (TILA), generally to address the sunset of LIBOR, which is expected
                to be discontinued after 2021. Some creditors currently use LIBOR as an
                index for calculating rates for open-end and closed-end products. The
                Bureau is proposing changes to open-end and closed-end provisions to
                provide examples of replacement indices for LIBOR indices that meet
                certain Regulation Z standards. The Bureau also is proposing to permit
                creditors for home equity lines of credit (HELOCs) and card issuers for
                credit card accounts to transition existing accounts that use a LIBOR
                index to a replacement index on or after March 15, 2021, if certain
                conditions are met. The proposal also addresses change-in-terms notice
                provisions for HELOCs and credit card accounts and how they apply to
                accounts transitioning away from using a LIBOR index. Lastly, the
                Bureau is proposing to address how the rate reevaluation provisions
                applicable to credit card accounts apply to the transition from using a
                LIBOR index to a replacement index.
                DATES: Comments must be received on or before August 4, 2020.
                ADDRESSES: You may submit comments, identified by Docket No. CFPB-2020-
                0014 or RIN 3170-AB01, by any of the following methods:
                 Federal eRulemaking Portal: http://www.regulations.gov.
                Follow the instructions for submitting comments.
                 Email: [email protected]. Include Docket No. CFPB-
                2020-0014 or RIN 3170-AB01 in the subject line of the message.
                 Hand Delivery/Mail/Courier: Comment Intake--LIBOR, Bureau
                of Consumer Financial Protection, 1700 G Street NW, Washington, DC
                20552. Please note that due to circumstances associated with the COVID-
                19 pandemic, the Bureau discourages the submission of comments by hand
                delivery, mail, or courier.
                 Instructions: The Bureau encourages the early submission of
                comments. All submissions should include the agency name and docket
                number or Regulatory Information Number (RIN) for this rulemaking.
                Because paper mail in the Washington, DC area and at the Bureau is
                subject to delay, and in light of difficulties associated with mail and
                hand deliveries during the COVID-19 pandemic, commenters are encouraged
                to submit comments electronically. In general, all comments received
                will be posted without change to https://www.regulations.gov. In
                addition, once the Bureau's headquarters reopens, comments will be
                available for public inspection and copying at 1700 G Street NW,
                Washington, DC 20552, on official business days between the hours of 10
                a.m. and 5 p.m. Eastern Time. At that time, you can make an appointment
                to inspect the documents by telephoning 202-435-7275.
                 All comments, including attachments and other supporting materials,
                will become part of the public record and subject to public disclosure.
                Proprietary information or sensitive personal information, such as
                account numbers or Social Security numbers, or names of other
                individuals, should not be included. Comments will not be edited to
                remove any identifying or contact information.
                FOR FURTHER INFORMATION CONTACT: Angela Fox, Counsel, or Krista Ayoub,
                Kristen Phinnessee, or Amanda Quester, Senior Counsels, Office of
                Regulations, at 202-435-7700. If you require this document in an
                alternative electronic format, please contact
                [email protected].
                SUPPLEMENTARY INFORMATION:
                I. Summary of the Proposed Rule
                 The Bureau is proposing several amendments to Regulation Z, which
                implements TILA, for both open-end and closed-end credit to address the
                sunset of LIBOR.\1\ At this time, LIBOR is expected to be discontinued
                after 2021. These proposed changes are discussed in more detail below.
                As discussed in part VI, the Bureau generally is proposing that the
                final rule would take effect on March 15, 2021, except for the updated
                change-in-term disclosure requirements for HELOCs and credit card
                accounts that would apply as of October 1, 2021. The Bureau also is
                issuing additional written guidance related to the LIBOR transition on
                its website as discussed in part II.C. The Bureau solicits comment on
                the changes proposed in this document and whether there are any
                additional regulatory changes or guidance that would be helpful as
                creditors and card issuers transition away from using LIBOR indices.
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                 \1\ When amending commentary, the Office of the Federal Register
                requires reprinting of certain subsections being amended in their
                entirety rather than providing more targeted amendatory
                instructions. The sections of regulatory text and commentary
                included in this document show the language of those sections if the
                Bureau adopts its changes as proposed. In addition, the Bureau is
                releasing an unofficial, informal redline to assist industry and
                other stakeholders in reviewing the changes that it is proposing to
                make to the regulatory text and commentary of Regulation Z. This
                redline can be found on the Bureau's website, at https://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/amendments-facilitate-libor-transition-regulation- z/.
                If any conflicts exist between the redline and the text of
                Regulation Z, its commentary, or this proposed rule, the documents
                published in the Federal Register are the controlling documents.
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                A. Open-End Credit
                 The Bureau is proposing several amendments to the open-end credit
                provisions in Regulation Z to address the sunset of LIBOR. First, the
                Bureau is proposing a detailed roadmap for HELOC creditors and card
                issuers to choose a compliant replacement index for the LIBOR index.\2\
                Regulation Z already permits HELOC creditors and card issuers to change
                an index and margin they use to set the annual percentage rate (APR) on
                a variable-rate account under certain conditions, when the original
                index ``becomes unavailable'' or ``is no longer available.'' The Bureau
                has preliminarily determined, however, that consumers, HELOC creditors,
                and card issuers would benefit substantially if HELOC creditors and
                card issuers could transition away from a LIBOR index before LIBOR
                becomes unavailable. The Bureau is therefore proposing new provisions
                that detail specifically how HELOC creditors and card issuers may
                replace a LIBOR index with a replacement index for accounts on or after
                March 15, 2021. These proposed new provisions are in proposed Sec.
                1026.40(f)(3)(ii)(B) for HELOCs and in proposed Sec. 1026.55(b)(7)(ii)
                for credit card accounts.
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                 \2\ Reverse mortgages structured as open-end credit are HELOCs
                subject to the provisions in Sec. Sec. 1026.40 and 1026.9(c)(1).
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                 Under the proposal, HELOC creditors and card issuers must ensure
                that the APR calculated using the replacement index is substantially
                similar to the rate calculated using the LIBOR index, based on the
                values of these indices on December 31, 2020. The proposal also imposes
                other requirements on a replacement index. Under the proposal,
                [[Page 36939]]
                HELOC creditors and card issuers may select a replacement index that is
                newly established and has no history, or an index that is not newly
                established and has a history. HELOC creditors and card issuers may
                replace a LIBOR index with an index that has a history only if the
                index has historical fluctuations substantially similar to those of the
                LIBOR index. The Bureau is proposing to determine that the prime rate
                published in the Wall Street Journal (Prime) has historical
                fluctuations substantially similar to those of certain U.S. Dollar
                (USD) LIBOR indices. The Bureau also is proposing to determine that
                certain spread-adjusted \3\ indices based on the Secured Overnight
                Financing Rate (SOFR) recommended by the Alternative Reference Rates
                Committee (ARRC) have historical fluctuations that are substantially
                similar to those of certain USD LIBOR indices.
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                 \3\ The spread between two indices is the difference between the
                levels of those indices, which may vary from day to day. For
                example, if today index X is 5% and index Y is 4%, then the X-Y
                spread today is one percentage point (or, equivalently, 100 basis
                points). A spread adjustment is a term that is added to one index to
                make it more similar to another index. For example, if the X-Y
                spread is typically around 100 basis points, then one reasonable
                spread adjustment may be to add 100 basis points to Y every day.
                Then the spread-adjusted value of Y will typically be much closer to
                the value of X than Y is, although there may still be differences
                between X and the spread-adjusted Y from day to day.
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                 Second, the Bureau is proposing to make clarifying changes to the
                existing provisions on the replacement of an index when the index
                becomes unavailable. These proposed changes are in proposed Sec.
                1026.40(f)(3)(ii)(A) for HELOCs and in proposed Sec. 1026.55(b)(7)(i)
                for credit card accounts.
                 Third, the Bureau is proposing to revise change-in-terms notice
                requirements for HELOCs and credit card accounts to ensure that
                consumers know how the variable rates on their accounts will be
                determined going forward after the LIBOR index is replaced. The
                proposal would ensure that the change-in-terms notices for these
                accounts will disclose the index that is replacing the LIBOR index and
                any adjusted margin that will be used to calculate a consumer's rate,
                regardless of whether the margin is being reduced or increased. These
                proposed changes, if adopted, would become effective October 1, 2021.
                The proposed changes are in Sec. 1026.9(c)(1)(ii) for HELOCs and in
                Sec. 1026.9(c)(2)(v)(A) for credit card accounts.
                 Fourth, the Bureau is proposing to add an exception from the rate
                reevaluation provisions applicable to credit card accounts. Currently,
                when a card issuer increases a rate on a credit card account, the card
                issuer generally must complete an analysis reevaluating the rate
                increase every six months until the rate is reduced to a certain
                degree. To facilitate compliance, the proposal would add an exception
                from these requirements for increases that occur as a result of
                replacing a LIBOR index using the specific proposed provisions
                described above for transitioning from a LIBOR index or as a result of
                the LIBOR index becoming unavailable. This proposed exception is in
                proposed Sec. 1026.59(h)(3). This proposed exception would not apply
                to rate increases that are already subject to the rate reevaluation
                requirements prior to the transition from the LIBOR index. The proposal
                also would address cases where the card issuer was already required to
                perform a rate reevaluation review prior to transitioning away from
                LIBOR and LIBOR was used as the benchmark for comparison for purposes
                of determining whether the card issuer can terminate the six-month
                reviews. To facilitate compliance, these proposed changes would address
                how a card issuer can terminate the obligation to review where the rate
                applicable immediately prior to the increase was a variable rate
                calculated using a LIBOR index. These proposed changes are set forth in
                proposed Sec. 1026.59(f)(3).
                 Fifth, in relation to the open-end credit provisions, the Bureau is
                proposing several technical edits to comments 9(c)(2)(iv)-2 and 59(d)-2
                to replace LIBOR references with references to a SOFR index.
                B. Closed-End Credit
                 The Bureau is proposing amendments to the closed-end credit
                provisions in Regulation Z to address the sunset of LIBOR. First, the
                Bureau is proposing to identify specific indices as an example of a
                ``comparable index'' for purposes of the closed-end refinancing
                provisions. Currently, under Regulation Z, if the creditor changes the
                index of a variable-rate closed-end loan to an index that is not a
                ``comparable index,'' the index change may constitute a refinancing for
                purposes of Regulation Z, triggering certain requirements. The Bureau
                is proposing to add an illustrative example to identify the SOFR-based
                spread-adjusted replacement indices recommended by the ARRC as an
                example of a ``comparable index'' for the LIBOR indices that they are
                intended to replace. These proposed changes are in comment 20(a)(3)-ii.
                 Second, in relation to the closed-end credit provisions, the Bureau
                is proposing technical edits to Sec. 1026.36(a)(4)(iii)(C) and
                (a)(5)(iii)(B), comment 37(j)(1)-1, and sample forms H-4(D)(2) and H-
                4(D)(4) in appendix H. These proposed technical edits would replace
                LIBOR references with references to a SOFR index and make related
                changes and corrections.
                II. Background
                A. LIBOR
                 Introduced in the 1980s, LIBOR (originally an acronym for London
                Interbank Offered Rate) was intended to measure the average rate at
                which a bank could obtain unsecured funding in the London interbank
                market for a given period, in a given currency. LIBOR is calculated
                based on submissions from a panel of contributing banks and published
                every London business day for five currencies (USD, British pound
                sterling (GBP), euro (EUR), Swiss franc (CHF), and Japanese yen (JPY))
                and for seven tenors \4\ for each currency (overnight, 1-week, 1-month,
                2-month, 3-month, 6-month, and 1-year), resulting in 35 individual
                rates (collectively, LIBOR). As of March 2020, the panel for USD LIBOR
                is comprised of sixteen banks, and each bank contributes data for all
                seven tenors.\5\ In 2017, the chief executive of the U.K. Financial
                Conduct Authority (FCA), which regulates LIBOR, announced that it did
                not intend to persuade or compel banks to submit information for LIBOR
                past the end of 2021 and that the panel banks had agreed to voluntarily
                sustain LIBOR until then in order to provide sufficient time for the
                market to transition from using LIBOR indices to alternative
                indices.\6\ However, the Intercontinental Exchange (ICE) Benchmark
                Administration, which administers LIBOR, announced a goal to continue
                publishing certain LIBOR tenors past 2021 though it declined to
                guarantee their continued availability.\7\ The FCA has indicated that
                it would conduct ``representativeness tests'' if LIBOR continues to be
                published for some time after 2021 based on submissions from a smaller
                number of panel banks (and thus a smaller number of transactions),
                raising the possibility that LIBOR could
                [[Page 36940]]
                be declared to be unrepresentative by its regulator.\8\ As a result,
                industry faces uncertainty about the publication and representativeness
                of LIBOR, which is neither guaranteed to continue nor guaranteed to
                cease.
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                 \4\ The tenor refers to the length of time remaining until a
                loan matures.
                 \5\ ICE LIBOR, (last visited Mar. 26, 2020), https://www.theice.com/iba/libor.
                 \6\ Andrew Bailey, The Future of LIBOR, U.K. FCA, (July 27,
                2017), https://www.fca.org.uk/news/speeches/the-future-of-libor; FCA
                Statement on LIBOR Panels, U.K. FCA, (Nov. 24, 2017), https://www.fca.org.uk/news/statements/fca-statement-libor-panels.
                 \7\ Intercontinental Exch. Benchmark Admin., ICE Benchmark
                Administration Survey on the Use of LIBOR, https://www.theice.com/iba/ice-benchmark-administration-survey-on-the-use-of-libor (last
                visited May 18, 2020).
                 \8\ Andrew Bailey, LIBOR: Preparing for the End, U.K. FCA, (July
                15, 2019), https://www.fca.org.uk/news/speeches/libor-preparing-end.
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                B. Consumer Products Using LIBOR
                 In the United States, financial institutions have used LIBOR as a
                common benchmark rate for a variety of adjustable-rate consumer
                financial products, including mortgages, credit cards, HELOCs, reverse
                mortgages, and student loans. Typically, the consumer pays an interest
                rate that is calculated as the sum of a benchmark index and a margin.
                For example, a consumer may pay an interest rate equal to the 1-year
                USD LIBOR plus two percentage points.
                 Financial institutions have been developing plans and procedures to
                transition from the use of LIBOR indices to replacement indices for
                products that are being newly issued and existing accounts that were
                originally benchmarked to a LIBOR index. In some markets, such as for
                HELOCs and credit cards, the vast majority of newly originated lines of
                credit are already based on indices other than a LIBOR index.
                C. Additional Written Guidance
                 In addition to this proposed rule, the Bureau is issuing separate
                written guidance in the form of Frequently Asked Questions (FAQs) for
                creditors and card issuers to use as they transition away from using
                LIBOR indices. These FAQs address regulatory questions where the
                existing rule is clear on the requirements and already provides
                necessary alternatives needed for the LIBOR transition. The guidance
                can be found at: https://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/amendments-facilitate-libor-transition-regulation-z/. This guidance deals with issues related to:
                (1) Existing mortgage servicing notice requirements (including how
                servicers may notify consumers of the index change when sending the
                interest rate adjustment notices and periodic statements); (2) existing
                HELOC and adjustable-rate mortgage (ARM) loan program notice
                requirements disclosing historical index examples; (3) existing
                Alternative Mortgage Transaction Parity Act requirements for index
                changes that result in an increased interest rate or finance charge for
                alternative mortgage transactions; and (4) identification of
                implementation and consumer impacts for creditors or card issuers as
                they prepare for the LIBOR transition.
                III. Outreach
                 The Bureau has received feedback through both formal and informal
                channels, regarding ways in which the Bureau could use rulemaking to
                facilitate the market's orderly transition from using LIBOR indices to
                alternate indices. The following is a brief summary of some of the
                Bureau's engagement with industry, consumer advocates, regulators, and
                other stakeholders regarding the transition away from the use of LIBOR
                indices. The Bureau discusses feedback received through these various
                channels that is relevant to this proposal throughout the document.
                 The Bureau is an ex officio member of the ARRC, a group of private-
                market participants convened by the Board of Governors of the Federal
                Reserve System (Board) and the Federal Reserve Bank of New York (New
                York Fed) to ensure a successful transition from the use of LIBOR as an
                index by December 2021. The group is comprised of financial
                institutions and other market participants such as exchanges,
                regulators, and consumer advocates. As an ex officio member, the Bureau
                does not have voting rights and may only offer views and analysis to
                support the ARRC's objectives. Through its interaction with other ARRC
                members, the Bureau has received questions and requests for
                clarification regarding certain provisions in the Bureau's rules that
                could affect the industry's LIBOR transition plans. For example, the
                Bureau has received informal requests from members of the ARRC for
                clarification that the spread-adjusted SOFR-based index being developed
                by the ARRC is a ``comparable index'' to the LIBOR index. The Bureau
                has also, in coordination with the ARRC, actively sought comments
                regarding a potential rulemaking related to the LIBOR transition. For
                example, the Bureau convened multiple meetings for members of the ARRC
                to hear consumer groups' views on potential issues consumers may face
                during the sunset of LIBOR and solicited suggestions for potential
                actions the regulators could take to facilitate a smooth transition.
                 The Bureau has engaged in ongoing market monitoring with individual
                institutions, trade associations, regulators, and other stakeholders to
                understand their plans for the LIBOR transition, their concerns, and
                potential impacts on consumers. Institutions and trade associations
                have met informally with the Bureau and sent letters outlining their
                concerns related to the sunset of LIBOR. The Bureau also has received
                feedback regarding the LIBOR transition through other formal channels
                that were related to general Bureau activities. For example, in January
                2019, the Bureau solicited information from the public about several
                aspects of the consumer credit card market. The Bureau received
                comments submitted from a banking trade group regarding changes to
                Regulation Z that could support the transition away from using LIBOR
                indices.\9\
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                 \9\ 84 FR 647 (Jan. 31, 2019).
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                 Through these various channels, industry trade associations,
                consumer groups, and other organizations have provided information
                about provisions in Bureau regulations that could be modified to reduce
                market confusion, enable institutions and consumers to transition away
                from using LIBOR indices in a timely manner, and lower market risk
                related to the LIBOR transition. A number of financial institutions
                raised concerns that LIBOR may continue for some time after December
                2021 but become less representative or reliable if, as expected, some
                panel banks stop submitting information before LIBOR finally is
                discontinued. Stakeholders noted that FCA could declare LIBOR to be
                ``unrepresentative'' at some point after 2021 and wanted clarity from
                U.S. Federal regulators about how U.S. firms should interpret such a
                declaration. Some industry participants asked that the Bureau declare
                LIBOR to be ``unavailable'' for the purposes of Regulation Z. They also
                requested that the Bureau facilitate a transition timeline that would
                provide sufficient time for financial institutions to inform consumers
                of the change and make the necessary changes to their systems.
                 Industry also recommended that the Bureau announce that it would
                not deem a replacement index to be unfair, deceptive, or abusive if it
                were recommended by the Board, the New York Fed, or a committee
                endorsed or convened by the Board or New York Fed.
                 Credit card issuers and related trade associations stated that the
                prime rate should be permitted to replace a LIBOR index, noting that
                while a SOFR-based index is expected to replace a LIBOR index in many
                commercial contexts, the prime rate is the industry standard rate index
                for credit cards. They also requested that the Bureau permit card
                issuers to replace the LIBOR index used in setting the variable rates
                on existing accounts before LIBOR becomes unavailable to facilitate
                compliance.
                [[Page 36941]]
                They also requested guidance on how the rate reevaluation provisions
                applicable to credit card accounts apply to accounts that are
                transitioning away from using LIBOR indices.
                 Consumer advocates emphasized the need for transparency as
                institutions sunset their use of LIBOR indices and indicated a
                preference for replacement indices that are publicly available. They
                recommended regulators protect consumers by preventing institutions
                from changing the index or margin in a manner that would raise the
                interest rate paid by the consumer. They also shared industry's
                concerns that LIBOR may continue for some time after December 2021 but
                become less representative or reliable until LIBOR finally is
                discontinued. Advocates noted that existing contract language may limit
                how and when institutions can transition away from LIBOR. They also
                discussed issues specific to particular consumer products, expressing
                concern, for example, that the contract language in the private student
                loan market is ambiguous and gives lenders wide leeway in determining a
                comparable replacement index for LIBOR indices.
                IV. Legal Authority
                A. Section 1022 of the Dodd-Frank Act
                 Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to
                prescribe rules ``as may be necessary or appropriate to enable the
                Bureau to administer and carry out the purposes and objectives of the
                Federal consumer financial laws, and to prevent evasions thereof.''
                Among other statutes, title X of the Dodd-Frank Act and TILA are
                Federal consumer financial laws.\10\ Accordingly, in setting forth this
                proposal, the Bureau is exercising its authority under Dodd-Frank Act
                section 1022(b) to prescribe rules under TILA and title X that carry
                out the purposes and objectives and prevent evasion of those laws.
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                 \10\ Dodd-Frank Act section 1002(14) (defining ``Federal
                consumer financial law'' to include the ``enumerated consumer laws''
                and the provisions of title X of the Dodd-Frank Act); Dodd-Frank Act
                section 1002(12) (defining ``enumerated consumer laws'' to include
                TILA).
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                B. The Truth in Lending Act
                 TILA is a Federal consumer financial law. In adopting TILA,
                Congress explained that:
                 [E]conomic stabilization would be enhanced and the competition
                among the various financial institutions and other firms engaged in
                the extension of consumer credit would be strengthened by the
                informed use of credit. The informed use of credit results from an
                awareness of the cost thereof by consumers. It is the purpose of
                this subchapter to assure a meaningful disclosure of credit terms so
                that the consumer will be able to compare more readily the various
                credit terms available to him and avoid the uninformed use of
                credit, and to protect the consumer against inaccurate and unfair
                credit billing and credit card practices.\11\
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                 \11\ TILA section 102(a), codified at 15 U.S.C. 1601(a).
                 TILA and Regulation Z define credit broadly as the right granted by
                a creditor to a debtor to defer payment of debt or to incur debt and
                defer its payment.\12\ TILA and Regulation Z set forth disclosure and
                other requirements that apply to creditors. Different rules apply to
                creditors depending on whether they are extending ``open-end credit''
                or ``closed-end credit.'' Under the statute and Regulation Z, open-end
                credit exists where there is a plan in which the creditor reasonably
                contemplates repeated transactions; the creditor may impose a finance
                charge from time to time on an outstanding unpaid balance; and the
                amount of credit that may be extended to the consumer during the term
                of the plan (up to any limit set by the creditor) is generally made
                available to the extent that any outstanding balance is repaid.\13\
                Typically, closed-end credit is credit that does not meet the
                definition of open-end credit.\14\
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                 \12\ TILA section 103(f), codified at 15 U.S.C. 1602(f); 12 CFR
                1026.2(a)(14).
                 \13\ 12 CFR 1026.2(a)(20).
                 \14\ 12 CFR 1026.2(a)(10).
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                 The term ``creditor'' generally means a person who regularly
                extends consumer credit that is subject to a finance charge or is
                payable by written agreement in more than four installments (not
                including a down payment), and to whom the obligation is initially
                payable, either on the face of the note or contract, or by agreement
                when there is no note or contract.\15\ TILA defines ``finance charge''
                generally as the sum of all charges, payable directly or indirectly by
                the person to whom the credit is extended, and imposed directly or
                indirectly by the creditor as an incident to the extension of
                credit.\16\
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                 \15\ See TILA section 103(g), codified at 15 U.S.C. 1602(g); 12
                CFR 1026.2(a)(17)(i).
                 \16\ TILA section 106(a), codified at 15 U.S.C. 1605(a); see 12
                CFR 1026.4.
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                 The term ``creditor'' also includes a card issuer, which is a
                person or its agent that issues credit cards, when that person extends
                credit accessed by the credit card.\17\ Regulation Z defines the term
                ``credit card'' to mean any card, plate, or other single credit device
                that may be used from time to time to obtain credit.\18\ A charge card
                is a credit card on an account for which no periodic rate is used to
                compute a finance charge.\19\ In addition to being creditors under TILA
                and Regulation Z, card issuers also generally must comply with the
                credit card rules set forth in the Fair Credit Billing Act \20\ and in
                the Credit Card Accountability Responsibility and Disclosure Act of
                2009 (Credit CARD Act) \21\ (if the card accesses an open-end credit
                plan), as implemented in Regulation Z subparts B and G.\22\
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                 \17\ See TILA section 103(g), codified at 15 U.S.C. 1602(g); 12
                CFR 1026.2(a)(17)(iii) and (iv).
                 \18\ See 12 CFR 1026.2(a)(15).
                 \19\ See 12 CFR 1026.2(a)(15)(iii).
                 \20\ Title III of Public Law 93-495, 88 Stat. 1511 (1974).
                 \21\ Public Law 111-24, 123 Stat. 1734 (2009).
                 \22\ See generally 12 CFR 1026.5(b)(2)(ii), .7(b)(11), .12,
                .51-.60.
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                 TILA section 105(a). As amended by the Dodd-Frank Act, TILA section
                105(a) \23\ directs the Bureau to prescribe regulations to carry out
                the purposes of TILA, and provides that such regulations may contain
                additional requirements, classifications, differentiations, or other
                provisions, and may provide for such adjustments and exceptions for all
                or any class of transactions, that the Bureau judges are necessary or
                proper to effectuate the purposes of TILA, to prevent circumvention or
                evasion thereof, or to facilitate compliance. Pursuant to TILA section
                102(a), a purpose of TILA is to assure a meaningful disclosure of
                credit terms to enable the consumer to avoid the uninformed use of
                credit and compare more readily the various credit terms available to
                the consumer. This stated purpose is tied to Congress's finding that
                economic stabilization would be enhanced and competition among the
                various financial institutions and other firms engaged in the extension
                of consumer credit would be strengthened by the informed use of
                credit.\24\ Thus, strengthened competition among financial institutions
                is a goal of TILA, achieved through the effectuation of TILA's
                purposes.
                ---------------------------------------------------------------------------
                 \23\ 15 U.S.C. 1604(a).
                 \24\ TILA section 102(a), codified at 15 U.S.C. 1601(a).
                ---------------------------------------------------------------------------
                 Historically, TILA section 105(a) has served as a broad source of
                authority for rules that promote the informed use of credit through
                required disclosures and substantive regulation of certain practices.
                Dodd-Frank Act section 1100A clarified the Bureau's section 105(a)
                authority by amending that section to provide express authority to
                prescribe regulations that contain ``additional requirements'' that the
                Bureau finds are necessary or proper to effectuate the purposes of
                TILA, to prevent circumvention or evasion thereof, or to facilitate
                compliance. This
                [[Page 36942]]
                amendment clarified the authority to exercise TILA section 105(a) to
                prescribe requirements beyond those specifically listed in the statute
                that meet the standards outlined in section 105(a). As amended by the
                Dodd-Frank Act, TILA section 105(a) authority to make adjustments and
                exceptions to the requirements of TILA applies to all transactions
                subject to TILA, except with respect to the provisions of TILA section
                129 that apply to the high-cost mortgages referred to in TILA section
                103(bb).\25\
                ---------------------------------------------------------------------------
                 \25\ 15 U.S.C. 1602(bb).
                ---------------------------------------------------------------------------
                 For the reasons discussed in this document, the Bureau is proposing
                amendments to Regulation Z with respect to certain provisions that
                impact the transition from LIBOR indices to other indices to carry out
                TILA's purposes and is proposing such additional requirements,
                adjustments, and exceptions as, in the Bureau's judgment, are necessary
                and proper to carry out the purposes of TILA, prevent circumvention or
                evasion thereof, or to facilitate compliance. In developing these
                aspects of the proposal pursuant to its authority under TILA section
                105(a), the Bureau has considered the purposes of TILA, including
                ensuring meaningful disclosures, facilitating consumers' ability to
                compare credit terms, and helping consumers avoid the uninformed use of
                credit, and the findings of TILA, including strengthening competition
                among financial institutions and promoting economic stabilization.
                 TILA section 105(d). As amended by the Dodd-Frank Act, TILA section
                105(d) \26\ states that any Bureau regulations requiring any disclosure
                which differs from the disclosures previously required in certain
                sections shall have an effective date of that October 1 which follows
                by at least six months the date of promulgation. The section also
                states that the Bureau may in its discretion lengthen or shorten the
                amount of time for compliance when it makes a specific finding that
                such action is necessary to comply with the findings of a court or to
                prevent unfair or deceptive disclosure practices. The section further
                states that any creditor or lessor may comply with any such newly
                promulgated disclosures requirements prior to the effective date of the
                requirements.
                ---------------------------------------------------------------------------
                 \26\ 15 U.S.C. 1604(d).
                ---------------------------------------------------------------------------
                V. Section-by-Section Analysis
                Section 1026.9 Subsequent Disclosure Requirements
                9(c) Change in Terms
                9(c)(1) Rules Affecting Home-Equity Plans
                9(c)(1)(ii) Notice Not Required
                 Section 1026.9(c)(1)(i) provides that for HELOCs subject to Sec.
                1026.40 whenever any term required to be disclosed in the account-
                opening disclosures under Sec. 1026.6(a) is changed or the required
                minimum periodic payment is increased, the creditor must mail or
                deliver written notice of the change to each consumer who may be
                affected. The notice must be mailed or delivered at least 15 days prior
                to the effective date of the change. The 15-day timing requirement does
                not apply if the change has been agreed to by the consumer; the notice
                must be given, however, before the effective date of the change.
                Section 1026.9(c)(1)(ii) provides that for HELOCs subject to Sec.
                1026.40, a creditor is not required to provide a change-in-terms notice
                under Sec. 1026.9(c)(1) when the change involves a reduction of any
                component of a finance or other charge or when the change results from
                an agreement involving a court proceeding.
                 A creditor for a HELOC subject to Sec. 1026.40 is required under
                current Sec. 1026.9(c)(1) to provide a change-in-terms notice
                disclosing the index that is replacing the LIBOR index. The index is a
                term that is required to be disclosed in the account-opening
                disclosures under Sec. 1026.6(a) and thus, a creditor must provide a
                change-in-terms notice disclosing the index that is replacing the LIBOR
                index.\27\ The exception in Sec. 1026.9(c)(1)(ii) that provides that a
                change-in-terms notice is not required when a change involves a
                reduction in the finance or other charge does not apply to the index
                change. The change in the index used in making rate adjustments is a
                change in a term required to be disclosed in a change-in-terms notice
                under Sec. 1026.9(c)(1) regardless of whether there is also a change
                in the index value or margin that involves a reduction in a finance or
                other charge.
                ---------------------------------------------------------------------------
                 \27\ See 12 CFR 1026.6(a)(1)(ii) and (iv) and comment
                6(a)(1)(ii)-5.
                ---------------------------------------------------------------------------
                 Under current Sec. 1026.9(c)(1), a creditor generally is required
                to provide a change-in-terms notice of a margin change if the margin is
                increasing. In disclosing the variable rate in the account-opening
                disclosures under Sec. 1026.6(a), the creditor must disclose the
                margin as part of an explanation of how the amount of any finance
                charge will be determined.\28\ Thus, a creditor must provide a change-
                in-terms notice under current Sec. 1026.9(c)(1) disclosing the changed
                margin, unless Sec. 1026.9(c)(1)(ii) applies. Current Sec.
                1026.9(c)(1)(ii) applies to a decrease in the margin because that
                change would involve a reduction in a component of a finance or other
                charge. Thus, under current Sec. 1026.9(c)(1), a creditor would only
                be required to provide a change-in-terms notice of a change in the
                margin under Sec. 1026.9(c)(1) if the margin is increasing.
                ---------------------------------------------------------------------------
                 \28\ See 12 CFR 1026.6(a)(1)(iv).
                ---------------------------------------------------------------------------
                The Proposal
                 The Bureau is proposing to revise Sec. 1026.9(c)(1)(ii) to provide
                that the exception in Sec. 1026.9(c)(1)(ii) under which a creditor is
                not required to provide a change-in-terms notice under Sec.
                1026.9(c)(1) when the change involves a reduction of any component of a
                finance or other charge does not apply on or after October 1, 2021,
                where the creditor is reducing the margin when a LIBOR index is
                replaced as permitted by proposed Sec. 1026.40(f)(3)(ii)(A) or Sec.
                1026.40(f)(3)(ii)(B).\29\ The proposed changes, if adopted, will ensure
                that the change-in-terms notices will disclose the replacement index
                and any adjusted margin that will be used to calculate a consumer's
                rate, regardless of whether the margin is being reduced or increased.
                ---------------------------------------------------------------------------
                 \29\ As discussed in more detail in the section-by-section
                analysis of proposed Sec. 1026.40(f)(3)(ii)(A), the Bureau is
                proposing to move the provisions in current Sec. 1026.40(f)(3)(ii)
                that allow a creditor for HELOC plans subject to Sec. 1026.40 to
                replace an index and adjust the margin if the index is no longer
                available in certain circumstances to proposed Sec.
                1026.40(f)(3)(ii)(A) and to revise the proposed moved provisions for
                clarity and consistency. Also, as discussed in more detail in the
                section-by-section analysis of proposed Sec. 1026.40(f)(3)(ii)(B),
                to facilitate compliance, the Bureau is proposing to add new LIBOR-
                specific provisions to proposed Sec. 1026.40(f)(3)(ii)(B) that
                would permit creditors for HELOC plans subject to Sec. 1026.40 that
                use a LIBOR index for calculating a variable rate to replace the
                LIBOR index and change the margin for calculating the variable rate
                on or after March 15, 2021, in certain circumstances.
                ---------------------------------------------------------------------------
                 The Bureau also is proposing to add comment 9(c)(1)(ii)-3 to
                provide additional detail. Proposed comment 9(c)(1)(ii)-3 provides that
                for change-in-terms notices provided under Sec. 1026.9(c)(1) on or
                after October 1, 2021, covering changes permitted by proposed Sec.
                1026.40(f)(3)(ii)(A) or Sec. 1026.40(f)(3)(ii)(B), a creditor must
                provide a change-in-terms notice under Sec. 1026.9(c)(1) disclosing
                the replacement index for a LIBOR index and any adjusted margin that is
                permitted under proposed Sec. 1026.40(f)(3)(ii)(A) or
                [[Page 36943]]
                Sec. 1026.40(f)(3)(ii)(B), even if the margin is reduced. Proposed
                comment 9(c)(1)(ii)-3 also provides that prior to October 1, 2021, a
                creditor has the option of disclosing a reduced margin in the change-
                in-terms notice that discloses the replacement index for a LIBOR index
                as permitted by proposed Sec. 1026.40(f)(3)(ii)(A) or Sec.
                1026.40(f)(3)(ii)(B).
                 To effectuate the purposes of TILA, the Bureau is proposing to use
                its TILA section 105(a) authority to amend Sec. 1026.9(c)(1)(ii). TILA
                section 105(a) \30\ directs the Bureau to prescribe regulations to
                carry out the purposes of TILA, and provides that such regulations may
                contain additional requirements, classifications, differentiations, or
                other provisions, and may provide for such adjustments and exceptions
                for all or any class of transactions, that the Bureau judges are
                necessary or proper to effectuate the purposes of TILA, to prevent
                circumvention or evasion thereof, or to facilitate compliance. The
                Bureau believes that when a creditor for a HELOC plan that is subject
                to Sec. 1026.40 is replacing the LIBOR index and adjusting the margin
                as permitted by proposed Sec. 1026.40(f)(3)(ii)(A) or Sec.
                1026.40(f)(3)(ii)(B), it may be beneficial for consumers to receive
                notice not just of the replacement index, but also any adjustments to
                the margin, even if the margin is decreased. The Bureau believes that
                it may be important that consumers are informed of the replacement
                index and any adjusted margin (even a reduction in the margin) so that
                consumers will know how the variable rates on their accounts will be
                determined going forward after the LIBOR index is replaced. Otherwise,
                a consumer that is only notified that the LIBOR index is being replaced
                with a replacement index that has a higher index value but is not
                notified that the margin is decreasing could reasonably but mistakenly
                believe that the APR on the plan is increasing. The Bureau solicits
                comment generally on the proposed revisions to Sec. 1026.9(c)(1)(ii)
                and proposed comment 9(c)(1)(ii)-3.
                ---------------------------------------------------------------------------
                 \30\ 15 U.S.C. 1604(a).
                ---------------------------------------------------------------------------
                 The proposed revisions to Sec. 1026.9(c)(1)(ii), if adopted as
                proposed, would apply to notices provided on or after October 1, 2021.
                TILA section 105(d) generally requires that changes in disclosures
                required by TILA or Regulation Z have an effective date of the October
                1 that is at least six months after the date the final rule is
                adopted.\31\ Proposed comment 9(c)(1)(ii)-3 clarifies that prior to
                October 1, 2021, a creditor has the option of disclosing a reduced
                margin in the change-in-terms notice that discloses the replacement
                index for a LIBOR index as permitted by proposed Sec.
                1026.40(f)(3)(ii)(A) or Sec. 1026.40(f)(3)(ii)(B). The Bureau believes
                that creditors for HELOC plans subject to Sec. 1026.40 may want to
                provide the information about the decreased margin in the change-in-
                terms notice even if they replace the LIBOR index and adjust the margin
                pursuant to proposed Sec. 1026.40(f)(3)(ii)(A) or Sec.
                1026.40(f)(3)(ii)(B) earlier than October 1, 2021. The Bureau believes
                that these creditors may want to provide this information to avoid
                confusion by consumers and because this reduced margin is beneficial to
                consumers. Thus, proposed comment 9(c)(1)(ii)-3 would permit creditors
                for HELOC plans subject to Sec. 1026.40 to provide the information
                about the decreased margin in the change-in-terms notice even if they
                replace the LIBOR index and adjust the margin pursuant to proposed
                Sec. 1026.40(f)(3)(ii)(A) or Sec. 1026.40(f)(3)(ii)(B) earlier than
                October 1, 2021. The Bureau encourages creditors to include this
                information in change-in-terms notices provided earlier than October 1,
                2021, even though they are not required to do so, to ensure that
                consumers are informed of how the variable rates on their accounts will
                be determined going forward after the LIBOR index is replaced.
                ---------------------------------------------------------------------------
                 \31\ 15 U.S.C. 1604(d).
                ---------------------------------------------------------------------------
                 The Bureau recognizes that a LIBOR index may be replaced on a HELOC
                plan subject to Sec. 1026.40 for reasons other than those set forth in
                proposed Sec. 1026.40(f)(3)(ii)(A) or Sec. 1026.40(f)(3)(ii)(B). For
                example, pursuant to current Sec. 1026.40(f)(3)(iii), a creditor for a
                HELOC plan may replace the LIBOR index used under a plan and adjust the
                margin if a consumer specifically agrees to the change in writing at
                the time of the change. The Bureau solicits comment on whether the
                Bureau should revise Sec. 1026.9(c)(1)(ii) to require that the
                creditor in those cases must disclose any decrease in the margin in
                change-in-terms notices provided on or after October 1, 2021, in the
                change-in-terms notice that discloses the replacement index for a LIBOR
                index used under the plan.
                9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans
                 TILA section 127(i)(1), which was added by the Credit CARD Act,
                provides that in the case of a credit card account under an open-end
                consumer credit plan, a creditor generally must provide a written
                notice of an increase in an APR not later than 45 days prior to the
                effective date of the increase.\32\ In addition, TILA section 127(i)(2)
                provides that in the case of a credit card account under an open-end
                consumer credit plan, a creditor must provide a written notice of any
                significant change, as determined by rule of the Bureau, in terms
                (other than APRs) of the cardholder agreement not later than 45 days
                prior to the effective date of the change.\33\
                ---------------------------------------------------------------------------
                 \32\ 15 U.S.C. 1637(i)(1).
                 \33\ 15 U.S.C. 1637(i)(2).
                ---------------------------------------------------------------------------
                 Section 1026.9(c)(2)(i)(A) provides that for plans other than
                HELOCs subject to Sec. 1026.40, a creditor generally must provide a
                written notice of a ``significant change in account terms'' at least 45
                days prior to the effective date of the change to each consumer who may
                be affected. Section 1026.9(c)(2)(ii) defines ``significant change in
                account terms'' to mean a change in the terms required to be disclosed
                under Sec. 1026.6(b)(1) and (b)(2), an increase in the required
                minimum periodic payment, a change to a term required to be disclosed
                under Sec. 1026.6(b)(4), or the acquisition of a security interest.
                Among other things, Sec. 1026.9(c)(2)(v)(A) provides that a change-in-
                terms notice is not required when a change involves a reduction of any
                component of a finance or other charge. The change-in-terms provisions
                in Sec. 1026.9(c)(2) generally apply to a credit card account under an
                open-end (not home-secured) consumer credit plan, and to other open-end
                plans that are not subject to Sec. 1026.40.
                 The creditor is required to provide a change-in-terms notice under
                Sec. 1026.9(c)(2) disclosing the index that is replacing the LIBOR
                index pursuant to proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii). The index is a term that meets the definition of a
                ``significant change in account terms'' under Sec. 1026.6(b)(2)(i)(A)
                and (4)(ii) and thus, the creditor must provide a change-in-terms
                notice disclosing the index that is replacing the LIBOR index.\34\ The
                exception in Sec. 1026.9(c)(2)(v)(A) that provides that a change-in-
                terms notice is not required when a change involves a reduction in the
                finance or other charge does not apply to the index change. The change
                in the index used in making rate adjustments is a change in a term
                required to be disclosed in a change-in-terms notice under Sec.
                1026.9(c)(2) regardless of whether there is also a change in the index
                value or margin that involves a reduction in a finance or other charge.
                ---------------------------------------------------------------------------
                 \34\ See 12 CFR 1026.6(a)(2) and (4) and 1026.9(c)(2)(iv)(D)(1)
                and comment 9(c)(2)(iv)-2.
                ---------------------------------------------------------------------------
                [[Page 36944]]
                 Under current Sec. 1026.9(c)(2), for plans other than HELOCs
                subject to Sec. 1026.40, a creditor generally is required to provide a
                change-in-terms notice of a margin change if the margin is increasing.
                In disclosing the variable rate in the account-opening disclosures, the
                creditor must disclose the margin as part of an explanation of how the
                rate is determined.\35\ Thus, a creditor must provide a change-in-terms
                notice under Sec. 1026.9(c)(2) disclosing the changed margin, unless
                Sec. 1026.9(c)(2)(v)(A) applies. Current Sec. 1026.9(c)(2)(v)(A)
                applies to a decrease in the margin because that change would involve a
                reduction in a component of a finance or other charge. Thus, under
                current Sec. 1026.9(c)(2), a creditor would only be required to
                provide a change-in-terms notice of a change in the margin under Sec.
                1026.9(c)(2) if the margin is increasing.
                ---------------------------------------------------------------------------
                 \35\ 12 CFR 1026.6(b)(4)(ii)(B).
                ---------------------------------------------------------------------------
                 The Bureau is proposing two changes to the provisions in Sec.
                1026.9(c)(2) and its accompanying commentary. First, the Bureau is
                proposing technical edits to comment 9(c)(2)(iv)-2 to replace LIBOR
                references with references to SOFR. Second, the Bureau is proposing
                changes to Sec. 1026.9(c)(2)(v)(A) to provide that for plans other
                than HELOCs subject to Sec. 1026.40, the exception in Sec.
                1026.9(c)(2)(v)(A) under which a creditor is not required to provide a
                change-in-terms notice under Sec. 1026.9(c)(2) when the change
                involves a reduction of any component of a finance or other charge does
                not apply on or after October 1, 2021, to margin reductions when a
                LIBOR index is replaced as permitted by proposed Sec. 1026.55(b)(7)(i)
                or Sec. 1026.55(b)(7)(ii). The proposed changes, if adopted, will
                ensure that the change-in-terms notices will disclose the replacement
                index and any adjusted margin that will be used to calculate a
                consumer's rate, regardless of whether the margin is being reduced or
                increased.
                9(c)(2)(iv) Disclosure Requirements
                 For plans other than HELOCs subject to Sec. 1026.40, comment
                9(c)(2)(iv)-2 explains that, if a creditor is changing the index used
                to calculate a variable rate, the creditor must disclose the following
                information in a tabular format in the change-in-terms notice: The
                amount of the new rate (as calculated using the new index) and indicate
                that the rate varies and how the rate is determined, as explained in
                Sec. 1026.6(b)(2)(i)(A). The comment provides an example, which
                indicates that, if a creditor is changing from using a prime rate to
                using LIBOR in calculating a variable rate, the creditor would disclose
                in the table required by Sec. 1026.9(c)(2)(iv)(D)(1) the new rate
                (using the new index) and indicate that the rate varies with the market
                based on LIBOR. In light of the anticipated discontinuation of LIBOR,
                the proposed rule would amend the example in comment 9(c)(2)(iv)-2 to
                substitute a SOFR index for LIBOR. The proposed rule would also make
                technical changes for clarity by changing ``prime rate'' to ``prime
                index.''
                9(c)(2)(v) Notice Not Required
                 The Bureau is proposing to revise Sec. 1026.9(c)(2)(v)(A) to
                provide that for plans other than HELOCs subject to Sec. 1026.40, the
                exception in Sec. 1026.9(c)(2)(v)(A) under which a creditor is not
                required to provide a change-in-terms notice under Sec. 1026.9(c)(2)
                when the change involves a reduction of any component of a finance or
                other charge does not apply on or after October 1, 2021, to margin
                reductions when a LIBOR index is replaced as permitted by proposed
                Sec. 1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii).\36\ The proposed
                changes, if adopted, will ensure that the change-in-terms notices will
                disclose the replacement index and any adjusted margin that will be
                used to calculate a consumer's rate, regardless of whether the margin
                is being reduced or increased.
                ---------------------------------------------------------------------------
                 \36\ As discussed in more detail in the section-by-section
                analysis of proposed Sec. 1026.55(b)(7)(i), the Bureau is proposing
                to move the provisions in current comment 55(b)(2)-6 that allow a
                card issuer to replace an index and adjust the margin if the index
                becomes unavailable in certain circumstances to proposed Sec.
                1026.55(b)(7)(i) and to revise the proposed moved provisions for
                clarity and consistency. Also, as discussed in more detail in the
                section-by-section analysis of proposed Sec. 1026.55(b)(7)(ii), to
                facilitate compliance, the Bureau is proposing to add new LIBOR-
                specific provisions to proposed Sec. 1026.55(b)(7)(ii) that would
                permit card issuers for a credit card account under an open-end (not
                home-secured) consumer credit plan that use a LIBOR index under the
                plan to replace the LIBOR index and change the margin on such plans
                on or after March 15, 2021, in certain circumstances.
                ---------------------------------------------------------------------------
                 The Bureau also is proposing to add comment 9(c)(2)(v)-14 to
                provide additional detail. Proposed comment 9(c)(2)(v)-14 provides that
                for change-in-terms notices provided under Sec. 1026.9(c)(2) on or
                after October 1, 2021, covering changes permitted by proposed Sec.
                1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii), a creditor must provide a
                change-in-terms notice under Sec. 1026.9(c)(2) disclosing the
                replacement index for a LIBOR index and any adjusted margin that is
                permitted under proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii), even if the margin is reduced. Proposed comment
                9(c)(2)(v)-14 also provides that prior to October 1, 2021, a creditor
                has the option of disclosing a reduced margin in the change-in-terms
                notice that discloses the replacement index for a LIBOR index as
                permitted by proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii).
                 The Bureau believes that when a creditor for plans other than
                HELOCs subject to Sec. 1026.40 is replacing the LIBOR index and
                adjusting the margin as permitted by proposed Sec. 1026.55(b)(7)(i) or
                Sec. 1026.55(b)(7)(ii), it may be beneficial for consumers to receive
                notice not just of the replacement index but also any adjustments to
                the margin, even if the margin is decreased. The Bureau believes that
                it may be important that consumers are informed of the replacement
                index and any adjusted margin (even a reduction in the margin) so that
                consumers will know how the variable rates on their accounts will be
                determined going forward after the LIBOR index is replaced. Otherwise,
                a consumer that is only notified that the LIBOR index is being replaced
                with a replacement index that has a higher index value but is not
                notified that the margin is decreasing could reasonably but mistakenly
                believe that the APR on the plan is increasing. The Bureau solicits
                comment generally on the proposed revisions to Sec. 1026.9(c)(2)(v)(A)
                and proposed comment 9(c)(2)(v)-14.
                 The proposed revisions to Sec. 1026.9(c)(2)(v)(A), if adopted as
                proposed, would apply to notices provided on or after October 1, 2021.
                TILA section 105(d) generally requires that changes in disclosures
                required by TILA or Regulation Z have an effective date of the October
                1 that is at least six months after the date the final rule is
                adopted.\37\ Proposed comment 9(c)(2)(v)-14 clarifies that prior to
                October 1, 2021, a creditor has the option of disclosing a reduced
                margin in the change-in-terms notice that discloses the replacement
                index for a LIBOR index as permitted by proposed Sec. 1026.55(b)(7)(i)
                or Sec. 1026.55(b)(7)(ii). The Bureau believes that creditors for
                plans other than HELOCs subject to Sec. 1026.40 may want to provide
                the information about the decreased margin in the change-in-terms
                notice, even if they replace the LIBOR index and adjust the margin
                pursuant to proposed Sec. 1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii)
                earlier than October 1, 2021. The Bureau believes that these creditors
                may want to provide this information to avoid confusion by consumers
                and because this reduced margin is beneficial to consumers. Thus,
                proposed comment
                [[Page 36945]]
                9(c)(2)(v)-14 would permit creditors for plans other than HELOCs
                subject to Sec. 1026.40 to provide the information about the decreased
                margin in the change-in-terms notice even if they replace the LIBOR
                index and adjust the margin pursuant to proposed Sec. 1026.55(b)(7)(i)
                or Sec. 1026.55(b)(7)(ii) earlier than October 1, 2021. The Bureau
                encourages creditors to include this information in change-in-terms
                notices provided earlier than October 1, 2021, even though they are not
                required to do so, to ensure that consumers are informed of how the
                variable rates on their accounts will be determined going forward after
                the LIBOR index is replaced.
                ---------------------------------------------------------------------------
                 \37\ 15 U.S.C. 1604(d).
                ---------------------------------------------------------------------------
                 The Bureau recognizes that there may be open-end credit plans that
                use a LIBOR index to calculate variable rates on the plan where the
                plan is not a HELOC that is subject to Sec. 1026.40 and is not a
                credit card account under an open-end (not home-secured) consumer
                credit plan. For example, there may be overdraft lines of credit and
                other types of open-end plans that are not HELOCs and are not credit
                card accounts that may use a LIBOR index. The proposed changes to Sec.
                1026.9(c)(2)(v)(A) requiring any reduced margin to be disclosed in a
                change-in-terms notice when the LIBOR index is being replaced would not
                apply to a decrease in the margin when a LIBOR index is replaced for
                these open-end plans because the proposed changes only apply when a
                LIBOR index is replaced under proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii). These open-end plans are not subject to the
                restrictions set forth in proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii) for replacing the LIBOR index and adjusting the
                margin. The Bureau solicits comment on whether the Bureau should revise
                Sec. 1026.9(c)(2)(v)(A) to require that creditors for those open-end
                plans must disclose any decrease in the margin in change-in-terms
                notices provided on or after October 1, 2021, where the creditor is
                replacing a LIBOR index used under the plan. The Bureau also solicits
                comment on the extent to which these types of open-end plans currently
                use a LIBOR index.
                Section 1026.20 Disclosure Requirements Regarding Post-Consummation
                Events
                20(a) Refinancings
                 Section 1026.20 includes disclosure requirements regarding post-
                consummation events for closed-end credit. Section 1026.20(a) and its
                commentary define when a refinancing occurs for closed-end credit and
                provide that a refinancing is a new transaction requiring new
                disclosures to the consumer. Comment 20(a)-3.ii.B explains that a new
                transaction subject to new disclosures results if the creditor adds a
                variable-rate feature to the obligation, even if it is not accomplished
                by the cancellation of the old obligation and substitution of a new
                one. The comment also states that a creditor does not add a variable-
                rate feature by changing the index of a variable-rate transaction to a
                comparable index, whether the change replaces the existing index or
                substitutes an index for one that no longer exists. To clarify comment
                20(a)-3.ii.B, the Bureau is proposing to add to the comment an
                illustrative example, which would indicate that a creditor does not add
                a variable-rate feature by changing the index of a variable-rate
                transaction from the 1-month, 3-month, 6-month, or 1-year USD LIBOR
                index to the spread-adjusted index based on SOFR recommended by the
                ARRC to replace the 1-month, 3-month, 6-month, or 1-year USD LIBOR
                index respectively because the replacement index is a comparable index
                to the corresponding USD LIBOR index.\38\
                ---------------------------------------------------------------------------
                 \38\ By ``corresponding USD LIBOR index,'' the Bureau means the
                specific USD LIBOR index for which the ARRC is recommending the
                replacement index as a replacement. Thus, if SOFR term rates are not
                available and the ARRC recommends a specific spread-adjusted 30-day
                SOFR index as a replacement for the 1-year LIBOR, the 1-year USD
                LIBOR index would be the ``corresponding USD LIBOR index'' for that
                specific spread-adjusted 30-day SOFR index.
                ---------------------------------------------------------------------------
                 As discussed in part III, the Bureau has received requests from
                stakeholders for clarification that the spread-adjusted SOFR-based
                index being developed by the ARRC is a ``comparable index'' to LIBOR.
                The Bureau recognizes that this issue is of concern for a range of
                closed-end credit products because issuing new origination disclosures
                in connection with the LIBOR transition could be quite expensive. The
                Bureau also recognizes that the issue is of particular concern with
                respect to existing LIBOR closed-end mortgage loans because, if
                substitution of an index that is not a ``comparable index'' constitutes
                a refinancing under Sec. 1026.20(a) for an ARM, Sec. 1026.43 would
                require a new ability-to-repay determination if the requirements of
                Sec. 1026.43 are otherwise applicable.\39\
                ---------------------------------------------------------------------------
                 \39\ Comment 43(a)-1 explains that Sec. 1026.43 does not apply
                to any change to an existing loan that is not treated as a
                refinancing under Sec. 1026.20(a). Comment 43(a)-1 further explains
                that Sec. 1026.43 generally applies to consumer credit transactions
                secured by a dwelling, but certain dwelling-secured consumer credit
                transactions are exempt or partially exempt from coverage under
                Sec. 1026.43(a)(1) through (3), and that Sec. 1026.43 does not
                apply to an extension of credit primarily for a business,
                commercial, or agricultural purpose, even if it is secured by a
                dwelling.
                ---------------------------------------------------------------------------
                 The Bureau has reviewed the SOFR indices upon which the ARRC has
                indicated it will base its recommended replacement indices and the
                spread adjustment methodology that the ARRC is recommending using to
                develop the replacement indices. Based on this review, the Bureau
                anticipates that the spread-adjusted replacement indices that the ARRC
                is developing will provide a good example of a comparable index to the
                tenors of LIBOR that they are designated to replace.
                 On June 22, 2017, the ARRC identified SOFR as its recommended
                alternative to LIBOR after considering various potential alternatives,
                including other term unsecured rates, overnight unsecured rates, other
                secured repurchase agreements (repo) rates, U.S. Treasury bill and bond
                rates, and overnight index swap rates linked to the effective Federal
                funds rate.\40\ The ARRC made its final recommendation of SOFR after
                evaluating and incorporating feedback from a 2016 consultation and from
                end users on its advisory group.\41\
                ---------------------------------------------------------------------------
                 \40\ ARRC, ARRC Consultation on Spread Adjustment Methodologies
                for Fallbacks in Cash Products Referencing USD LIBOR at 3 (Jan. 21,
                2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Spread_Adjustment_Consultation.pdf.
                 \41\ Id.
                ---------------------------------------------------------------------------
                 As the ARRC has explained, SOFR is a broad measure of the cost of
                borrowing cash overnight collateralized by U.S. Treasury
                securities.\42\ SOFR is determined based on transaction data composed
                of: (i) Tri-party repo, (ii) General Collateral Finance repo, and (iii)
                bilateral Treasury repo transactions cleared through Fixed Income
                Clearing Corporation. SOFR is representative of general funding
                conditions in the overnight Treasury repo market. As such, it reflects
                an economic cost of lending and borrowing relevant to the wide array of
                market participants active in the financial markets. In terms of the
                transactions underpinning SOFR, SOFR has the widest coverage of any
                Treasury repo rate available. Averaging over $1 trillion of daily
                trading, transaction volumes underlying SOFR are far larger than the
                transactions in any other U.S. money market.\43\
                ---------------------------------------------------------------------------
                 \42\ Id. at 3.
                 \43\ Fed. Reserve Bank of N.Y., Additional Information About
                SOFR and Other Treasury Repo Reference Rates, available at https://www.newyorkfed.org/markets/treasury-repo-reference-rates-information
                (last visited May 11. 2020).
                ---------------------------------------------------------------------------
                 The ARRC intends to endorse forward-looking term SOFR rates
                provided a consensus among its members can be reached that robust
                [[Page 36946]]
                term benchmarks that are compliant with International Organization of
                Securities Commissions (IOSCO) standards and meet appropriate criteria
                set by the ARRC can be produced. If the ARRC has not recommended
                relevant forward-looking term SOFR rates, it will base its recommended
                indices on a compounded average of SOFR over a selected compounding
                period.\44\ The ARRC has committed to making sure its recommended
                spread adjustments and the resulting spread-adjusted rates are
                published and to working with potential vendors to make sure that these
                spreads and spread-adjusted rates are made publicly available.\45\ The
                New York Fed has already begun daily publication of three compounded
                averages of SOFR, including a 30-day compounded average of SOFR (30-day
                SOFR), and a daily index that allows for the calculation of compounded
                average rates over custom time periods.\46\
                ---------------------------------------------------------------------------
                 \44\ ARRC Consultation on Spread Adjustment Methodologies, supra
                note 40, at 5.
                 \45\ ARRC, ARRC Announces Recommendation of a Spread Adjustment
                Methodology for Cash Products (Apr. 8, 2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Spread_Adjustment_Methodology.pdf.
                 \46\ Fed. Reserve Bank of N.Y., SOFR Averages and Index Data,
                https://apps.newyorkfed.org/markets/autorates/sofr-avg-ind (last
                visited May 11, 2020).
                ---------------------------------------------------------------------------
                 The Bureau notes that the government-sponsored enterprises (GSEs)
                announced in February 2020 that they will begin accepting ARMs based on
                30-day average SOFR in 2020.\47\ For purposes of this proposed rule,
                the Bureau has conducted its analysis below assuming that the ARRC will
                base its recommended replacement indices on 30-day SOFR. Prior to the
                start of official publication of SOFR in 2018, the New York Fed
                released data from August 2014 to March 2018 representing modeled, pre-
                production estimates of SOFR that are based on the same basic
                underlying transaction data and methodology that now underlie the
                official publication.\48\ The ARRC and the Bureau have compared the
                rate history that is available for SOFR (to calculate compounded
                averages) with the rate history for the applicable LIBOR indices.\49\
                For the reasons discussed in the section-by-section analysis of
                proposed Sec. 1026.40(f)(3)(ii)(A), the Bureau is proposing to
                determine that the historical fluctuations in the spread-adjusted index
                based on 30-day SOFR are substantially similar to those of 1-month, 3-
                month, 6-month, and 1-year USD LIBOR.
                ---------------------------------------------------------------------------
                 \47\ See, e.g., Fed. Nat'l Mortgage Ass'n, Lender Letter LL-
                2020-01 (Feb. 5, 2020), https://singlefamily.fanniemae.com/media/21831/display; Fed. Home Loan Mortgage Corp., Bulletin 2020-1
                Selling (Feb. 5, 2020), https://guide.freddiemac.com/app/guide/bulletin/2020-;1.
                 \48\ See David Bowman, Historical Proxies for the Secured
                Overnight Financing Rate (July 15, 2019), available at https://www.federalreserve.gov/econres/notes/feds-notes/historical-proxies-for-the-secured-overnight-financing-rate-20190715.htm.
                 \49\ See, e.g., ARRC Consultation on Spread Adjustment
                Methodologies, supra note 40, at 4 (comparing 3-month compounded
                SOFR relative to the 3-month USD LIBOR since 2014). The ARRC and the
                Bureau have also considered the history of other indices that could
                be viewed as historical proxies for SOFR. See, e.g., Bowman, supra
                note 48.
                ---------------------------------------------------------------------------
                 While robust, IOSCO-compliant SOFR term rates endorsed by the ARRC
                do not yet exist, the Board has published data on ``indicative'' 1-
                month, 3-month, and 6-month SOFR term rates.\50\ The Bureau has
                compared this data to data for the applicable LIBOR indices. For the
                reasons discussed in the section-by-section analysis of proposed Sec.
                1026.40(f)(3)(ii)(A), the Bureau is proposing to determine that (1) the
                historical fluctuations of 1-year and 6-month USD LIBOR are
                substantially similar to those of the 1-month, 3-month, and 6-month
                spread-adjusted SOFR term rates; (2) the historical fluctuations of 3-
                month USD LIBOR are substantially similar to those of the 1-month and
                3-month spread-adjusted SOFR term rates; and (3) the historical
                fluctuations of 1-month USD LIBOR are substantially similar to those of
                the 1-month spread-adjusted SOFR term rate.
                ---------------------------------------------------------------------------
                 \50\ Eric Heitfield & Yang Ho-Park, Indicative Forward-Looking
                SOFR Term Rates (Apr. 19, 2019), available at https://www.federalreserve.gov/econres/notes/feds-notes/indicative-forward-looking-sofr-term-rates-20190419.htm. (last updated May 1, 2020).
                ---------------------------------------------------------------------------
                 The Bureau is proposing to make these determinations about the
                historical fluctuations in the spread-adjusted indices based on 30-day
                SOFR, 1-month term SOFR, 3-month term SOFR, and 6-month term SOFR,
                while analyzing data on 30-day SOFR, 1-month term SOFR, 3-month term
                SOFR, and 6-month term SOFR without spread adjustments. This analysis
                is valid because the ARRC has stated that the spread adjustments will
                be static, outside of a one-year transition period that has not yet
                started and so is not in the historical data. A static spread
                adjustment would have no effect on historical fluctuations.
                 30-day SOFR, the applicable SOFR term rates, and the applicable
                LIBOR indices all reflect the cost of borrowing in the United States
                and have all generally moved together during SOFR's available history.
                However, the ARRC and the Bureau recognize that the SOFR indices will
                differ in some respects from the LIBOR indices. The nature and extent
                of these differences will depend on whether the SOFR indices are based
                on 30-day SOFR or SOFR term rates.
                 30-day SOFR is a historical, backward-looking 30-day average of
                overnight rates, while the LIBOR indices are forward-looking term rates
                published with several different tenors (overnight, 1-week, 1-month, 2-
                month, 3-month, 6-month, and 1-year). The LIBOR indices, therefore,
                reflect funding conditions for a different length of time than 30-day
                SOFR does, and they reflect those funding conditions in advance rather
                than with a lag as 30-day SOFR does. The LIBOR indices may also include
                term premia missing from 30-day SOFR.\51\ Moreover, SOFR is a secured
                rate while the LIBOR indices are unsecured and therefore include an
                element of bank credit risk. The LIBOR indices also may reflect supply
                and demand conditions in wholesale unsecured funding markets that also
                could lead to differences with SOFR.
                ---------------------------------------------------------------------------
                 \51\ The ``term premium'' is the excess yield that investors
                require to buy a long-term bond instead of a series of shorter-term
                bonds.
                ---------------------------------------------------------------------------
                 SOFR term rates, if they are available, will have fewer differences
                with LIBOR term rates than 30-day SOFR does. Since they are also term
                rates, they will also include term premia, and these should usually be
                similar to the term premia embedded in LIBOR. Since SOFR term rates
                will also be forward-looking, they should adjust quickly to changing
                expectations about future funding conditions as LIBOR term rates do,
                rather than following them with a lag as 30-day SOFR does. However,
                SOFR term rates will still have differences with the LIBOR indices. As
                mentioned above, SOFR is a secured rate while the LIBOR indices are
                unsecured. SOFR and LIBOR also reflect supply and demand conditions in
                different credit markets.
                 Thus, whether the ARRC bases its recommended indices on forward-
                looking SOFR term rates or backward-looking historical averages of
                SOFR, its recommended indices will without adjustments differ in levels
                from the LIBOR indices. The ARRC intends to account for these
                differences from the historical levels of LIBOR term rates through
                spread adjustments in the replacement indices that it recommends. On
                January 21, 2020, the ARRC released a consultation on spread adjustment
                methodologies that provided historical analyses of a number of
                potential spread adjustment methodologies and that showed that the
                proposed methodology performed well relative to other options,
                including potential dynamic spread adjustments.\52\ The ARRC's
                consultation
                [[Page 36947]]
                received over 70 responses from consumer advocacy groups, asset
                managers, corporations, banks, industry associations, GSEs, and
                others.\53\ On April 8, 2020, the ARRC announced that it had agreed on
                a recommended spread adjustment methodology for cash products
                referencing USD LIBOR.\54\ Following its consideration of feedback
                received on its public consultation, the ARRC is recommending a long-
                term spread adjustment equal to the historical median of the five-year
                spread between USD LIBOR and SOFR. For consumer products, the ARRC is
                additionally recommending a 1-year transition period to this five-year
                median spread adjustment methodology.\55\ Thus, in the short term, the
                transition will be gradual. On the date specified by the ARRC, the
                spread adjustment will not be set immediately to its long-run value.
                Instead, on the date specified by the ARRC, the spread adjustment will
                be set to equalize the value of the SOFR-based spread-adjusted index
                and the LIBOR index. The spread adjustment will then transition
                steadily over the course of a year to its long-run value. The inclusion
                of a transition period for consumer products was endorsed by many
                respondents, including consumer advocacy groups.\56\ Although the ARRC
                has not yet finalized certain aspects of its recommendations for
                replacement indices, it is actively working on doing so.\57\
                ---------------------------------------------------------------------------
                 \52\ ARRC Consultation on Spread Adjustment Methodologies, supra
                note 40.
                 \53\ ARRC, Summary of Feedback Received in the ARRC Spread-
                Adjustment Consultation and Follow-Up Consultation on Technical
                Details 2 (May 6, 2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Spread_Adjustment_Consultation_Follow_Up.pdf. [hereinafter
                referred to as ARRC Supplemental Spread-Adjustment Consultation]
                 \54\ ARRC Announces Recommendation of a Spread Adjustment
                Methodology, supra note 45.
                 \55\ Id.
                 \56\ ARRC Supplemental Spread-Adjustment Consultation, supra
                note 53, at 1.
                 \57\ The ARRC issued a supplemental consultation on spread
                adjustment methodology on May 6, 2020, seeking further views on
                certain technical issues related to spread adjustment methodologies
                for cash products referencing USD LIBOR. Id.
                ---------------------------------------------------------------------------
                 The ARRC has stated that each spread-adjusted replacement index
                that it recommends will incorporate a spread adjustment that will be
                fixed at a specified time at or before LIBOR's cessation and will
                remain static after the 1-year transition period.\58\ The ARRC intends
                for the adjustment to reflect and adjust for the historical differences
                between LIBOR and SOFR in order to make the spread-adjusted rate
                comparable to LIBOR in a fair and reasonable way, thereby minimizing
                the impact to borrowers and lenders.\59\ Although the methodology will
                be the same across different tenors of LIBOR, it may be applied to each
                LIBOR tenor separately, so that there would be a separate recommended
                spread adjustment calculated for 1-month, 2-month, 3-month, 6-month,
                and 1-year USD LIBOR.\60\
                ---------------------------------------------------------------------------
                 \58\ ARRC Consultation on Spread Adjustment Methodologies, supra
                note 40, at 1, 2.
                 \59\ Id. at 2, 3.
                 \60\ Id. at 7. Thus, the calculated spread adjustment may differ
                for each tenor of LIBOR, even if the methodology used to calculate
                each is the same. Id. The supplemental consultation issued by the
                ARRC on May 6, 2020, invites participants to consider the option to
                use the same spread adjustment values that will be used by the
                International Swaps and Derivatives Association (ISDA) across all of
                the different fallback rates, rather than using the same adjustment
                methodology to calculate a different spread adjustment for each
                potential fallback rate. ARRC Supplemental Spread-Adjustment
                Consultation, supra note 53, at 3-4. The supplemental consultation
                also seeks views on a second issue: Recognizing that ISDA will now
                include a pre-cessation trigger, the supplemental consultation seeks
                views on whether the timing of the calculation of the ARRC's spread
                adjustment should match ISDA's timing if a pre-cessation event is
                operative. Id.
                ---------------------------------------------------------------------------
                 The Bureau is proposing to determine that the spread-adjusted
                indices based on SOFR recommended by the ARRC as a replacement for the
                1-month, 3-month, 6-month, and 1-year USD LIBOR index are comparable
                indices to the 1-month, 3-month, 6-month, and 1-year USD LIBOR index
                respectively. The spread-adjusted indices based on SOFR that the ARRC
                recommends will be published and made publicly available. The ARRC's
                Consultation on its spread adjustment methodology presents several
                pieces of evidence that, in the ARRC's view, suggest that spread-
                adjusted SOFR rates are likely to experience similar fluctuations to
                the corresponding tenors of LIBOR.\61\ Using them as a replacement for
                the corresponding tenors of LIBOR does not seem likely to significantly
                change the economic position of the parties to the contract, given that
                SOFR and the LIBOR indices have generally moved together and the
                replacement index will be spread adjusted based on a methodology that
                derived through a public consultation.
                ---------------------------------------------------------------------------
                 \61\ ARRC Consultation on Spread Adjustment Methodologies, supra
                note 40.
                ---------------------------------------------------------------------------
                 The proposed example would be illustrative only, and the Bureau
                does not intend to suggest that the spread-adjusted SOFR indices
                recommended by the ARRC are the only indices that would be comparable
                to the LIBOR indices. The Bureau recognizes that there may be other
                comparable indices that creditors may use as replacements for the
                various tenors of LIBOR but believes it would be helpful to add this
                example in the commentary. The Bureau requests comment on whether it is
                appropriate to add the proposed example to comment 20(a)-3.ii.B and
                whether the Bureau should make any other amendments to Sec. 1026.20(a)
                or its commentary in connection with the LIBOR transition.
                Specifically, the Bureau requests comment on whether there are any
                other replacement indices that it should identify as an example of a
                ``comparable index'' in comment 20(a)-3.ii.B, and if so, which indices
                and on what bases.
                Section 1026.36 Prohibited Acts or Practices and Certain Requirements
                for Credit Secured by a Dwelling
                36(a) Definitions
                36(a)(4) Seller Financiers; Three Properties
                36(a)(4)(iii)
                36(a)(4)(iii)(C)
                 Section 1026.36(a)(1) defines the term ``loan originator'' for
                purposes of the prohibited acts or practices and requirements for
                credit secured by a dwelling in Sec. 1026.36. Section 1026.36(a)(4)
                addresses the three-property exclusion for seller financers and
                provides that a person (as defined in Sec. 1026.2(a)(22)) that meets
                all of the criteria specified in Sec. 1026.36(a)(4)(i) to (iii) is not
                a loan originator under Sec. 1026.36(a)(1). Pursuant to Sec.
                1026.36(a)(4)(iii)(C), one such criterion requires that, if the
                financing agreement has an adjustable rate, the index the adjustable
                rate is based on is a widely available index such as indices for U.S.
                Treasury securities or LIBOR. In light of the anticipated
                discontinuation of LIBOR, the proposed rule would amend the examples of
                indices provided in Sec. 1026.36(a)(4)(iii)(C) to substitute SOFR for
                LIBOR.
                36(a)(5) Seller Financiers; One Property
                36(a)(5)(iii)
                36(a)(5)(iii)(B)
                 Section 1026.36(a)(1) defines the term ``loan originator'' for
                purposes of the prohibited acts or practices and requirements for
                credit secured by a dwelling in Sec. 1026.36. Section 1026.36(a)(5)
                addresses the one-property exclusion for seller financers and provides
                that a natural person, estate, or trust that meets all of the criteria
                specified in Sec. 1026.36(a)(5)(i) to (iii) is not a loan originator
                under Sec. 1026.36(a)(1). Pursuant to Sec. 1026.36(a)(5)(iii)(B), one
                such criterion currently requires that, if the financing agreement has
                an adjustable rate, the index the adjustable rate is based on is a
                widely available index such as indices
                [[Page 36948]]
                for U.S. Treasury securities or LIBOR. In light of the anticipated
                discontinuation of LIBOR, the proposed rule would amend the examples of
                indices provided in Sec. 1026.36(a)(5)(iii)(B) to substitute SOFR for
                LIBOR.
                Section 1026.37 Content of Disclosures for Certain Mortgage
                Transactions (Loan Estimate)
                37(j) Adjustable Interest Rate Table
                37(j)(1) Index and Margin
                 Section 1026.37 governs the content of the Loan Estimate disclosure
                for certain mortgage transactions. If the interest rate may adjust and
                increase after consummation and the product type is not a step rate,
                Sec. 1026.37(j)(1) requires disclosure in the Loan Estimate of, inter
                alia, the index upon which the adjustments to the interest rate are
                based. Comment 37(j)(1)-1 explains that the index disclosed pursuant to
                Sec. 1026.37(j)(1) must be stated such that a consumer reasonably can
                identify it. The comment further explains that a common abbreviation or
                acronym of the name of the index may be disclosed in place of the
                proper name of the index, if it is a commonly used public method of
                identifying the index. The comment provides, as an example, that
                ``LIBOR'' may be disclosed instead of London Interbank Offered Rate. In
                light of the anticipated discontinuation of LIBOR, the proposed rule
                would amend this example in comment 37(j)(1)-1 to provide that ``SOFR''
                may be disclosed instead of Secured Overnight Financing Rate.
                Section 1026.40 Requirements for Home Equity Plans
                40(f) Limitations on Home Equity Plans
                40(f)(3)
                40(f)(3)(ii)
                 TILA section 137(c)(1) provides that no open-end consumer credit
                plan under which extensions of credit are secured by a consumer's
                principal dwelling may contain a provision which permits a creditor to
                change unilaterally any term except in enumerated circumstances set
                forth in TILA section 137(c).\62\ TILA section 137(c)(2)(A) provides
                that a creditor may change the index and margin applicable to
                extensions of credit under such a plan if the index used by the
                creditor is no longer available and the substitute index and margin
                will result in a substantially similar interest rate.\63\ In
                implementing TILA section 137(c), Sec. 1026.40(f)(3) prohibits a
                creditor from changing the terms of a HELOC subject to Sec. 1026.40
                except in enumerated circumstances set forth in Sec. 1026.40(f)(3).
                Section 1026.40(f)(3)(ii) provides that a creditor may change the index
                and margin used under the HELOC plan if the original index is no longer
                available, the new index has a historical movement substantially
                similar to that of the original index, and the new index and margin
                would have resulted in an APR substantially similar to the rate in
                effect at the time the original index became unavailable.
                ---------------------------------------------------------------------------
                 \62\ 15 U.S.C. 1647(c).
                 \63\ 15 U.S.C. 1647(c)(2)(A).
                ---------------------------------------------------------------------------
                 Current comment 40(f)(3)(ii)-1 provides that a creditor may change
                the index and margin used under the HELOC plan if the original index
                becomes unavailable, as long as historical fluctuations in the original
                and replacement indices were substantially similar, and as long as the
                replacement index and margin will produce a rate similar to the rate
                that was in effect at the time the original index became unavailable.
                Current comment 40(f)(3)(ii)-1 also provides that if the replacement
                index is newly established and therefore does not have any rate
                history, it may be used if it produces a rate substantially similar to
                the rate in effect when the original index became unavailable. As
                discussed in the section-by-section analysis of proposed Sec.
                1026.55(b)(7), card issuers for a credit card account under an open-end
                (not home-secured) consumer credit plan are subject to current comment
                55(b)(2)-6, which provides a similar provision on the unavailability of
                an index as current comment 40(f)(3)(ii)-1.
                The Proposal
                 As discussed in part III, the industry has requested that the
                Bureau permit card issuers to replace the LIBOR index used in setting
                the variable rates on existing accounts before LIBOR becomes
                unavailable to facilitate compliance. Among other things, the industry
                is concerned that if card issuers must wait until LIBOR become
                unavailable to replace the LIBOR indices used on existing accounts,
                these card issuers would not have sufficient time to inform consumers
                of the replacement index and update their systems to implement the
                change. To reduce uncertainty with respect to selecting a replacement
                index, the industry has also requested that the Bureau determine that
                the prime rate has ``historical fluctuations'' that are ``substantially
                similar'' to those of the LIBOR indices. The Bureau believes that
                similar issues may arise with respect to the transition of existing
                HELOC accounts away from using a LIBOR index.
                 To address these concerns, as discussed in more detail in the
                section-by-section analysis of proposed Sec. 1026.40(f)(3)(ii)(B), the
                Bureau is proposing to add new LIBOR-specific provisions to proposed
                Sec. 1026.40(f)(3)(ii)(B) that would permit creditors for HELOC plans
                subject to Sec. 1026.40 that use a LIBOR index under the plan to
                replace the LIBOR index and change the margins for calculating the
                variable rates on or after March 15, 2021, in certain circumstances
                without needing to wait for LIBOR to become unavailable.
                 Specifically, proposed Sec. 1026.40(f)(3)(ii)(B) provides that if
                a variable rate on a HELOC subject to Sec. 1026.40 is calculated using
                a LIBOR index, a creditor may replace the LIBOR index and change the
                margin for calculating the variable rate on or after March 15, 2021, as
                long as (1) the historical fluctuations in the LIBOR index and
                replacement index were substantially similar; and (2) the replacement
                index value in effect on December 31, 2020, and replacement margin will
                produce an APR substantially similar to the rate calculated using the
                LIBOR index value in effect on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. Proposed Sec.
                1026.40(f)(3)(ii)(B) also provides that if the replacement index is
                newly established and therefore does not have any rate history, it may
                be used if the replacement index value in effect on December 31, 2020,
                and replacement margin will produce an APR substantially similar to the
                rate calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan.
                 Also, as discussed in more detail in the section-by-section
                analysis of proposed Sec. 1026.40(f)(3)(ii)(B), to reduce uncertainty
                with respect to selecting a replacement index that meets the standards
                in proposed Sec. 1026.40(f)(3)(ii)(B), the Bureau is proposing to
                determine that Prime is an example of an index that has historical
                fluctuations that are substantially similar to those of certain USD
                LIBOR indices. The Bureau also is proposing to determine that certain
                spread-adjusted indices based on SOFR recommended by the ARRC have
                historical fluctuations that are substantially similar to those of
                certain USD LIBOR indices. The Bureau also is proposing additional
                detail in comments 40(f)(3)(ii)(B)-1 through -3 with respect to
                proposed Sec. 1026.40(f)(3)(ii)(B).
                [[Page 36949]]
                 In addition, as discussed in more detail in the section-by-section
                analysis of proposed Sec. 1026.40(f)(3)(ii)(A), the Bureau is
                proposing to move the unavailability provisions in current Sec.
                1026.40(f)(3)(ii) and current comment 40(f)(3)(ii)-1 to proposed Sec.
                1026.40(f)(3)(ii)(A) and proposed comment 40(f)(3)(ii)(A)-1
                respectively and to revise the proposed moved provisions for clarity
                and consistency. The Bureau also is proposing additional detail in
                comments 40(f)(3)(ii)(A)-2 through -3 with respect to proposed Sec.
                1026.40(f)(3)(ii)(A). For example, to reduce uncertainty with respect
                to selecting a replacement index that meets the standards for selecting
                a replacement index under proposed Sec. 1026.40(f)(3)(ii)(A), the
                Bureau is proposing the same determinations described above related to
                Prime and the spread-adjusted indices based on SOFR recommended by the
                ARRC in relation to proposed Sec. 1026.40(f)(3)(ii)(A). The Bureau is
                proposing to make these revisions and provide additional detail because
                the Bureau understands that some HELOC creditors may use the
                unavailability provision in proposed Sec. 1026.40(f)(3)(ii)(A) to
                replace a LIBOR index used under a HELOC plan, depending on the
                contractual provisions applicable to their HELOC plans, as discussed in
                more detail below.
                 Bureau is proposing new proposed LIBOR-specific provisions rather
                than interpreting when the LIBOR indices are unavailable. For several
                reasons, the Bureau is proposing new LIBOR-specific provisions under
                proposed Sec. 1026.40(f)(3)(ii)(B), rather than interpreting the LIBOR
                indices to be unavailable as of a certain date prior to LIBOR being
                discontinued under current Sec. 1026.40(f)(3)(ii) (as proposed to be
                moved to proposed Sec. 1026.40(f)(3)(ii)(A)). First, the Bureau is
                concerned about making a determination for Regulation Z purposes under
                current Sec. 1026.40(f)(3)(ii) (as proposed to be moved to proposed
                Sec. 1026.40(f)(3)(ii)(A)) that the LIBOR indices are unavailable or
                unreliable when the FCA, the regulator of LIBOR, has not made such a
                determination.
                 Second, the Bureau is concerned that a determination by the Bureau
                that the LIBOR indices are unavailable for purposes of current Sec.
                1026.40(f)(3)(ii) (as proposed to be moved to proposed Sec.
                1026.40(f)(3)(ii)(A)) could have unintended consequences on other
                products or markets. For example, the Bureau is concerned that such a
                determination could unintentionally cause confusion for creditors for
                other products (e.g., ARMs) about whether the LIBOR indices are
                unavailable for those products too and could possibly put pressure on
                those creditors to replace the LIBOR index used for those products
                before those creditors are ready for the change.
                 Third, even if the Bureau interpreted unavailability under current
                Sec. 1026.40(f)(3)(ii) (as proposed to be moved to proposed Sec.
                1026.40(f)(3)(ii)(A)) to indicate that the LIBOR indices are
                unavailable prior to LIBOR being discontinued, this interpretation
                would not completely solve the contractual issues for creditors whose
                contracts require them to wait until the LIBOR indices become
                unavailable before replacing the LIBOR index. Creditors still would
                need to decide for their contracts whether the LIBOR indices are
                unavailable. Thus, even if the Bureau decided that the LIBOR indices
                are unavailable under Regulation Z as described above, creditors whose
                contracts require them to wait until the LIBOR indices become
                unavailable before replacing the LIBOR index essentially would remain
                in the same position of interpreting their contracts as they would have
                been under the current rule.
                 Thus, the Bureau is not proposing to interpret when the LIBOR
                indices are unavailable for purposes of current Sec. 1026.40(f)(3)(ii)
                (as proposed to be moved to proposed Sec. 1026.40(f)(3)(ii)(A)). The
                Bureau solicits comment, however, on whether the Bureau should
                interpret when the LIBOR indices are unavailable for purposes of
                current Sec. 1026.40(f)(3)(ii) (as proposed to be moved to proposed
                Sec. 1026.40(f)(3)(ii)(A)), and if so, why the Bureau should make that
                determination and when should the LIBOR indices be considered
                unavailable for purposes of that provision.
                 The Bureau also solicits comment on an alternative to interpreting
                the term ``unavailable.'' Specifically, should the Bureau make
                revisions to the unavailability provisions in current Sec.
                1026.40(f)(3)(ii) (as proposed to be moved to proposed Sec.
                1026.40(f)(3)(ii)(A)) in a manner that would allow those creditors who
                need to transition from LIBOR and, for contractual reasons, may not be
                able to switch away from LIBOR prior to it being unavailable to be
                better able to use the unavailability provisions for an orderly
                transition on or after March 15, 2021? If so, what should these
                revisions be?
                 Interaction among proposed Sec. 1026.40(f)(3)(ii)(A) and (B) and
                contractual provisions. Proposed comment 40(f)(3)(ii)-1 addresses the
                interaction among the unavailability provisions in proposed Sec.
                1026.40(f)(3)(ii)(A), the LIBOR-specific provisions in proposed Sec.
                1026.40(f)(3)(ii)(B), and the contractual provisions that apply to the
                HELOC plan. The Bureau understands that HELOC contracts may be written
                in a variety of ways. For example, the Bureau recognizes that some
                existing contracts for HELOCs that use LIBOR as an index for a variable
                rate may provide that (1) a creditor can replace the LIBOR index and
                the margin for calculating the variable rate unilaterally only if the
                LIBOR index is no longer available or becomes unavailable; and (2) the
                replacement index and replacement margin will result in an APR
                substantially similar to a rate that is in effect when the LIBOR index
                becomes unavailable. Other HELOC contracts may provide that a creditor
                can replace the LIBOR index and the margin for calculating the variable
                rate unilaterally only if the LIBOR index is no longer available or
                becomes unavailable but does not require that the replacement index and
                replacement margin will result in an APR substantially similar to a
                rate that is in effect when the LIBOR index becomes unavailable. In
                addition, other HELOC contracts may allow a creditor to change the
                terms of the contract (including the LIBOR index used under the plan)
                as permitted by law. To facilitate compliance, the Bureau is proposing
                detail on the interaction among the unavailability provisions in
                proposed Sec. 1026.40(f)(3)(ii)(A), the LIBOR-specific provisions in
                proposed Sec. 1026.40(f)(3)(ii)(B), and the contractual provisions for
                the HELOC.
                 Proposed comment 40(f)(3)(ii)-1 provides that a creditor may use
                either the provision in proposed Sec. 1026.40(f)(3)(ii)(A) or Sec.
                1026.40(f)(3)(ii)(B) to replace a LIBOR index used under a HELOC plan
                subject to Sec. 1026.40 so long as the applicable conditions are met
                for the provision used. This proposed comment makes clear, however,
                that neither proposed provision excuses the creditor from noncompliance
                with contractual provisions. As discussed in more detail below,
                proposed comment 40(f)(3)(ii)-1 provides examples to illustrate when a
                creditor may use the provisions in proposed Sec. 1026.40(f)(3)(ii)(A)
                or Sec. 1026.40(f)(3)(ii)(B) to replace the LIBOR index used under a
                HELOC plan and each of these examples assumes that the LIBOR index used
                under the plan becomes unavailable after March 15, 2021.
                 Proposed comment 40(f)(3)(ii)-1.i provides an example where a HELOC
                contract provides that a creditor may
                [[Page 36950]]
                not replace an index unilaterally under a plan unless the original
                index becomes unavailable and provides that the replacement index and
                replacement margin will result in an APR substantially similar to a
                rate that is in effect when the original index becomes unavailable. In
                this case, proposed comment 40(f)(3)(ii)-1.i explains that the creditor
                may use the unavailability provisions in proposed Sec.
                1026.40(f)(3)(ii)(A) to replace the LIBOR index used under the plan so
                long as the conditions of that provision are met. Proposed comment
                40(f)(3)(ii)-1.i also explains that the proposed LIBOR-specific
                provisions in proposed Sec. 1026.40(f)(3)(ii)(B) provide that a
                creditor may replace the LIBOR index if the replacement index value in
                effect on December 31, 2020, and replacement margin will produce an APR
                substantially similar to the rate calculated using the LIBOR index
                value in effect on December 31, 2020, and the margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. Proposed comment 40(f)(3)(ii)-1.i notes,
                however, that the creditor in this example would be contractually
                prohibited from replacing the LIBOR index used under the plan unless
                the replacement index and replacement margin also will produce an APR
                substantially similar to a rate that is in effect when the LIBOR index
                becomes unavailable. The Bureau solicits comments on this proposed
                approach and example.
                 Proposed comment 40(f)(3)(ii)-1.ii provides an example of a HELOC
                contract under which a creditor may not replace an index unilaterally
                under a plan unless the original index becomes unavailable but does not
                require that the replacement index and replacement margin will result
                in an APR substantially similar to a rate that is in effect when the
                original index becomes unavailable. In this case, the creditor would be
                contractually prohibited from unilaterally replacing a LIBOR index used
                under the plan until it becomes unavailable. At that time, the creditor
                has the option of using proposed Sec. 1026.40(f)(3)(ii)(A) or Sec.
                1026.40(f)(3)(ii)(B) to replace the LIBOR index if the conditions of
                the applicable provision are met.
                 The Bureau is proposing to allow the creditor in this case to use
                either the proposed unavailability provisions in proposed Sec.
                1026.40(f)(3)(ii)(A) or the proposed LIBOR-specific provisions in
                proposed Sec. 1026.40(f)(3)(ii)(B). If the creditor uses the
                unavailability provisions in proposed Sec. 1026.40(f)(3)(ii)(A), the
                creditor must use a replacement index and replacement margin that will
                produce an APR substantially similar to the rate in effect when the
                LIBOR index became unavailable. If the creditor uses the proposed
                LIBOR-specific provisions in proposed Sec. 1026.40(f)(3)(ii)(B), the
                creditor must use the replacement index value in effect on December 31,
                2020, and the replacement margin that will produce an APR substantially
                similar to the rate calculated using the LIBOR index value in effect on
                December 31, 2020, and the margin that applied to the variable rate
                immediately prior to the replacement of the LIBOR index used under the
                plan.
                 The Bureau is proposing to allow a creditor in this case to use the
                index values of the LIBOR index and replacement index on December 31,
                2020, under proposed Sec. 1026.40(f)(3)(ii)(B) to meet the
                ``substantially similar'' standard with respect to the comparison of
                the rates even if the creditor is contractually prohibited from
                unilaterally replacing the LIBOR index used under the plan until it
                becomes unavailable. The Bureau recognizes that LIBOR may not be
                discontinued until the end of 2021, which is around a year later than
                the December 31, 2020, date. Nonetheless, the Bureau is proposing to
                allow creditors that are restricted by their contracts to replace the
                LIBOR index used under the HELOC plans until the LIBOR index becomes
                unavailable to use the LIBOR index values and the replacement index
                values in effect on December 31, 2020, under proposed Sec.
                1026.40(f)(3)(ii)(B), rather than the index values on the day that
                LIBOR becomes unavailable under proposed Sec. 1026.40(f)(3)(ii)(A).
                This proposal would allow those creditors to use consistent index
                values to those creditors that are not restricted by their contracts in
                replacing the LIBOR index prior to LIBOR becoming unavailable. This
                proposal would also promote consistency for consumers in that all HELOC
                creditors would be permitted to use the same LIBOR values in comparing
                the rates.
                 In addition, as discussed in part III, the industry has raised
                concerns that LIBOR may continue for some time after December 2021 but
                become less representative or reliable until LIBOR finally is
                discontinued. Allowing creditors to use the December 31, 2020, values
                for comparison of the rates instead of the LIBOR values when the LIBOR
                indices become unavailable may address some of these concerns.
                 Thus, the Bureau is proposing to provide creditors with the
                flexibility to choose to compare the rates using the index values for
                the LIBOR index and the replacement index on December 31, 2020, by
                using the proposed LIBOR-specific provisions under proposed Sec.
                1026.40(f)(3)(ii)(B), rather than using the unavailability provisions
                in proposed Sec. 1026.40(f)(3)(ii)(A). The Bureau solicits comment on
                this proposed approach and example.
                 Proposed comment 40(f)(3)(ii)-1.iii provides an example of a HELOC
                contract under which a creditor may change the terms of the contract
                (including the index) as permitted by law. Proposed comment
                40(f)(3)(ii)-1.iii explains in this case, if the creditor replaces a
                LIBOR index under a plan on or after March 15, 2021, but does not wait
                until the LIBOR index becomes unavailable to do so, the creditor may
                only use proposed Sec. 1026.40(f)(3)(ii)(B) to replace the LIBOR index
                if the conditions of that provision are met. In this case, the creditor
                may not use proposed Sec. 1026.40(f)(3)(ii)(A). Proposed comment
                40(f)(3)(ii)-1.iii also explains that if the creditor waits until the
                LIBOR index used under the plan becomes unavailable to replace the
                LIBOR index, the creditor has the option of using proposed Sec.
                1026.40(f)(3)(ii)(A) or Sec. 1026.40(f)(3)(ii)(B) to replace the LIBOR
                index if the conditions of the applicable provision are met.
                 The Bureau is proposing to allow the creditor in this case to use
                either the unavailability provisions in proposed Sec.
                1026.40(f)(3)(ii)(A) or the proposed LIBOR-specific provisions in
                proposed Sec. 1026.40(f)(3)(ii)(B) if the creditor waits until the
                LIBOR index used under the plan becomes unavailable to replace the
                LIBOR index. For the reasons explained above in the discussion of the
                example in proposed comment 40(f)(3)(ii)-1.ii, the Bureau is proposing
                in the situation described in proposed comment 40(f)(3)(ii)-1.iii to
                provide creditors with the flexibility to choose to use the index
                values of the LIBOR index and the replacement index on December 31,
                2020, by using the proposed LIBOR-specific provisions under proposed
                Sec. 1026.40(f)(3)(ii)(B), rather than using the unavailability
                provisions in proposed Sec. 1026.40(f)(3)(ii)(A). The Bureau solicits
                comment on this proposed approach and example.
                40(f)(3)(ii)(A)
                 Current Sec. 1026.40(f)(3)(ii) provides that a creditor may change
                the index and margin used under a HELOC plan subject to Sec. 1026.40
                if the original index is no longer available, the new index has a
                historical movement substantially similar to that of the original
                index, and the new index and margin would have resulted in an APR
                substantially similar
                [[Page 36951]]
                to the rate in effect at the time the original index became
                unavailable. Current comment 40(f)(3)(ii)-1 provides that a creditor
                may change the index and margin used under the plan if the original
                index becomes unavailable, as long as historical fluctuations in the
                original and replacement indices were substantially similar, and as
                long as the replacement index and margin will produce a rate similar to
                the rate that was in effect at the time the original index became
                unavailable. Current comment 40(f)(3)(ii)-1 also provides that if the
                replacement index is newly established and therefore does not have any
                rate history, it may be used if it produces a rate substantially
                similar to the rate in effect when the original index became
                unavailable.
                The Proposal
                 The Bureau is proposing to move the unavailability provisions in
                current Sec. 1026.40(f)(3)(ii) and current comment 40(f)(3)(ii)-1 to
                proposed Sec. 1026.40(f)(3)(ii)(A) and proposed comment
                40(f)(3)(ii)(A)-1 respectively and revise the moved provisions for
                clarity and consistency. In addition, the Bureau is proposing to add
                detail in proposed comments 40(f)(3)(ii)(A)-2 and -3 on the conditions
                set forth in proposed Sec. 1026.40(f)(3)(ii)(A). For example, to
                reduce uncertainty with respect to selecting a replacement index that
                meets the standards under proposed Sec. 1026.40(f)(3)(ii)(A), the
                Bureau is proposing to determine that Prime is an example of an index
                that has historical fluctuations that are substantially similar to
                those of certain USD LIBOR indices. The Bureau also is proposing to
                determine that certain spread-adjusted indices based on SOFR
                recommended by the ARRC have historical fluctuations that are
                substantially similar to those of certain USD LIBOR indices. The Bureau
                is proposing to make revisions and provide additional detail with
                respect to the unavailability provisions in proposed Sec.
                1026.40(f)(3)(ii)(A) because the Bureau understands that some HELOC
                creditors may use these unavailability provisions to replace a LIBOR
                index used under a HELOC plan, depending on the contractual provisions
                applicable to their HELOC plans, as discussed above in more detail in
                the section-by-section of Sec. 1026.40(f)(3)(ii).
                 The Bureau solicits comments on proposed Sec. 1026.40(f)(3)(ii)(A)
                and proposed comments 40(f)(3)(ii)(A)-1 through -3. These proposed
                provisions are discussed in more detail below.
                 Proposed Sec. 1026.40(f)(3)(ii)(A). Proposed Sec.
                1026.40(f)(3)(ii)(A) provides that a creditor for a HELOC plan subject
                to Sec. 1026.40 may change the index and margin used under the plan if
                the original index is no longer available, the replacement index has
                historical fluctuations substantially similar to that of the original
                index, and the replacement index and replacement margin would have
                resulted in an APR substantially similar to the rate in effect at the
                time the original index became unavailable. Proposed Sec.
                1020.40(f)(3)(ii)(A) also provides that if the replacement index is
                newly established and therefore does not have any rate history, it may
                be used if it and the replacement margin will produce an APR
                substantially similar to the rate in effect when the original index
                became unavailable.
                 Proposed Sec. 1026.40(f)(3)(ii)(A) differs from current Sec.
                1026.40(f)(3)(ii) in three ways. First, proposed Sec.
                1026.40(f)(3)(ii)(A) differs from current Sec. 1040(f)(3)(ii) by using
                the term ``historical fluctuations'' rather than the term ``historical
                movement'' to refer to the original index and the replacement index.
                Under current Sec. 1026.40(f)(3)(ii), ``historical fluctuations''
                appears to be equivalent to ``historical movement'' because the
                regulatory text provision in Sec. 1026.40(f)(3)(ii) uses the term
                ``historical movement'' while current comment 40(f)(3)(ii)-1 (that
                interprets current Sec. 1026.40(f)(3)(ii)) uses the term ``historical
                fluctuations.'' For clarity and consistency, the Bureau is proposing to
                use ``historical fluctuations'' in both proposed Sec.
                1026.40(f)(3)(ii)(A) and proposed comment 40(f)(3)(ii)(A)-1, so that
                the proposed regulatory text and related commentary use the same term.
                 Second, proposed Sec. 1026.40(f)(3)(ii)(A) differs from current
                Sec. 1026.40(f)(3)(ii) by including a provision regarding newly
                established indices that is not contained in current Sec.
                1026.40(f)(3)(ii). This proposed provision is similar to the sentence
                in current comment 40(f)(3)(ii)-1 on newly established indices except
                that the proposed provision in proposed Sec. 1026.40(f)(3)(ii)(A)
                makes clear that a creditor that is using a newly established index
                also may adjust the margin so that the newly established index and
                replacement margin will produce an APR substantially similar to the
                rate in effect when the original index became unavailable. The newly
                established index may not have the same index value as the original
                index, and the creditor may need to adjust the margin to meet the
                condition that the newly established index and replacement margin will
                produce an APR substantially similar to the rate in effect when the
                original index became unavailable.
                 Third, proposed Sec. 1026.40(f)(3)(ii)(A) differs from current
                Sec. 1026.40(f)(3)(ii) by using the terms ``replacement index'' and
                ``replacement index and replacement margin'' instead of using ``new
                index'' and ``new index and margin,'' respectively as contained in
                current Sec. 1026.40(f)(3)(ii). These proposed changes are designed to
                avoid any confusion as to when the provision in proposed Sec.
                1026.40(f)(3)(ii)(A) is referring to a replacement index and
                replacement margin as opposed to a newly established index.
                 Proposed comment 40(f)(3)(ii)(A)-1. The Bureau is proposing to move
                current comment 40(f)(3)(ii)-1 to proposed comment 40(f)(3)(ii)(A)-1.
                The Bureau also is proposing to revise this proposed moved comment in
                three ways for clarity and consistency with proposed Sec.
                1026.40(f)(3)(ii)(A). First, proposed comment 40(f)(3)(ii)(A)-1 differs
                from current comment 40(f)(3)(ii)-1 by providing that if an index that
                is not newly established is used to replace the original index, the
                replacement index and replacement margin will produce a rate
                ``substantially similar'' to the rate that was in effect at the time
                the original index became unavailable. Current comment 40(f)(3)(ii)-1
                uses the term ``similar'' instead of ``substantially similar'' for the
                comparison of these rates. Nonetheless, this use of the term
                ``similar'' in current comment 40(f)(3)(ii)-1 is inconsistent with the
                use of ``substantially similar'' in current Sec. 1026.40(f)(3)(ii) for
                the comparison of these rates. To correct this inconsistency between
                the regulation text and the commentary provision that interprets it,
                the Bureau is proposing to use ``substantially similar'' consistently
                in proposed Sec. 1026.40(f)(3)(ii)(A) and proposed comment
                40(f)(3)(ii)(A)-1 for the comparison of these rates.
                 Second, consistent with the proposed new sentence in proposed Sec.
                1026.40(f)(3)(ii)(A) related to newly established indices, proposed
                comment 40(f)(3)(ii)(A)-1 differs from current comment 40(f)(3)(ii)-1
                by clarifying that a creditor that is using a newly established index
                may also adjust the margin so that the newly established index and
                replacement margin will produce an APR substantially similar to the
                rate in effect when the original index became unavailable.
                 Third, proposed comment 40(f)(3)(ii)(A)-1 differs from current
                comment 40(f)(3)(ii)-1 by using the term ``the replacement index and
                replacement margin'' instead of ``the replacement index and margin'' to
                make clear when the proposed comment is
                [[Page 36952]]
                referring to a replacement margin and not the original margin.
                 Historical fluctuations substantially similar for the LIBOR index
                and replacement index. Proposed comment 40(f)(3)(ii)(A)-2 provides
                detail on determining whether a replacement index that is not newly
                established has ``historical fluctuations'' that are ``substantially
                similar'' to those of the LIBOR index used under the plan for purposes
                of proposed Sec. 1026.40(f)(3)(ii)(A). Specifically, proposed comment
                40(f)(3)(ii)(A)-2 provides that for purposes of replacing a LIBOR index
                used under a plan pursuant to proposed Sec. 1026.40(f)(3)(ii)(A), a
                replacement index that is not newly established must have historical
                fluctuations that are substantially similar to those of the LIBOR index
                used under the plan, considering the historical fluctuations up through
                when the LIBOR index becomes unavailable or up through the date
                indicated in a Bureau determination that the replacement index and the
                LIBOR index have historical fluctuations that are substantially
                similar, whichever is earlier.
                 Prime has ``historical fluctuations'' that are ``substantially
                similar'' to those of certain USD LIBOR indices. To facilitate
                compliance, proposed comment 40(f)(3)(ii)(A)-2.i includes a proposed
                determination that Prime has historical fluctuations that are
                substantially similar to those of the 1-month and 3-month USD LIBOR
                indices and includes a placeholder for the date when this proposed
                determination would be effective, if adopted in the final rule. The
                Bureau understands that some HELOC creditors may choose to replace a
                LIBOR index with Prime.
                 The Bureau is proposing this determination after reviewing
                historical data from January 1986 through January 2020 on 1-month USD
                LIBOR, 3-month USD LIBOR, and Prime. The spread between 1-month USD
                LIBOR and Prime increased from roughly 142 basis points in 1986 to 281
                basis points in 1993. The spread between 3-month USD LIBOR increased
                from roughly 151 basis points in 1986 to 270 basis points in 1993. Both
                spreads were fairly steady after 1993. Given that for the last 27 years
                of history the spreads have remained relatively stable, the data,
                analysis, and conclusion discussed below are restricted to the period
                beginning in 1993.
                 While Prime has not always moved in tandem with 1-month USD LIBOR
                and 3-month USD LIBOR after 1993, the Bureau believes that since 1993
                the historical fluctuations in 1-month USD LIBOR and Prime have been
                substantially similar and that the historical fluctuations in 3-month
                USD LIBOR and Prime have been substantially similar.\64\
                ---------------------------------------------------------------------------
                 \64\ There was a temporary but large difference in the movements
                of LIBOR rates and Prime for roughly a month after Lehman Brothers
                filed for bankruptcy on September 15, 2008, reflecting the effects
                this event had on the perception of risk in the interbank lending
                market. For example, 1-month USD LIBOR increased over 200 basis
                points in the month after September 15, 2008, even as Prime and many
                other interest rates fell. The numbers presented in this analysis
                include this time period.
                ---------------------------------------------------------------------------
                 The historical correlation between 1-month USD LIBOR and Prime is
                .9956. The historical correlation between 3-month USD LIBOR and Prime
                is .9918. While the correlation between these rates is quite high,
                correlation is not the only statistical measure of similarity that may
                be relevant for comparing the historical fluctuations of these
                rates.\65\ The Bureau has reviewed other statistical characteristics of
                these rates, such as the variance, skewness, and kurtosis,\66\ and
                these characteristics imply that on average both the 1-month USD LIBOR
                and 3-month USD LIBOR tend to move closely with Prime and that the 1-
                month USD LIBOR and 3-month USD LIBOR tend to present consumers and
                creditors with payment changes that are similar to that presented by
                Prime.\67\
                ---------------------------------------------------------------------------
                 \65\ For example, consider two wagers on a series of coin flips.
                The first wins one cent for every heads and loses one cent for every
                tails. The second wins a million dollars for every heads and loses a
                million dollars for every tails. These wagers are perfectly
                correlated (i.e., they have a correlation of 1) but have very
                different statistical properties.
                 \66\ Roughly, variance is a statistical measure of how much a
                random number tends to deviate from its average value. Skewness is a
                statistical measure of whether particularly large deviations in a
                random number from its average value tend to be below or above that
                average value. Kurtosis is a statistical measure of whether
                deviations of a random number from its average value tend to be
                small and frequent or rare and large.
                 \67\ The variance, skewness, and kurtosis of Prime are 4.5605,
                .3115, and 1.5337 respectively. The variance, skewness, and kurtosis
                of 1-month USD LIBOR are 4.8935, .2715, and 1.5168 respectively. The
                variance, skewness, and kurtosis of 3-month USD LIBOR are 4.7955,
                .2605, and 1.5252, respectively.
                ---------------------------------------------------------------------------
                 Theoretically, these statistical measures could mask important
                long-term differences in movements. However, as mentioned above, the
                spread between 1-month USD LIBOR and Prime and the spread between 3-
                month USD LIBOR and Prime have remained fairly steady after January
                1993 to January 2020. For example, the average spread between 1-month
                USD LIBOR and Prime was 281 basis points in 1993, and 306 basis points
                in 2019. The average spread between 3-month USD LIBOR and Prime was 270
                basis points in 1993, and 296 basis points in 2019.
                 Finally, in performing its analysis, the Bureau also considered the
                impact different indices would have on consumer payments. To that end,
                the Bureau considered a specific example of a debt with a variable rate
                that resets monthly, and a balance that accumulates over time with
                interest but without further charges, payments, or fees. The Bureau
                used this example for HELOCs and credit card accounts because the
                Bureau understands that the rates for many of those accounts reset
                monthly. The example considers debt that accumulates interest over a
                period of ten years, beginning in January of every year from 1994 to
                2009. For this example, the Bureau found that since 1994 historical
                fluctuations in 1-month USD LIBOR and Prime, and 3-month USD LIBOR and
                Prime, produced substantially similar payment outcomes for consumers
                with debt similar to that considered.\68\ For example, if the initial
                balance in this example is $10,000, the average difference between the
                debt outstanding under Prime and the debt outstanding under adjusted 1-
                month USD LIBOR after ten years is about $100. The Bureau also found
                similar results for Prime versus the adjusted 3-month USD LIBOR.
                ---------------------------------------------------------------------------
                 \68\ In this example, for each starting year, three versions of
                debt are considered: (1) One with an interest rate equal to Prime;
                (2) one with an interest rate equal to the 1-month USD LIBOR plus
                the average spread between 1-month USD LIBOR and Prime for the 12
                months preceding the start date; and (3) one with an interest rate
                equal to 3-month USD LIBOR plus the average spread between 3-month
                USD LIBOR and Prime for the 12 months preceding the start date. For
                the 16 initial starting years considered, the average difference
                between the debt outstanding under Prime and the debt outstanding
                under the adjusted 1-month USD LIBOR after ten years is only around
                1% of the initial balance. The average absolute value of the
                difference in debt outstanding is around 2% of the initial balance.
                For the adjusted 3-month USD LIBOR, the average of the difference is
                around 1% of the initial balance, and the average of the absolute
                value of the difference is around 3% of the initial balance.
                 The average difference can be small if the difference is often
                far from zero, as long as it is sometimes well above zero and it is
                sometimes well below zero. The absolute value of the difference will
                be small only if the difference is usually close to zero. For
                example, suppose the difference is $1 million one year and -$1
                million the next year. The average difference these two years is
                zero, indicating that the difference is close to zero on average.
                But the average of the absolute value of the difference is $1
                million, indicating that the difference is typically far from zero.
                Consumers and creditors should care more about the average
                difference, and less about the average of the absolute value of the
                difference, if they have more liquidity and risk tolerance.
                ---------------------------------------------------------------------------
                 As discussed in the section-by-section analyses of proposed
                Sec. Sec. 1026.40(f)(3)(ii)(B), 1026.55(b)(7)(i) and (ii), the Bureau
                also is proposing
                [[Page 36953]]
                this same determination for purposes of proposed Sec. Sec.
                1026.40(f)(3)(ii)(B) and 1026.55(b)(7)(i) and (ii). The Bureau solicits
                comment on this proposed determination that Prime has historical
                fluctuations that are substantially similar to those of the 1-month and
                3-month USD LIBOR indices pursuant to proposed Sec. Sec.
                1026.40(f)(3)(ii)(A) and (B) and 1026.55(b)(7)(i) and (ii).
                 Proposed comment 40(f)(3)(ii)(A)-2.i also clarifies that in order
                to use Prime as the replacement index for the 1-month or 3-month USD
                LIBOR index, the creditor also must comply with the condition in Sec.
                1026.40(f)(3)(ii)(A) that Prime and the replacement margin would have
                resulted in an APR substantially similar to the rate in effect at the
                time the LIBOR index became unavailable. This condition for comparing
                the rates under proposed Sec. 1026.40(f)(3)(ii)(A) is discussed in
                more detail below.
                 Certain SOFR-based spread-adjusted indices have ``historical
                fluctuations'' that are ``substantially similar'' to those of certain
                USD LIBOR indices. To facilitate compliance, proposed comment
                40(f)(3)(ii)(A)-2.ii provides a proposed determination that the spread-
                adjusted indices based on SOFR recommended by the ARRC to replace the
                1-month, 3-month, 6-month, and 1-year USD LIBOR indices have historical
                fluctuations that are substantially similar to those of the 1-month, 3-
                month, 6-month, and 1-year USD LIBOR indices respectively. The proposed
                comment also provides a placeholder for the date when this proposed
                determination would be effective, if adopted in the final rule. The
                Bureau understands that some HELOC creditors may choose to replace a
                LIBOR index with a SOFR-based spread-adjusted index.
                 As discussed above in the section-by-section analysis of Sec.
                1026.20(a), the ARRC intends to endorse forward-looking term SOFR rates
                provided a consensus among its members can be reached that robust term
                benchmarks that are compliant with IOSCO standards and meet appropriate
                criteria set by the ARRC can be produced. If the ARRC has not
                recommended relevant forward-looking term SOFR rates, it will base its
                recommended indices on a compounded average of SOFR over a selected
                compounding period. The Bureau notes that the GSEs announced in
                February 2020 that they will begin accepting ARMs based on 30-day
                average SOFR in 2020.\69\ For purposes of this proposed rule, the
                Bureau has conducted its analysis below assuming that the ARRC will
                base its recommended replacement indices on 30-day SOFR.
                ---------------------------------------------------------------------------
                 \69\ See, e.g., Lender Letter LL-2020-01; Bulletin 2020-1
                Selling, supra note 47.
                ---------------------------------------------------------------------------
                 In determining whether the SOFR-based spread-adjusted indices have
                historical fluctuations substantially similar to those of the
                applicable LIBOR indices, the Bureau has reviewed the historical data
                on SOFR and historical data on 1-month, 3-month, 6-month, and 1-year
                LIBOR from August 22, 2014, to March 16, 2020.\70\ With respect to the
                1-year LIBOR, while 30-day SOFR has not always moved in tandem with 1-
                year LIBOR, the Bureau is proposing to determine that the historical
                fluctuations in 1-year LIBOR and the spread-adjusted index based on 30-
                day SOFR have been substantially similar. As discussed in more detail
                below, the Bureau also is proposing to determine that the historical
                fluctuations in the spread-adjusted index based on 30-day SOFR are
                substantially similar to those of 1-month, 3-month, and 6-month LIBOR.
                ---------------------------------------------------------------------------
                 \70\ Prior to the start of official publication of SOFR in 2018,
                the New York Fed released data from August 2014 to March 2018
                representing modeled, pre-production estimates of SOFR that are
                based on the same basic underlying transaction data and methodology
                that now underlie the official publication. The New York Fed has
                published indicative SOFR averages going back only to May 2, 2018.
                See Fed. Reserve Bank of N.Y., SOFR Averages and Index Data, https://apps.newyorkfed.org/markets/autorates/sofr-avg-ind (last visited
                May 11, 2020). Therefore, the Bureau has used the estimated SOFR
                data going back to 2014 to estimate its own 30-day compound average
                of SOFR since 2014. The methodology to calculate compound averages
                of SOFR from daily data is described in Fed. Reserve Bank of N.Y.,
                Statement Regarding Publication of SOFR Averages and a SOFR Index,
                https://www.newyorkfed.org/markets/opolicy/operating_policy_200212.
                ---------------------------------------------------------------------------
                 The Bureau is proposing to make these determinations about the
                historical fluctuations in the spread-adjusted indices based on 30-day
                SOFR, while analyzing data on 30-day SOFR without spread adjustments.
                This analysis is valid because the ARRC has stated that the spread
                adjustments will be static, outside of a one-year transition period
                that has not yet started and so is not in the historical data. A static
                spread adjustment would have no effect on historical fluctuations.
                 The historical correlation between 1-year LIBOR and 30-day SOFR is
                .8987. This correlation is high and suggests that on average 30-day
                SOFR tends to move closely with 1-year LIBOR. However, the raw
                correlation understates the similarity in the movements of these two
                rates, because 1-year LIBOR is a forward-looking term rate and 30-day
                SOFR is a backward-looking moving average. This means that 30-day SOFR
                often moves closely with 1-year LIBOR, but with a lag. For example, the
                historical correlation between 30-day SOFR and a 60-day lag of 1-year
                LIBOR is .9584. However, as discussed above with respect to the
                proposed determination related to Prime, correlation is not the only
                statistical measure of similarity that may be relevant for comparing
                the historical fluctuations of these rates. The Bureau has reviewed
                other statistical characteristics of these rates, such as the variance,
                skewness, and kurtosis, and these imply that 30-day SOFR tends to
                present consumers and creditors with payment changes that are similar
                to that presented by 1-year LIBOR.\71\
                ---------------------------------------------------------------------------
                 \71\ The variance, skewness, and kurtosis of 30-day SOFR are
                .7179, .4098, and 1.6548 respectively. The variance, skewness, and
                kurtosis of 1-year LIBOR during the time period are .5829, .1179,
                and 1.9242, respectively.
                ---------------------------------------------------------------------------
                 Theoretically, these statistical measures could mask important
                long-term differences in movements. The spread between 1-year LIBOR and
                30-day SOFR decreased from 68 basis points on average in 2015 to 13
                basis points on average in 2019. However, this decrease is mainly due
                to the timing mismatch issue discussed above together with the fact
                that interest rates in general began to decrease at the end of 2018.
                Because the backward-looking 30-day moving average of SOFR began to
                respond to this decrease in rates well after the forward-looking 1-year
                LIBOR term rate did, 30-day SOFR was temporarily high relative to 1-
                year LIBOR for a short period in early 2019. The spread between a 60-
                day lag of 1-year LIBOR and 30-day SOFR was 59 basis points on average
                in 2015 and 39 basis points on average in 2019.
                 Finally, in performing this analysis, the Bureau also considered
                the impact different indices would have on consumer payments. To that
                end, the Bureau considered a specific example of a debt with a variable
                rate that resets monthly, and a balance that accumulates over time with
                interest but without further charges, payments, or fees. The Bureau
                used this example for HELOCs and credit card accounts because the
                Bureau understands that the rates for many of those accounts reset
                monthly. The example considers debt that accumulates interest over the
                period of four years, beginning in January of 2016 and ending in
                January 2020. For this example, the Bureau found historical
                fluctuations in 30-day SOFR and 1-year LIBOR produced substantially
                similar payment outcomes for consumers with debt similar to that
                [[Page 36954]]
                considered.\72\ For example, if the initial balance in this example is
                $10,000, the difference between the debt outstanding under 30-day SOFR
                and the debt outstanding under adjusted 1-year LIBOR after four years
                (called ``4-year balance difference'' in Table 1 below) is roughly $31.
                ---------------------------------------------------------------------------
                 \72\ In this example, two versions of debt are considered: (1)
                One with an interest rate equal to 30-day SOFR; and (2) one with an
                interest rate equal to 1-year LIBOR plus the average spread between
                1-year LIBOR and 30-day SOFR for the 12 months preceding the start
                date. The average difference between the debt outstanding after four
                years under 30-day SOFR and the adjusted 1-year LIBOR is only around
                .3% of the initial debt.
                ---------------------------------------------------------------------------
                 The Bureau also is proposing to determine that historical
                fluctuations in the spread-adjusted index based on 30-day SOFR are
                substantially similar to those of 1-month, 3-month, and 6-month LIBOR.
                For the reasons discussed above, the Bureau is proposing to make these
                determinations about the historical fluctuations in the spread-adjusted
                indices based on 30-day SOFR, while analyzing data on 30-day SOFR
                without spread adjustments.
                 As discussed above, the largest differences between 30-day SOFR and
                1-year LIBOR arise because 30-day SOFR is backward-looking and 1-year
                LIBOR is forward-looking. Shorter tenors of LIBOR are less forward-
                looking, and so in general have even smaller differences with 30-day
                SOFR. Echoing the analysis described above to compare historical
                fluctuations between 30-day SOFR and 1-year LIBOR, Table 1 provides
                statistics on the historical fluctuations in 1-month, 3-month, 6-month,
                and 1-year LIBOR during the time period in which data for 30-day SOFR
                is available. Based on this analysis, the Bureau is proposing to
                determine that historical fluctuations in the spread-adjusted index
                based on 30-day SOFR also are substantially similar to those of 1-
                month, 3-month, and 6-month LIBOR.
                 Table 1--Comparison of Historical Fluctuations in Different Tenors of LIBOR and 30-Day SOFR
                ----------------------------------------------------------------------------------------------------------------
                 Correlation
                 Rate with 30-day Variance Skewness Kurtosis 4-Year balance
                 SOFR difference
                ----------------------------------------------------------------------------------------------------------------
                30-day SOFR..................... N/A 0.7179 0.4098 1.6548 N/A
                1-month LIBOR................... .9893 0.6977 0.2376 1.5305 $26
                3-month LIBOR................... .9746 0.7241 0.1952 1.5835 60
                6-month LIBOR................... .9436 0.652 0.1038 1.7556 63
                1-year LIBOR.................... .8987 0.5829 0.1179 1.9242 31
                ----------------------------------------------------------------------------------------------------------------
                 As discussed above, the ARRC intends to endorse forward-looking
                term SOFR rates provided a consensus among its members can be reached
                that robust term benchmarks that are compliant with IOSCO standards and
                meet appropriate criteria set by the ARRC can be produced. These term
                rates do not yet exist. However, the Board has produced data on
                ``indicative'' SOFR term rates that likely provide a good indication of
                how SOFR term rates would perform.\73\ The Bureau understands that if a
                SOFR term rate does not exist for a particular LIBOR tenor, the ARRC
                may use the next-longest SOFR term rate to develop the replacement
                index for the LIBOR tenor if any applicable SOFR term rate exists. For
                example, if there is not a 1-year SOFR term rate, the replacement for
                the 1-year LIBOR may be determined using the SOFR term rates in the
                following order if they exist: (1) 6-month SOFR; (2) 3-month SOFR; and
                (3) 1-month SOFR.
                ---------------------------------------------------------------------------
                 \73\ See Heitfield & Ho-Park, supra note 50.
                ---------------------------------------------------------------------------
                 As discussed above, the largest difference between different LIBOR
                tenors and 30-day SOFR arises because LIBOR is forward-looking and 30-
                day SOFR is backward-looking. Because SOFR term rates are forward-
                looking like LIBOR, the differences between SOFR term rates and LIBOR
                should in general be smaller than the differences between 30-day SOFR
                and LIBOR. The Bureau has reviewed the historical data on these
                indicative SOFR term rates and on 1-month, 3-month, 6-month, and 1-year
                LIBOR from June 11, 2018 to March 16, 2020.\74\ While the indicative
                SOFR term rates have not always moved in tandem with LIBOR, the Bureau
                is proposing to determine that (1) the historical fluctuations of 1-
                year and 6-month USD LIBOR are substantially similar to those of the 1-
                month, 3-month, and 6-month spread-adjusted SOFR term rates; (2) the
                historical fluctuations of 3-month USD LIBOR are substantially similar
                to those of the 1-month and 3-month spread-adjusted SOFR term rates;
                and (3) the historical fluctuations of 1-month USD LIBOR are
                substantially similar to those of the 1-month spread-adjusted SOFR term
                rate.
                ---------------------------------------------------------------------------
                 \74\ June 11, 2018, is the first date for which indicative SOFR
                term rate data are available.
                ---------------------------------------------------------------------------
                 The Bureau is proposing to make these determinations about the
                historical fluctuations in the spread-adjusted indices based on 1-month
                term SOFR, 3-month term SOFR, and 6-month term SOFR, while analyzing
                data on 1-month term SOFR, 3-month term SOFR, and 6-month term SOFR
                without spread adjustments. This analysis is valid because the ARRC has
                stated that the spread adjustments will be static, outside of a one-
                year transition period that has not yet started and so is not in the
                historical data. A static spread adjustment would have no effect on
                historical fluctuations.
                 Statistics that have led the Bureau to propose these determinations
                are in Tables 2 and 3.
                ---------------------------------------------------------------------------
                 \75\ These correlations are for the period beginning June 11,
                2018, the first date for which indicative SOFR term rate data are
                available. These correlations are not directly comparable to those
                in Table 1, which uses data beginning August 22, 2014, the first
                date for which data for 30-day SOFR are available.
                 Table 2--Correlations Between LIBOR and Indicative SOFR Term Rates \75\
                ----------------------------------------------------------------------------------------------------------------
                 LIBOR tenor 1-month SOFR 3-month SOFR 6-month SOFR
                ----------------------------------------------------------------------------------------------------------------
                1-month......................................................... .9890 N/A N/A
                3-month......................................................... .8955 .9606 N/A
                6-month......................................................... .7606 .8923 .9691
                [[Page 36955]]
                
                1-year.......................................................... .6295 .8000 .9274
                ----------------------------------------------------------------------------------------------------------------
                 The historical correlations presented in Table 2 are high,
                suggesting that the given SOFR term rates tend to move closely with the
                given LIBOR tenors. However, the raw correlations understate the
                similarity in the movements of the SOFR term rates and the LIBOR tenors
                when comparing a LIBOR tenor to a shorter SOFR term rate. This is
                because the SOFR term rate is less forward-looking than the LIBOR
                tenor, so the SOFR term rate moves closely with the LIBOR tenor but
                with a lag. This consideration is especially important during the time
                period for which indicative SOFR term rate data are available, when
                interest rates in general started to decrease. For example, the
                historical correlation between 1-month term SOFR and a 60-day lag of 1-
                year LIBOR is .9039.
                ---------------------------------------------------------------------------
                 \76\ Table 3 does not report a balance difference as Table 1
                does because data on the indicative SOFR term rates are not
                available for a sufficiently long period.
                 Table 3--Statistics on LIBOR and Indicative SOFR Term Rates \76\
                ----------------------------------------------------------------------------------------------------------------
                 Rate Variance Skewness Kurtosis
                ----------------------------------------------------------------------------------------------------------------
                1-month LIBOR................................................... 0.0735 -0.5459 2.1022
                3-month LIBOR................................................... 0.0852 -0.2913 2.0771
                6-month LIBOR................................................... 0.1219 -0.3037 1.6886
                12-month LIBOR.................................................. 0.1967 -0.2782 1.4281
                1-month SOFR.................................................... 0.093 -0.4791 1.8832
                3-month SOFR.................................................... 0.0952 -0.4804 1.8558
                6-month SOFR.................................................... 0.1168 -0.4671 1.6877
                ----------------------------------------------------------------------------------------------------------------
                 The Bureau has reviewed other statistical characteristics of the
                LIBOR rates and the indicative SOFR term rates, such as the variance,
                skewness, and kurtosis, as shown in Table 3 and these imply that the
                indicative SOFR term rates tend to present consumers and creditors with
                payment changes that are similar to that presented by the LIBOR rates.
                 As discussed in the section-by-section analyses of proposed
                Sec. Sec. 1026.40(f)(3)(ii)(B), 1026.55(b)(7)(i) and (ii), the Bureau
                also is proposing the same determination for purposes of proposed
                Sec. Sec. 1026.40(f)(3)(ii)(B) and 1026.55(b)(7)(i) and (ii). The
                Bureau solicits comment on this proposed determination that spread-
                adjusted indices based on SOFR recommended by the ARRC to replace the
                1-month, 3-month, 6-month, and 1-year USD LIBOR indices have historical
                fluctuations that are substantially similar to those of the 1-month, 3-
                month, 6-month, and 1-year USD LIBOR indices respectively, for purposes
                of proposed Sec. Sec. 1026.40(f)(3)(ii)(A) and (B) and
                1026.55(b)(7)(i) and (ii).
                 The Bureau notes that the SOFR-based spread-adjusted indices are
                not yet being published and may not be published by the effective date
                of the final rule, if adopted. Nonetheless, the Bureau believes that it
                is appropriate to consider the underlying SOFR data that is available
                in proposing the determinations that the spread-adjusted indices based
                on SOFR recommended by the ARRC to replace the 1-month, 3-month, 6-
                month, and 1-year USD LIBOR indices have historical fluctuations that
                are substantially similar to those of the 1-month, 3-month, 6-month,
                and 1-year USD LIBOR indices respectively. The Bureau solicits comment,
                however, on whether the Bureau should alternatively consider these
                SOFR-based spread-adjusted indices to be newly established indices for
                purposes of proposed Sec. Sec. 1026.40(f)(3)(ii)(A) and (B) and
                1026.55(b)(7)(i) and (ii), to the extent these indices are not being
                published by the effective date of the final rule, if adopted.
                 Proposed comment 40(f)(3)(ii)(A)-2.ii also clarifies that in order
                to use a SOFR-based spread-adjusted index described above as the
                replacement index for the applicable LIBOR index, the creditor also
                must comply with the condition in Sec. 1026.40(f)(3)(ii)(A) that the
                SOFR-based spread-adjusted index and replacement margin would have
                resulted in an APR substantially similar to the rate in effect at the
                time the LIBOR index became unavailable. This condition under proposed
                Sec. 1026.40(f)(3)(ii)(A) is discussed in more detail below. Also, as
                discussed in more detail below, the Bureau solicits comment on whether
                the Bureau in the final rule, if adopted, should provide for purposes
                of proposed Sec. 1026.40(f)(3)(ii)(A) that the rate using the SOFR-
                based spread-adjusted index is ``substantially similar'' to the rate in
                effect at the time the LIBOR index becomes unavailable, so long as the
                creditor uses as the replacement margin the same margin in effect on
                the day that the LIBOR index becomes unavailable.
                 The Bureau also solicits comment on whether there are other indices
                that are not newly established for which the Bureau should make a
                determination that the index has historical fluctuations that are
                substantially similar to those of the LIBOR indices. If so, what are
                these other indices, and why should the Bureau make such a
                determination with respect to those indices?
                 Newly established index as replacement for a LIBOR index. Proposed
                Sec. 1026.40(f)(3)(ii)(A) provides that if the replacement index is
                newly established and therefore does not have any rate history, it may
                be used if it and the replacement margin will produce an APR
                substantially similar to the rate in effect when the original index
                became unavailable. The Bureau solicits comment on whether the Bureau
                should provide any additional guidance on, or regulatory changes
                addressing, when an index is newly established with respect to
                replacing the LIBOR indices for purposes of proposed Sec.
                1026.40(f)(3)(ii)(A). The Bureau also solicits comment on whether the
                Bureau should provide any examples of indices that are newly
                established with respect to replacing the LIBOR indices for
                [[Page 36956]]
                purposes of Sec. 1026.40(f)(3)(ii)(A). If so, what are these indices
                and why should the Bureau determine these indices are newly established
                with respect to replacing the LIBOR indices?
                 Substantially similar rate when LIBOR becomes unavailable. Under
                proposed Sec. 1026.40(f)(3)(ii)(A), the replacement index and
                replacement margin must produce an APR substantially similar to the
                rate that was in effect based on the LIBOR index used under the plan
                when the LIBOR index became unavailable. Proposed comment
                40(f)(3)(ii)(A)-3 explains that for the comparison of the rates, a
                creditor must use the value of the replacement index and the LIBOR
                index on the day that the LIBOR index becomes unavailable. The Bureau
                solicits comment on whether it should address the situation where the
                replacement index is not be published on the day that the LIBOR index
                becomes unavailable. For example, should the Bureau provide that if the
                replacement index is not published on the day that the LIBOR index
                becomes unavailable, the creditor must use the previous calendar day
                that both indices are published as the date on which the annual
                percentage rate based on the replacement index must be substantially
                similar to the rate based on the LIBOR index?
                 Proposed comment 40(f)(3)(ii)(A)-3 also clarifies that the
                replacement index and replacement margin are not required to produce an
                APR that is substantially similar on the day that the replacement index
                and replacement margin become effective on the plan. Proposed comment
                40(f)(3)(ii)(A)-3.i provides an example to illustrate this comment.
                 The Bureau believes that it may raise compliance issues if the rate
                calculated using the replacement index and replacement margin at the
                time the replacement index and replacement margin became effective had
                to be substantially similar to the rate in effect calculated using the
                LIBOR index on the date that the LIBOR index became unavailable.
                Specifically, under Sec. 1026.9(c)(1), the creditor must provide a
                change-in-terms notice of the replacement index and replacement margin
                (including disclosing any reduced margin in change-in-terms notices
                provided on or after October 1, 2021, as would be required by proposed
                Sec. 1026.9(c)(1)(ii)) at least 15 days prior to the effective date of
                the changes. The Bureau believes that this advance notice is important
                to consumers to inform them of how variable rates will be determined
                going forward after the LIBOR index is replaced. Because advance notice
                of the changes must be given prior to the changes becoming effective, a
                creditor would not be able to ensure that the rate based on the
                replacement index and margin at the time the change-in-terms notice
                becomes effective will be substantially similar to the rate in effect
                calculated using the LIBOR index at the time the LIBOR index becomes
                unavailable. The value of the replacement index may change after the
                LIBOR index becomes unavailable and before the change-in-terms notice
                becomes effective.
                 The Bureau notes that proposed Sec. 1026.40(f)(3)(ii)(A) would
                require a creditor to use the index values of the replacement index and
                the original index on a single day (namely, the day that the original
                index becomes unavailable) to compare the rates to determine if they
                are ``substantially similar.'' In using a single day to compare the
                rates, this proposed provision is consistent with the condition in the
                unavailability provision in current Sec. 1026.40(f)(3)(ii), in the
                sense that it provides that the new index and margin must result in an
                APR that is substantially similar to the rate in effect on a single
                day. The Bureau notes that if the replacement index and the original
                index have ``historical fluctuations'' that are substantially similar,
                the spread between the replacement index and the original index on a
                particular day typically will be substantially similar to the
                historical spread between the two indices. Nonetheless, the Bureau
                recognizes that there is a possibility that the spread between the
                replacement index and the original index could differ significantly on
                a particular day from the historical spread in certain unusual
                circumstances, such as occurred to spreads between LIBOR and other
                indices soon after the collapse of Lehman Brothers in 2008.\77\
                Therefore, it is possible that two rates may typically be substantially
                similar but may not be substantially similar on a given date. It is
                also possible that two rates may be substantially similar on a given
                date but may not typically be substantially similar. To the extent the
                historical spread better reflects the typical spread between the
                indices in the long run, it may be more appropriate to use the
                historical spread rather than the spread on a specific day in comparing
                the rates to help ensure the rates are ``substantially similar'' to
                each other in the long run. However, it is also possible that the
                spread on a specific, recent date may better reflect the typical spread
                between the indices in the future than a historical spread would, if
                the spread on that specific date deviates from the historical spread
                for reasons that are permanent rather than temporary.\78\ Moreover,
                considering the historical spread raises questions about how to define
                the ``historical spread,'' such as the date range to consider, and
                whether to take a median, mean, trimmed mean, or other statistic from
                the data for the date range.
                ---------------------------------------------------------------------------
                 \77\ The Bureau analyzed the daily spread between Prime and 1-
                month LIBOR from January 1, 1993, through April 23, 2020. For that
                timeframe, the median daily spread between those indices was 291
                basis points. Since 1993, the spread reached a low of roughly
                negative nine basis points on October 10, 2008, soon after the
                collapse of Lehman Brothers. Since 1993, the spread has never been
                below 200 basis points aside from September, October, and November
                2008. It has dipped below 250 basis points several times, including
                in May 2000 during the ``dotcom bust'' and in spring 2020 during the
                COVID-19 pandemic. As of April 23, 2020, the Prime-LIBOR spread had
                recovered to 276 basis points from a low of 223 basis points on
                April 1, 2020.
                 \78\ For example, the spread between 1-month USD LIBOR and Prime
                increased from roughly 142 basis points in 1986 to 281 basis points
                in 1993 but has been fairly steady ever since. Therefore, the LIBOR-
                Prime spread in early 1993 was much closer to the typical spread
                from then on than a ``historical spread'' would have been.
                ---------------------------------------------------------------------------
                 Given these considerations, the Bureau solicits comment on whether
                the Bureau should adopt a different approach to determine whether a
                rate using the replacement index is ``substantially similar'' to the
                rate using the original index for purposes of proposed Sec.
                1026.40(f)(3)(ii)(A) and, if so, what criteria the Bureau should use in
                selecting such a different approach. For example, the Bureau solicits
                comment on whether it should require creditors to use a historical
                median or average of the spread between the replacement index and the
                original index over a certain time frame (e.g., the time period the
                historical data are available or 5 years, whichever is shorter) for
                purposes of determining whether a rate using the replacement index is
                ``substantially similar'' to the rate using the original index. The
                Bureau also solicits comments on any compliance challenges that might
                arise as a result of adopting a potentially more complicated method of
                comparing the rates calculated using the replacement index and the
                rates calculated using the original index, and for any identified
                compliance challenges, how the Bureau could ease those compliance
                challenges.
                 The Bureau is not proposing to address for purposes of proposed
                Sec. 1026.40(f)(3)(ii)(A) when a rate calculated using the replacement
                index and replacement margin is ``substantially similar'' to the rate
                in effect when the LIBOR index becomes unavailable. The Bureau is
                concerned about providing a ``range'' of rates that
                [[Page 36957]]
                would be considered to be ``substantially similar'' to the rate in
                effect at the time LIBOR becomes unavailable, and about providing other
                specific guidance on, or regulatory changes addressing, the
                ``substantially similar'' standard, because the rates that will be
                considered ``substantially similar'' will be context-specific. The
                Bureau is concerned that if it provides a range of rates that will be
                considered substantially similar, this range might be too narrow or too
                broad in some cases depending on the specific circumstances. The Bureau
                also is concerned that some creditors may decide to charge an APR that
                is the highest APR in the range, even though the specific circumstances
                would indicate that the highest APR should not be considered
                substantially similar in those circumstances. The Bureau solicits
                comment, however, on whether the Bureau should provide guidance on, or
                regulatory changes addressing, the ``substantially similar'' standard
                in comparing the rates for purposes of proposed Sec.
                1026.40(f)(3)(ii)(A), and if so, what guidance, or regulatory changes,
                the Bureau should provide. For example, should the Bureau provide a
                range of rates that would be considered ``substantially similar'' as
                described above, and if so, how should the range be determined? Should
                the range of rates depend on context, and if so, what contexts should
                be considered? As an alternative to the range of rates approach, the
                Bureau solicits comment on whether it should provide factors that
                creditors must consider in deciding whether the rates are
                ``substantially similar'' and if so, what those factors should be. Are
                there other approaches the Bureau should consider for addressing the
                ``substantially similar'' standard for comparing rates?
                 As discussed above, proposed comment 40(f)(3)(ii)(A)-2.ii clarifies
                that in order to use the SOFR-based spread-adjusted index as the
                replacement index for the applicable LIBOR index, the creditor must
                comply with the condition in Sec. 1026.40(f)(3)(ii)(A) that the SOFR-
                based spread-adjusted index and replacement margin would have resulted
                in an APR substantially similar to the rate in effect at the time the
                LIBOR index became unavailable. The Bureau solicits comment on whether
                the Bureau in the final rule, if adopted, should provide for purposes
                of proposed Sec. 1026.40(f)(3)(ii)(A) that the rate using the SOFR-
                based spread-adjusted index is ``substantially similar'' to the rate in
                effect at the time the LIBOR index becomes unavailable, so long as the
                creditor uses as the replacement margin the same margin in effect on
                the day that the LIBOR index becomes unavailable. As discussed in more
                detail in the section-by-section analysis of Sec. 1026.20(a), the
                spread adjustments for the SOFR-based spread-adjusted indices are
                designed to reflect and adjust for the historical differences between
                LIBOR and SOFR in order to make the spread-adjusted rate comparable to
                LIBOR. Thus, to facilitate compliance, the Bureau believes that it may
                be appropriate to provide for purposes of proposed Sec.
                1026.40(f)(3)(ii)(A) that a creditor complies with the ``substantially
                similar'' standard for comparing the rates when the creditor replaces
                the LIBOR index used under the plan with the applicable SOFR-based
                spread-adjusted index and uses as the replacement margin the same
                margin in effect at the time the LIBOR index becomes unavailable.
                40(f)(3)(ii)(B)
                The Proposal
                 For the reasons discussed below and in the section-by-section
                analysis of Sec. 1026.40(f)(3)(ii), the Bureau is proposing to add new
                LIBOR-specific provisions to Sec. 1026.40(f)(3)(ii)(B) that would
                permit creditors for HELOC plans subject to Sec. 1026.40 that use a
                LIBOR index for calculating variable rates to replace the LIBOR index
                and change the margins for calculating the variable rates on or after
                March 15, 2021, in certain circumstances. Specifically, proposed Sec.
                1026.40(f)(3)(ii)(B) provides that if a variable rate on a HELOC
                subject to Sec. 1026.40 is calculated using a LIBOR index, a creditor
                may replace the LIBOR index and change the margin for calculating the
                variable rate on or after March 15, 2021, as long as (1) the historical
                fluctuations in the LIBOR index and replacement index were
                substantially similar; and (2) the replacement index value in effect on
                December 31, 2020, and replacement margin will produce an APR
                substantially similar to the rate calculated using the LIBOR index
                value in effect on December 31, 2020, and the margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. Proposed Sec. 1026.40(f)(3)(ii)(B) also
                provides that if the replacement index is newly established and
                therefore does not have any rate history, it may be used if the
                replacement index value in effect on December 31, 2020, and replacement
                margin will produce an APR substantially similar to the rate calculated
                using the LIBOR index value in effect on December 31, 2020, and the
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan.
                 In addition, proposed Sec. 1026.40(f)(3)(ii)(B) provides that if
                either the LIBOR index or the replacement index is not published on
                December 31, 2020, the creditor must use the next calendar day that
                both indices are published as the date on which the APR based on the
                replacement index must be substantially similar to the rate based on
                the LIBOR index.
                 The Bureau also is proposing to add detail in proposed comments
                40(f)(3)(ii)(B)-1 through -3 on the conditions set forth in proposed
                Sec. 1026.40(f)(3)(ii)(B). For example, to reduce uncertainty with
                respect to selecting a replacement index that meets the standards in
                proposed Sec. 1026.40(f)(3)(ii)(B), the Bureau is proposing to
                determine that Prime is an example of an index that has historical
                fluctuations that are substantially similar to those of certain USD
                LIBOR indices. The Bureau also is proposing to determine that certain
                spread-adjusted indices based on SOFR recommended by the ARRC have
                historical fluctuations that are substantially similar to those of
                certain USD LIBOR indices.
                 To effectuate the purposes of TILA and to facilitate compliance,
                the Bureau is proposing to use its TILA section 105(a) authority to
                provide the new LIBOR-specific provisions under proposed Sec.
                1026.40(f)(3)(ii)(B). TILA section 105(a) \79\ directs the Bureau to
                prescribe regulations to carry out the purposes of TILA, and provides
                that such regulations may contain additional requirements,
                classifications, differentiations, or other provisions, and may provide
                for such adjustments and exceptions for all or any class of
                transactions, that the Bureau judges are necessary or proper to
                effectuate the purposes of TILA, to prevent circumvention or evasion
                thereof, or to facilitate compliance. The Bureau is proposing these
                LIBOR-specific provisions to facilitate compliance with TILA and
                effectuate its purposes. Specifically, the Bureau interprets
                ``facilitate compliance'' to include enabling or fostering continued
                operation in conformity with the law.
                ---------------------------------------------------------------------------
                 \79\ 15 U.S.C. 1604(a),
                ---------------------------------------------------------------------------
                 The Bureau is proposing to set March 15, 2021, as the date on or
                after which HELOC creditors are permitted to replace the LIBOR index
                used under the plan pursuant to proposed Sec. 1026.40(f)(3)(ii)(B)
                prior to LIBOR
                [[Page 36958]]
                becoming unavailable to facilitate compliance with the change-in-terms
                notice requirements applicable to creditors for HELOCs. As a practical
                matter, these proposed changes will allow creditors for HELOCs to
                provide the 15-day change-in-terms notices required under Sec.
                1026.9(c)(1) prior to the LIBOR indices becoming unavailable, and thus
                will allow those creditors to avoid being left without a LIBOR index to
                use in calculating the variable rate before the replacement index and
                margin become effective. Also, these proposed changes will allow HELOC
                creditors to provide the change-in-terms notices, and replace the LIBOR
                index used under the plans, on accounts on a rolling basis, rather than
                having to provide the change-in-terms notices, and replace the LIBOR
                index, for all its accounts at the same time as the LIBOR index used
                under the plan becomes unavailable.
                 Without the proposed LIBOR-specific provisions in proposed Sec.
                1026.40(f)(3)(ii)(B), as a practical matter, HELOC creditors would have
                to wait until the LIBOR index becomes unavailable to provide the 15-day
                change-in-terms notice under Sec. 1026.9(c)(1), disclosing the
                replacement index and replacement margin (including disclosing any
                reduced margin in change-in-terms notices provided on or after October
                1, 2021, as would be required by proposed Sec. 1026.9(c)(1)(ii)). The
                Bureau believes that this advance notice is important to consumers to
                inform them of how variable rates will be determined going forward
                after the LIBOR index is replaced.
                 For several reasons, HELOC creditors would not be able to send out
                change-in-terms notices disclosing the replacement index and
                replacement margin prior to LIBOR becoming unavailable. First, although
                LIBOR is expected to become unavailable around the end of 2021, there
                is no specific date known with certainty on which LIBOR will become
                unavailable. Thus, HELOC creditors could not send out the change-in-
                terms notices prior to LIBOR becoming unavailable because they will not
                know when it will become unavailable and thus would not know when to
                make the replacement index and replacement margin effective on the
                account.
                 Second, HELOC creditors would need to know the index values of the
                LIBOR index and the replacement index prior to sending out the change-
                in-terms notice so that they could disclose the replacement margin in
                the change-in-terms notice. HELOC creditors will not know these index
                values until the day that LIBOR becomes unavailable. Thus, HELOC
                creditors would have to wait until LIBOR becomes unavailable before the
                creditors could send the 15-day change-in-terms notices under Sec.
                1026.9(c)(1) to replace the LIBOR index with a replacement index. Some
                creditors could be left without a LIBOR index value to use during the
                15-day period before the replacement index and replacement margin
                become effective, depending on their existing contractual terms. The
                Bureau is concerned this could cause compliance and systems issues.
                 Also, as discussed in part III, the industry has raised concerns
                that LIBOR may continue for some time after December 2021 but become
                less representative or reliable until LIBOR finally is discontinued.
                Allowing creditors to replace the LIBOR indices on existing HELOC
                accounts prior to LIBOR becoming unavailable may address some of these
                concerns.
                 The Bureau solicits comments on proposed Sec. 1026.40(f)(3)(ii)(B)
                and proposed comments 40(f)(3)(ii)(B)-1 through -3. The proposed
                comments are discussed in detail below.
                 Consistent conditions with proposed Sec. 1026.40(f)(3)(ii)(A). The
                Bureau is proposing conditions in the LIBOR-specific provisions in
                proposed Sec. 1026.40(f)(3)(ii)(B) for how a creditor must select a
                replacement index and compare rates that are consistent with the
                conditions set forth in the unavailability provisions set forth in
                proposed Sec. 1026.40(f)(3)(ii)(A). For example, the availability
                provisions in proposed Sec. 1026.40(f)(3)(ii)(A) and the LIBOR-
                specific provisions in proposed Sec. 1026.40(f)(3)(ii)(B) contain a
                consistent requirement that the APR calculated using the replacement
                index must be ``substantially similar'' to the rate calculated using
                the LIBOR index.\80\ In addition, both proposed Sec.
                1026.40(f)(3)(ii)(A) and (B) contain consistent conditions for how a
                creditor must select a replacement index.
                ---------------------------------------------------------------------------
                 \80\ The conditions in proposed Sec. 1026.40(f)(3)(ii)(A) and
                (B) are consistent, but they are not the same. For example, although
                both proposed provisions use the ``substantially similar'' standard
                to compare the rates, they use different dates for selecting the
                index values in calculating the rates. The proposed provisions in
                proposed Sec. 1026.40(f)(3)(ii)(A) and (B) differ in the timing of
                when creditors are permitted to transition away from LIBOR, which
                creates some differences in how the conditions apply.
                ---------------------------------------------------------------------------
                 For several reasons, the Bureau is proposing to keep the conditions
                for these two provisions consistent. First, as discussed above in the
                section-by-section analysis of Sec. 1026.40(f)(3)(ii), some HELOC
                creditors may need to wait until LIBOR become unavailable to transition
                to a replacement index because of contractual reasons. The Bureau
                believes that keeping the conditions consistent in the unavailability
                provisions in proposed Sec. 1026.40(f)(3)(ii)(A) and the LIBOR-
                specific provisions in proposed Sec. 1026.40(f)(3)(ii)(B) will help
                ensure that creditors must meet consistent conditions in selecting a
                replacement index and setting the rates, regardless of whether they are
                using the unavailability provisions in proposed Sec.
                1026.40(f)(3)(ii)(A), or the LIBOR-specific provisions in proposed
                Sec. 1026.40(f)(3)(ii)(B).
                 Second, some creditors may have the ability to choose between the
                unavailability provisions and LIBOR-specific provisions to switch away
                from using a LIBOR index, and if the conditions between those two
                provisions are inconsistent, these differences could undercut the
                purpose of the LIBOR-specific provisions to allow creditors to switch
                out earlier. For example, if the conditions for selecting a replacement
                index or setting the rates were stricter in the LIBOR-specific
                provisions than in the unavailability provisions, this may cause a
                creditor to wait until LIBOR becomes unavailable to switch to a
                replacement index, which would undercut the purpose of the LIBOR-
                specific provisions to allow creditors to switch out earlier and
                prevent these creditors from having the time to transition from using a
                LIBOR index.
                 Historical fluctuations substantially similar for the LIBOR index
                and replacement index. Proposed comment 40(f)(3)(ii)(B)-1 provides
                detail on determining whether a replacement index that is not newly
                established has ``historical fluctuations'' that are ``substantially
                similar'' to those of the LIBOR index used under the plan for purposes
                of proposed Sec. 1026.40(f)(3)(ii)(B). Specifically, proposed comment
                40(f)(3)(ii)(B)-1 provides that for purposes of replacing a LIBOR index
                used under a plan pursuant to proposed Sec. 1026.40(f)(3)(ii)(B), a
                replacement index that is not newly established must have historical
                fluctuations that are substantially similar to those of the LIBOR index
                used under the plan, considering the historical fluctuations up through
                December 31, 2020, or up through the date indicated in a Bureau
                determination that the replacement index and the LIBOR index have
                historical fluctuations that are substantially similar, whichever is
                earlier. The Bureau is proposing the December 31, 2020 date to be
                consistent with the date that creditors generally
                [[Page 36959]]
                must use for selecting the index values to use in comparing the rates
                under proposed Sec. 1026.40(f)(3)(ii)(B). The Bureau solicits comment
                on the December 31, 2020 date for purposes of proposed comment
                40(f)(3)(ii)(B)-1 and whether another date or timeframe would be more
                appropriate for purposes of that proposed comment.
                 To facilitate compliance, proposed comment 40(f)(3)(ii)(B)-1.i
                includes a proposed determination that Prime has historical
                fluctuations that are substantially similar to those of the 1-month and
                3-month USD LIBOR indices and includes a placeholder for the date when
                this proposed determination would be effective, if adopted in the final
                rule.\81\ The Bureau understands that some HELOC creditors may choose
                to replace a LIBOR index with Prime. Proposed comment 40(f)(3)(ii)(B)-
                1.i also clarifies that in order to use Prime as the replacement index
                for the 1-month or 3-month USD LIBOR index, the creditor also must
                comply with the condition in proposed Sec. 1026.40(f)(3)(ii)(B) that
                the Prime index value in effect on December 31, 2020, and replacement
                margin will produce an APR substantially similar to the rate calculated
                using the LIBOR index value in effect on December 31, 2020, and the
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. If either the LIBOR
                index or the prime rate is not published on December 31, 2020, the
                creditor must use the next calendar day that both indices are published
                as the date on which the annual percentage rate based on the prime rate
                must be substantially similar to the rate based on the LIBOR index.
                This condition for comparing the rates under proposed Sec.
                1026.40(f)(3)(ii)(B) is discussed in more detail below.
                ---------------------------------------------------------------------------
                 \81\ See the section-by-section analysis of proposed Sec.
                1026.40(f)(3)(ii)(A) for a discussion of the rationale for the
                Bureau proposing this determination.
                ---------------------------------------------------------------------------
                 To facilitate compliance, proposed comment 40(f)(3)(ii)(B)-1.ii
                provides a proposed determination that the spread-adjusted indices
                based on SOFR recommended by the ARRC to replace the 1-month, 3-month,
                6-month, and 1-year USD LIBOR indices have historical fluctuations that
                are substantially similar to those of the 1-month, 3-month, 6-month,
                and 1-year USD LIBOR indices respectively. The proposed comment also
                provides a placeholder for the date when this proposed determination
                would be effective, if adopted in the final rule.\82\ The Bureau
                understands that some HELOC creditors may choose to replace a LIBOR
                index with a SOFR-based spread-adjusted index.
                ---------------------------------------------------------------------------
                 \82\ See the section-by-section analysis of proposed Sec.
                1026.40(f)(3)(ii)(A) for a discussion of the rationale for the
                Bureau proposing this determination. Also, as discussed in the
                section-by-section analysis of proposed Sec. 1026.40(f)(3)(ii)(A),
                the Bureau solicits comment on whether the Bureau should
                alternatively consider these SOFR-based spread-adjusted indices to
                be newly established indices for purposes of proposed Sec.
                1026.40(f)(3)(ii)(B), to the extent these indices are not being
                published by the effective date of the final rule, if adopted.
                ---------------------------------------------------------------------------
                 Comment 40(f)(3)(ii)(B)-1.ii also clarifies that in order to use
                this SOFR-based spread-adjusted index as the replacement index for the
                applicable LIBOR index, the creditor also must comply with the
                condition in Sec. 1026.40(f)(3)(ii)(B) that the SOFR-based spread-
                adjusted index value in effect on December 31, 2020, and replacement
                margin will produce an APR substantially similar to the rate calculated
                using the LIBOR index value in effect on December 31, 2020, and the
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. If either the LIBOR
                index or the SOFR-based spread-adjusted index is not published on
                December 31, 2020, the creditor must use the next calendar day that
                both indices are published as the date on which the annual percentage
                rate based on the SOFR-based spread-adjusted index must be
                substantially similar to the rate based on the LIBOR index. This
                condition for comparing the rates under proposed Sec.
                1026.40(f)(3)(ii)(B) is discussed in more detail below. Also, for the
                reasons discussed below, the Bureau solicits comment on whether the
                Bureau in the final rule, if adopted, should provide for purposes of
                proposed Sec. 1026.40(f)(3)(ii)(B) that the rate using the SOFR-based
                spread-adjusted index is ``substantially similar'' to the rate
                calculated using the LIBOR index, so long as the creditor uses as the
                replacement margin the same margin that applied to the variable rate
                immediately prior to the replacement of the LIBOR index.
                 The Bureau also solicits comment on whether there are other indices
                that are not newly established for which the Bureau should make a
                determination that the index has historical fluctuations that are
                substantially similar to those of the LIBOR indices for purposes of
                proposed Sec. 1026.40(f)(3)(ii)(B). If so, what are these other
                indices, and why should the Bureau make such a determination with
                respect to those indices?
                 Newly established index as replacement for the LIBOR index.
                Proposed Sec. 1026.40(f)(3)(ii)(B) provides if the replacement index
                is newly established and therefore does not have any rate history, it
                may be used if the replacement index value in effect on December 31,
                2020, and the replacement margin will produce an APR substantially
                similar to the rate calculated using the LIBOR index value in effect on
                December 31, 2020, and the margin that applied to the variable rate
                immediately prior to the replacement of the LIBOR index used under the
                plan. The Bureau solicits comment on whether the Bureau should provide
                any additional guidance on, or regulatory changes addressing, when an
                index is newly established with respect to replacing the LIBOR indices
                for purposes of proposed Sec. 1026.40(f)(3)(ii)(B). The Bureau also
                solicits comment on whether the Bureau should provide any examples of
                indices that are newly established with respect to replacing the LIBOR
                indices for purposes of Sec. 1026.40(f)(3)(ii)(B). If so, what are
                these indices and why should the Bureau determine these indices are
                newly established with respect to replacing the LIBOR indices?
                 Substantially similar rate using index values in effect on December
                31, 2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan. Under
                proposed Sec. 1026.40(f)(3)(ii)(B), if both the replacement index and
                LIBOR index used under the plan are published on December 31, 2020, the
                replacement index value in effect on December 31, 2020, and the
                replacement margin must produce an APR substantially similar to the
                rate calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan.
                Proposed comment 40(f)(3)(ii)(B)-2 also explains that the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan is the margin that applied to the
                variable rate immediately prior to when the creditor provides the
                change-in-terms notice disclosing the replacement index for the
                variable rate. Proposed comment 40(f)(3)(ii)(B)-2.i provides an example
                to illustrate this comment, when the margin used to calculate the
                variable rate is increased pursuant to a written agreement under Sec.
                1026.40(f)(3)(iii), and this change in the margin occurs after December
                31, 2020, but prior to the date that the creditor provides a change-in-
                term notice under Sec. 1026.9(c)(1)
                [[Page 36960]]
                disclosing the replacement index for the variable rate.
                 In calculating the comparison rates using the replacement index and
                the LIBOR index used under the HELOC plan, the Bureau generally is
                proposing to require creditors to use the index values for the
                replacement index and the LIBOR index in effect on December 31, 2020.
                The Bureau is proposing to require HELOC creditors to use these index
                values to promote consistency for creditors and consumers in which
                index values are used to compare the two rates. Under proposed Sec.
                1026.40(f)(3)(ii)(B), HELOC creditors are permitted to replace the
                LIBOR index used under the plan and adjust the margin used in
                calculating the variable rate used under the plan on or after March 15,
                2021, but creditors may vary in the timing of when they provide change-
                in-terms notices to replace the LIBOR index used on their HELOC
                accounts and when these replacements become effective.
                 For example, one HELOC creditor may replace the LIBOR index used
                under its HELOC plans in April 2021, while another HELOC creditor may
                replace the LIBOR index used under its HELOC plans in October 2021. In
                addition, a HELOC creditor may not replace the LIBOR index used under
                all of its HELOC plans at the same time. For example, a HELOC creditor
                may replace the LIBOR index used under some of its HELOC plans in April
                2021 but replace the LIBOR index used under other of its HELOC plans in
                May 2021.
                 Nonetheless, regardless of when a particular creditor replaces the
                LIBOR index used under its HELOC plans, proposed Sec.
                1026.40(f)(3)(ii)(B) generally would require that all creditors for
                HELOCs use December 31, 2020, as the day for determining the index
                values for the replacement index and the LIBOR index, to promote
                consistency for creditors and consumers with respect to which index
                values are used to compare the two rates.
                 In addition, using the December 31, 2020 date for the index values
                in comparing the rates may allow creditors for HELOCs to send out
                change-in-terms notices prior to March 15, 2021, and have the changes
                be effective on March 15, 2021, the proposed date on or after which
                creditors for HELOCs would be permitted to switch away from using LIBOR
                as an index on an existing HELOC account under proposed Sec.
                1026.40(f)(3)(ii)(B). If the Bureau instead required creditors to use
                the index values on March 15, 2021, creditors for HELOCs as a practical
                matter would not be able to provide change-in-terms notices of the
                replacement index and any adjusted margin until after March 15, 2021,
                because they would need the index values from that date in order to
                calculate the replacement margin. Thus, using the index values on March
                15, 2021, would delay when creditors for HELOCs could switch away from
                using LIBOR as an index on an existing HELOC account.
                 Also, as discussed in part III, the industry has raised concerns
                that LIBOR may continue for some time after December 2021 but become
                less representative or reliable until LIBOR finally is discontinued.
                Using the index values for the replacement index and the LIBOR index
                used under the plan in effect on December 31, 2020, may address some of
                these concerns.
                 The Bureau solicits comment specifically on the use of the December
                31, 2020 index values in calculating the comparison rates under
                proposed Sec. 1026.40(f)(3)(ii)(B).
                 Proposed Sec. 1026.40(f)(3)(ii)(B) provides one exception to the
                proposed general requirement to use the index values for the
                replacement index and the LIBOR index used under the plan in effect on
                December 31, 2020. Proposed Sec. 1026.40(f)(3)(ii)(B) provides that if
                either the LIBOR index or the replacement index is not published on
                December 31, 2020, the creditor must use the next calendar day that
                both indices are published as the date on which the APR based on the
                replacement index must be substantially similar to the rate based on
                the LIBOR index.
                 As discussed above, proposed Sec. 1026.40(f)(3)(ii)(B) would
                require a creditor to use the index values of the replacement index and
                the LIBOR index on a single day (generally December 31, 2020) \83\ to
                compare the rates to determine if they are ``substantially similar.''
                In using a single day to compare the rates, this proposed provision is
                consistent with the condition in the unavailability provision in
                current Sec. 1026.40(f)(3)(ii), in the sense that it provides that the
                new index and margin must result in an APR that is substantially
                similar to the rate in effect on a single day. The Bureau notes that if
                the replacement index and the LIBOR index have ``historical
                fluctuations'' that are substantially similar, the spread between the
                replacement index and the LIBOR index on a particular day typically
                will be substantially similar to the historical spread between the two
                indices. Nonetheless, the Bureau recognizes that there is a possibility
                that the spread between the replacement index and the LIBOR index could
                differ significantly on a particular day from the historical spread in
                certain unusual circumstances, such as occurred to spreads between
                LIBOR and other indices soon after the collapse of Lehman Brothers in
                2008.\84\ Therefore, it is possible that two rates may typically be
                substantially similar but may not be substantially similar on a given
                date. It is also possible that two rates may be substantially similar
                on a given date but may not typically be substantially similar. To the
                extent the historical spread better reflects the typical spread between
                the indices in the long run, it may be more appropriate to use the
                historical spread rather than the spread on a specific day in comparing
                the rates to help ensure the rates are ``substantially similar'' to
                each other in the long run. However, it is also possible that the
                spread on a specific, recent date may better reflect the typical spread
                between the indices in the future than a historical spread would, if
                the spread on that specific date deviates from the historical spread
                for reasons that are permanent rather than temporary.\85\ Moreover,
                considering the historical spread raises questions about how to define
                the ``historical spread,'' such as the date range to consider, and
                whether to take a median, mean, trimmed mean, or other statistic from
                the data for the date range.
                ---------------------------------------------------------------------------
                 \83\ If one or both of the indices are not available on December
                31, 2020, proposed Sec. 1026.40(f)(3)(ii)(B) would require that the
                creditor use the index values of the indices on the next calendar
                day that both indices are published.
                 \84\ See supra note 72.
                 \85\ See supra note 78.
                ---------------------------------------------------------------------------
                 Given these considerations, the Bureau solicits comment on whether
                the Bureau should adopt a different approach to determine whether a
                rate using the replacement index is ``substantially similar'' to the
                rate using the LIBOR index for purposes of proposed Sec.
                1026.40(f)(3)(ii)(B) and, if so, what criteria the Bureau should use in
                selecting such a different approach. For example, the Bureau solicits
                comment on whether it should require creditors to use a historical
                median or average of the spread between the replacement index and the
                LIBOR index over a certain time frame (e.g., the time period the
                historical data are available or 5 years, whichever is shorter) for
                purposes of determining whether a rate using the replacement index is
                ``substantially similar'' to the rate using the LIBOR index. The Bureau
                also solicits comments on any compliance challenges that might arise as
                a result of adopting a potentially more complicated method of comparing
                rates calculated
                [[Page 36961]]
                using the replacement index and the rates calculated using the LIBOR
                index, and for any identified compliance challenges, how the Bureau
                could ease those compliance challenges.
                 Under proposed Sec. 1026.40(f)(3)(ii)(B), in calculating the
                comparison rates using the replacement index and the LIBOR index used
                under the HELOC plan, the creditor must use the margin that applied to
                the variable rate immediately prior to when the creditor provides the
                change-in-terms notice disclosing the replacement index for the
                variable rate. The Bureau is proposing that creditors must use this
                margin, rather than the margin in effect on December 31, 2020. The
                Bureau recognizes that creditors for HELOCs in certain instances may
                change the margin that is used to calculate the LIBOR variable rate
                after December 31, 2020, but prior to when the creditor provides a
                change-in-terms notice to replace the LIBOR index used under the plan.
                If the Bureau were to require that the creditor use the margin in
                effect on December 31, 2020, this would undo any margin changes that
                occurred after December 31, 2020, but prior to the creditor providing a
                change-in-terms notice of the replacement of the LIBOR index used under
                the plan, which would be inconsistent with the purpose of the
                comparisons of the rates under proposed Sec. 1026.40(f)(3)(ii)(B).
                 Proposed comment 40(f)(3)(ii)(B)-3 clarifies that the replacement
                index and replacement margin are not required to produce an APR that is
                substantially similar on the day that the replacement index and
                replacement margin become effective on the plan. Proposed comment
                40(f)(3)(ii)(B)-3.i also provides an example to illustrate this
                comment. The Bureau believes that it would raise compliance issues if
                the rate calculated using the replacement index and replacement margin
                at the time the replacement index and replacement margin became
                effective had to be substantially similar to the rate calculated using
                the LIBOR index in effect on December 31, 2020. Under Sec.
                1026.9(c)(1), the creditor must provide a change-in-terms notice of the
                replacement index and replacement margin (including a reduced margin in
                a change-in-terms notice provided on or after October 1, 2021, as would
                be required by proposed Sec. 1026.9(c)(1)(ii)) at least 15 days prior
                to the effective date of the changes. The Bureau believes that this
                advance notice is important to consumers to inform them of how variable
                rates will be determined going forward after the LIBOR index is
                replaced. Because advance notice of the changes must be given prior to
                the changes becoming effective, a creditor would not be able to ensure
                that the rate based on the replacement index and replacement margin at
                the time the change-in-terms notice becomes effective will be
                substantially similar to the rate calculated using the LIBOR index in
                effect on December 31, 2020. The value of the replacement index may
                change after December 31, 2020, and before the change-in-terms notice
                becomes effective.
                 The Bureau is not proposing to address for purposes of proposed
                Sec. 1026.40(f)(3)(ii)(B) when a rate calculated using the replacement
                index and replacement margin is ``substantially similar'' to the rate
                calculated using the LIBOR index value in effect on December 31, 2020,
                and the margin that applied to the variable rate immediately prior to
                the replacement of the LIBOR index used under the plan. The Bureau is
                concerned about providing a ``range'' of rates that would be considered
                to be ``substantially similar'' to the LIBOR rate described above, and
                about providing other specific guidance on, or regulatory changes
                addressing, the ``substantially similar'' standard, because the rates
                that will be considered ``substantially similar'' will be context-
                specific. The Bureau is concerned that if it provides a range of rates
                that will be considered substantially similar, this range might be too
                narrow or too broad in some cases depending on the specific
                circumstances. The Bureau also is concerned that some creditors may
                decide to charge an APR that is the highest APR in the range, even
                though the specific circumstances would indicate that the highest APR
                should not be considered substantially similar in those circumstances.
                The Bureau solicits comment, however, on whether the Bureau should
                provide guidance on, or regulatory changes addressing, the
                ``substantially similar'' standard in comparing the rates for purposes
                of proposed Sec. 1026.40(f)(3)(ii)(B), and if so, what guidance, or
                regulatory changes, the Bureau should provide. For example, should the
                Bureau provide a range of rates that would be considered
                ``substantially similar'' as described above, and if so, how should the
                range be determined? Should the range of rates depend on context, and
                if so, what contexts should be considered? As an alternative to the
                range of rates approach, the Bureau solicits comment on whether it
                should provide factors that creditors must consider in deciding whether
                the rates are ``substantially similar'' and if so, what those factors
                should be. Are there other approaches the Bureau should consider for
                addressing the ``substantially similar'' standard for comparing rates?
                 As discussed above, proposed comment 40(f)(3)(ii)(B)-1.ii clarifies
                that in order to use the SOFR-based spread-adjusted index as the
                replacement index for the applicable LIBOR index, the creditor must
                comply with the condition in Sec. 1026.40(f)(3)(ii)(B) that the SOFR-
                based spread-adjusted index value in effect on December 31, 2020, and
                replacement margin will produce an APR substantially similar to the
                rate calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan. If
                either the LIBOR index or the SOFR-based spread-adjusted index is not
                published on December 31, 2020, the creditor must use the next calendar
                day that both indices are published as the date on which the annual
                percentage rate based on the SOFR-based spread-adjusted index must be
                substantially similar to the rate based on the LIBOR index. The Bureau
                solicits comment on whether the Bureau in the final rule, if adopted,
                should provide for purposes of proposed Sec. 1026.40(f)(3)(ii)(B) that
                the rate using the SOFR-based spread-adjusted index is ``substantially
                similar'' to the rate calculated using the LIBOR index, so long as the
                creditor uses as the replacement margin the same margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. As discussed in more detail in the section-
                by-section analysis of Sec. 1026.20(a), the spread adjustments for the
                SOFR-based spread-adjusted indices are designed to reflect and adjust
                for the historical differences between LIBOR and SOFR in order to make
                the spread-adjusted rate comparable to LIBOR. Thus, the Bureau believes
                that it may be appropriate to provide for purposes of proposed Sec.
                1026.40(f)(3)(ii)(B) that a creditor complies with the ``substantially
                similar'' standard for comparing the rates when the creditor replaces
                the LIBOR index used under the plan with the applicable SOFR-based
                spread-adjusted index and uses as the replacement margin the same
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan.
                [[Page 36962]]
                Section 1026.55 Limitations on Increasing Annual Percentage Rates,
                Fees, and Charges
                55(b) Exceptions
                55(b)(7) Index Replacement and Margin Change Exception
                 TILA section 171(a), which was added by the Credit CARD Act,
                provides that in the case of a credit card account under an open-end
                consumer credit plan, no creditor may increase any APR, fee, or finance
                charge applicable to any outstanding balance, except as permitted under
                TILA section 171(b).\86\ TILA section 171(b)(2) provides that the
                prohibition under TILA section 171(a) does not apply to an increase in
                a variable APR in accordance with a credit card agreement that provides
                for changes in the rate according to the operation of an index that is
                not under the control of the creditor and is available to the general
                public.\87\
                ---------------------------------------------------------------------------
                 \86\ 15 U.S.C. 1666i-1(a).
                 \87\ 15 U.S.C. 1666i-1(b)(2).
                ---------------------------------------------------------------------------
                 In implementing these provisions of TILA section 171, Sec.
                1026.55(a) prohibits a card issuer from increasing an APR or certain
                enumerated fees or charges set forth in Sec. 1026.55(a) on a credit
                card account under an open-end (not home-secured) consumer credit plan,
                except as provided in Sec. 1026.55(b). Section 1026.55(b)(2) provides
                that a card issuer may increase an APR when: (1) The APR varies
                according to an index that is not under the card issuer's control and
                is available to the general public; and (2) the increase in the APR is
                due to an increase in the index.
                 Comment 55(b)(2)-6 provides that a card issuer may change the index
                and margin used to determine the APR under Sec. 1026.55(b)(2) if the
                original index becomes unavailable, as long as historical fluctuations
                in the original and replacement indices were substantially similar, and
                as long as the replacement index and margin will produce a rate similar
                to the rate that was in effect at the time the original index became
                unavailable. If the replacement index is newly established and
                therefore does not have any rate history, it may be used if it produces
                a rate substantially similar to the rate in effect when the original
                index became unavailable.
                The Proposal
                 As discussed in part III, the industry has requested that the
                Bureau permit card issuers to replace the LIBOR index used in setting
                the variable rates on existing accounts prior to when the LIBOR indices
                become unavailable to facilitate compliance. Among other things, the
                industry is concerned that if card issuers must wait until LIBOR
                becomes unavailable to replace the LIBOR index used on existing
                accounts, card issuers would not have sufficient time to inform
                consumers of the replacement index and update their systems to
                implement the change. To reduce uncertainty with respect to selecting a
                replacement index, the industry also has requested that the Bureau
                determine that the prime rate has ``historical fluctuations'' that are
                ``substantially similar'' to those of the LIBOR indices.
                 To address these concerns, as discussed in more detail in the
                section-by-section analysis of proposed Sec. 1026.55(b)(7)(ii), the
                Bureau is proposing to add new LIBOR-specific provisions to proposed
                Sec. 1026.55(b)(7)(ii) that would permit card issuers for a credit
                card account under an open-end (not home-secured) consumer credit plan
                that uses a LIBOR index under the plan to replace LIBOR and change the
                margin on such plans on or after March 15, 2021, in certain
                circumstances.
                 Specifically, proposed Sec. 1026.55(b)(7)(ii) provides that if a
                variable rate on a credit card account under an open-end (not home-
                secured) consumer credit plan is calculated using a LIBOR index, a card
                issuer may replace the LIBOR index and change the margin for
                calculating the variable rate on or after March 15, 2021, as long as
                (1) the historical fluctuations in the LIBOR index and replacement
                index were substantially similar; and (2) the replacement index value
                in effect on December 31, 2020, and replacement margin will produce an
                APR substantially similar to the rate calculated using the LIBOR index
                value in effect on December 31, 2020, and the margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. If the replacement index is newly
                established and therefore does not have any rate history, it may be
                used if the replacement index value in effect on December 31, 2020, and
                the replacement margin will produce an APR substantially similar to the
                rate calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan.
                 Also, as discussed in more detail in the section-by-section
                analysis of proposed Sec. 1026.55(b)(7)(ii), to reduce uncertainty
                with respect to selecting a replacement index that meets the standards
                in proposed Sec. 1026.55(b)(7)(ii), the Bureau is proposing to
                determine that Prime is an example of an index that has historical
                fluctuations that are substantially similar to those of certain USD
                LIBOR indices. The Bureau also is proposing to determine that certain
                spread-adjusted indices based on SOFR recommended by the ARRC have
                historical fluctuations that are substantially similar to those of
                certain USD LIBOR indices. The Bureau is also proposing additional
                detail in comments 55(b)(7)(ii)-1 through -3 with respect to proposed
                Sec. 1026.55(b)(7)(ii).
                 In addition, as discussed in more detail in the section-by-section
                analysis of proposed Sec. 1026.55(b)(7)(i), the Bureau is proposing to
                move the unavailability provisions in current comment 55(b)(2)-6 to
                proposed Sec. 1026.55(b)(7)(i) and to revise the proposed moved
                provisions for clarity and consistency. The Bureau also is proposing
                additional detail in comments 55(b)(7)(i)-1 through -2 with respect to
                proposed Sec. 1026.55(b)(7)(i). For example, to reduce uncertainty
                with respect to selecting a replacement index that meets the standards
                under proposed Sec. 1026.55(b)(7)(i), the Bureau is proposing to make
                the same determinations discussed above related to Prime and the
                spread-adjusted indices based on SOFR recommended by the ARRC in
                relation to proposed Sec. 1026.55(b)(7)(i). The Bureau is proposing to
                make these revisions and provide additional detail in case card issuers
                use the unavailability provision in proposed Sec. 1026.55(b)(7)(i) to
                replace a LIBOR index used for their credit card accounts, as discussed
                in more detail below.
                 Bureau is proposing new proposed LIBOR-specific provisions rather
                than interpreting when LIBOR is unavailable. For the same reasons that
                the Bureau is proposing LIBOR-specific provisions for HELOCs under
                proposed Sec. 1026.40(f)(3)(ii)(B), the Bureau is proposing these new
                LIBOR-specific provisions under proposed Sec. 1026.55(b)(7)(ii),
                rather than interpreting LIBOR indices to be unavailable as of a
                certain date prior to LIBOR being discontinued under current comment
                55(b)(2)-6 (as proposed to be moved to proposed Sec.
                1026.55(b)(7)(i)). First, the Bureau is concerned about making a
                determination for Regulation Z purposes under current comment 55(b)(2)-
                6 (as proposed to be moved to proposed Sec. 1026.55(b)(7)(i)) that the
                LIBOR indices are unavailable or unreliable when the FCA, the regulator
                of LIBOR, has not made such a determination.
                 Second, the Bureau is concerned that a determination by the Bureau
                that the
                [[Page 36963]]
                LIBOR indices are unavailable for purposes of comment 55(b)(2)-6 (as
                proposed to be moved to proposed Sec. 1026.55(b)(7)(i)) could have
                unintended consequences for other products or markets. For example, the
                Bureau is concerned that such a determination could unintentionally
                cause confusion for creditors for other products (e.g., ARMs) about
                whether the LIBOR indices are unavailable for those products too and
                could possibly put pressure on those creditors to replace the LIBOR
                index used for those products before those creditors are ready for the
                change.
                 Third, even if the Bureau interpreted unavailability under comment
                55(b)(2)-6 (as proposed to be moved to proposed Sec. 1026.55(b)(7)(i))
                to indicate that the LIBOR indices are unavailable prior to LIBOR being
                discontinued, this interpretation would not completely solve the
                contractual issues for card issuers whose contracts require them to
                wait until the LIBOR indices become unavailable before replacing the
                LIBOR index. Card issuers still would need to decide for their
                contracts whether the LIBOR indices are unavailable. Thus, even if the
                Bureau decided that the LIBOR indices are unavailable under Regulation
                Z as described above, card issuers whose contracts require them to wait
                until the LIBOR indices become unavailable before replacing the LIBOR
                index essentially would remain in the same position of interpreting
                their contracts as they would have been under the current rule.
                 Thus, the Bureau is not proposing to interpret when the LIBOR
                indices are unavailable for purposes of current comment 55(b)(2)-6 (as
                proposed to be moved to proposed Sec. 1026.55(b)(7)(ii)). The Bureau
                solicits comment on whether the Bureau should interpret when the LIBOR
                indices are unavailable for purposes of current comment 55(b)(2)-6 (as
                proposed to be moved to proposed Sec. 1026.55(b)(7)(i)), and if so,
                why the Bureau should make that determination and when should the LIBOR
                indices be considered unavailable for purposes of that provision.
                 The Bureau also solicits comment on an alternative to interpreting
                the term ``unavailable.'' Specifically, should the Bureau make
                revisions to the unavailability provisions in current comment 55(b)(2)-
                6 (as proposed to be moved to proposed Sec. 1026.55(b)(7)(i)) in a
                manner that would allow those card issuers who need to transition from
                LIBOR and, for contractual reasons, may not be able to switch away from
                LIBOR prior to it being unavailable to be better able to use the
                unavailability provisions for an orderly transition on or after March
                15, 2021? If so, what should these revisions be?
                 Interaction among proposed Sec. 1026.55(b)(7)(i) and (ii) and
                contractual provisions. Proposed comment 55(b)(7)-1 addresses the
                interaction among the unavailability provisions in proposed Sec.
                1026.55(b)(7)(i), the LIBOR-specific provisions in proposed Sec.
                1026.55(b)(7)(ii), and the contractual provisions applicable to the
                credit card account. The Bureau understands that credit card contracts
                generally allow a card issuer to change the terms of the contract
                (including the index) as permitted by law. Proposed comment 55(b)(7)-1
                provides detail where this contract language applies. In addition,
                consistent with the detail proposed in relation to HELOCs subject to
                Sec. 1026.40 in proposed comment 40(f)(3)(ii)-1, the Bureau also is
                providing detail on two other types of contract language, in case any
                credit card contracts include such language.
                 For example, the Bureau is proposing detail in proposed comment
                55(b)(7)-1 for credit card contracts that contain language providing
                that (1) a card issuer can replace the LIBOR index and the margin for
                calculating the variable rate unilaterally only if the original index
                is no longer available or becomes unavailable; and (2) the replacement
                index and replacement margin will result in an APR substantially
                similar to a rate that is in effect when the original index becomes
                unavailable. The Bureau also is providing detail in proposed comment
                55(b)(7)-1 for credit card contracts that include language providing
                that the card issuer can replace the original index and the margin for
                calculating the variable rate unilaterally only if the original index
                is no longer available or becomes unavailable, but does not require
                that the replacement index and replacement margin will result in an APR
                substantially similar to a rate that is in effect when the original
                index becomes unavailable.
                 Specifically, proposed comment 55(b)(7)-1 provides that a card
                issuer may use either the provision in proposed Sec. 1026.55(b)(7)(i)
                or Sec. 1026.55(b)(7)(ii) to replace a LIBOR index used under a credit
                card account under an open-end (not home-secured) consumer credit plan
                so long as the applicable conditions are met for the provision used.
                This proposed comment makes clear, however, that neither proposed
                provision excuses the card issuer from noncompliance with contractual
                provisions. As discussed below, proposed comment 55(b)(7)-1 provides
                examples to illustrate when a card issuer may use the provisions in
                proposed Sec. 1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii) to replace
                the LIBOR index used under a credit card account under an open-end (not
                home-secured) consumer credit and each of these examples assumes that
                the LIBOR index used under the plan becomes unavailable after March 15,
                2021.
                 Proposed comment 55(b)(7)-1.i provides an example where a contract
                for a credit card account under an open-end (not home-secured) consumer
                credit plan provides that a card issuer may not unilaterally replace an
                index under a plan unless the original index becomes unavailable and
                provides that the replacement index and replacement margin will result
                in an APR substantially similar to a rate that is in effect when the
                original index becomes unavailable. In this case, proposed comment
                55(b)(7)-1.i explains that the card issuer may use the unavailability
                provisions in proposed Sec. 1026.55(b)(7)(i) to replace the LIBOR
                index used under the plan so long as the conditions of that provision
                are met. Proposed comment 55(b)(7)-1.i also explains that the proposed
                LIBOR-specific provisions in proposed Sec. 1026.55(b)(7)(ii) provides
                that a card issuer may replace the LIBOR index if the replacement index
                value in effect on December 31, 2020, and replacement margin will
                produce an APR substantially similar to the rate calculated using the
                LIBOR index value in effect on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. Proposed comment 55(b)(7)-1.i
                notes, however, that the card issuer in this example would be
                contractually prohibited from replacing the LIBOR index used under the
                plan unless the replacement index and replacement margin also will
                produce an APR substantially similar to a rate that is in effect when
                the LIBOR index becomes unavailable. The Bureau solicits comments on
                this proposed approach and example.
                 Proposed comment 55(b)(7)-1.ii provides an example of a contract
                for a credit card account under an open-end (not home-secured) consumer
                credit plan under which a card issuer may not replace an index
                unilaterally under a plan unless the original index becomes unavailable
                but does not require that the replacement index and replacement margin
                will result in an APR substantially similar to a rate that is in effect
                when the original index becomes unavailable. In this case, the card
                issuer would be contractually prohibited from unilaterally replacing a
                LIBOR index
                [[Page 36964]]
                used under the plan until it becomes unavailable. At that time, the
                card issuer has the option of using proposed Sec. 1026.55(b)(7)(i) or
                Sec. 1026.55(b)(7)(ii) to replace the LIBOR index if the conditions of
                the applicable provision are met.
                 The Bureau is proposing to allow the card issuer in this case to
                use either the proposed unavailability provisions in proposed Sec.
                1026.55(b)(7)(i) or the proposed LIBOR-specific provisions in proposed
                Sec. 1026.55(b)(7)(ii). If the card issuer uses the unavailability
                provisions in proposed Sec. 1026.55(b)(7)(i), the card issuer must use
                a replacement index and replacement margin that will produce an APR
                substantially similar to the rate in effect when the LIBOR index became
                unavailable. If the card issuer uses the proposed LIBOR-specific
                provisions in proposed Sec. 1026.55(b)(7)(ii), the card issuer
                generally must use a replacement index value in effect on December 31,
                2020, and replacement margin that will produce an APR substantially
                similar to the rate calculated using the LIBOR index value in effect on
                December 31, 2020, and the margin that applied to the variable rate
                immediately prior to the replacement of the LIBOR index used under the
                plan.
                 The Bureau is proposing to allow a card issuer, in this case, to
                use the index values for the LIBOR index and the replacement index on
                December 31, 2020, to meet the ``substantially similar'' standard with
                respect to the comparison of the rates even if the card issuer is
                contractually prohibited from unilaterally replacing a LIBOR index used
                under the plan until it becomes unavailable. The Bureau recognizes that
                LIBOR may not be discontinued until the end of 2021, which is around a
                year later than the December 31, 2020 date. Nonetheless, the Bureau is
                proposing to allow card issuers that are restricted by their contracts
                to replace the LIBOR index used under the credit card plans until LIBOR
                becomes unavailable to use the LIBOR index values and the replacement
                index values in effect on December 31, 2020 under proposed Sec.
                1026.55(b)(7)(ii), rather than the index values on the day that the
                LIBOR indices become unavailable under proposed Sec. 1026.55(b)(7)(i).
                This proposal would allow those card issuers to use consistent index
                values to those card issuers that are not restricted by their contracts
                in replacing the LIBOR index prior to the LIBOR becoming unavailable.
                This proposal may also promote consistency for consumers in that all
                card issuers are permitted to use the same LIBOR values in comparing
                the rates.
                 In addition, as discussed in part III, the industry has raised
                concerns that LIBOR may continue for some time after December 2021 but
                become less representative or reliable until LIBOR finally is
                discontinued. Allowing card issuers to use the December 31, 2020,
                values for comparison of the rates instead of the LIBOR values when the
                LIBOR indices become unavailable may address some of these concerns.
                 Thus, the Bureau is proposing to provide card issuers with the
                flexibility to choose to use the index values for the LIBOR index and
                the replacement index on December 31, 2020, by using the proposed
                LIBOR-specific provisions under proposed Sec. 1026.55(b)(7)(ii),
                rather than using the unavailability provisions in proposed Sec.
                1026.55(b)(7)(i). The Bureau solicits comment on this proposed approach
                and example.
                 Proposed comment 55(b)(7)-1.iii provides an example of a contract
                for a credit card account under an open-end (not home-secured) consumer
                credit plan under which a card issuer may change the terms of the
                contract (including the index) as permitted by law. Proposed comment
                55(b)(7)-1.iii explains in this case, if the card issuer replaces a
                LIBOR index under a plan on or after March 15, 2021, but does not wait
                until LIBOR becomes unavailable to do so, the card issuer may only use
                proposed Sec. 1026.55(b)(7)(ii) to replace the LIBOR index if the
                conditions of that provision are met. In this case, the card issuer may
                not use proposed Sec. 1026.55(b)(7)(i). Proposed comment 55(b)(7)-
                1.iii also explains that if the card issuer waits until the LIBOR index
                used under the plan becomes unavailable to replace the LIBOR index, the
                card issuer has the option of using proposed Sec. 1026.55(b)(7)(i) or
                Sec. 1026.55(b)(7)(ii) to replace the LIBOR index if the conditions of
                the applicable provision are met.
                 The Bureau is proposing to allow the card issuer, in this case, to
                use either the unavailability provisions in proposed Sec.
                1026.55(b)(7)(i) or the proposed LIBOR-specific provisions in proposed
                Sec. 1026.55(b)(7)(ii) if the card issuer waits until the LIBOR index
                used under the plan becomes unavailable to replace the LIBOR index. For
                the reasons explained above in the discussion of the example in
                proposed comment 55(b)(7)-1.ii, the Bureau is proposing in the
                situation described in proposed comment 55(b)(7)-1.iii to provide card
                issuers with the flexibility to choose to use the index values for the
                LIBOR index and the replacement index on December 31, 2020, by using
                the proposed LIBOR-specific provisions under proposed Sec.
                1026.55(b)(7)(ii), rather than using the unavailability provision in
                proposed Sec. 1026.55(b)(7)(i). The Bureau solicits comment on this
                proposed approach and example.
                55(b)(7)(i)
                 Section 1026.55(a) prohibits a card issuer from increasing an APR
                or certain enumerated fees or charges set forth in Sec. 1026.55(a) on
                a credit card account under an open-end (not home-secured) consumer
                credit plan, except as provided in Sec. 1026.55(b). Section
                1026.55(b)(2) provides that a card issuer may increase an APR when: (1)
                The APR varies according to an index that is not under the card
                issuer's control and is available to the general public; and (2) the
                increase in the APR is due to an increase in the index. Comment
                55(b)(2)-6 provides that a card issuer may change the index and margin
                used to determine the APR under Sec. 1026.55(b)(2) if the original
                index becomes unavailable, as long as historical fluctuations in the
                original and replacement indices were substantially similar, and as
                long as the replacement index and margin will produce a rate similar to
                the rate that was in effect at the time the original index became
                unavailable. If the replacement index is newly established and
                therefore does not have any rate history, it may be used if it produces
                a rate substantially similar to the rate in effect when the original
                index became unavailable.
                The Proposal
                 The Bureau is proposing to move the unavailability provisions in
                current comment 55(b)(2)-6 to proposed Sec. 1026.55(b)(7)(i) and to
                revise the proposed moved provisions for clarity and consistency.
                Proposed Sec. 1026.55(b)(7)(i) provides that a card issuer may
                increase an APR when the card issuer changes the index and margin used
                to determine the APR if the original index becomes unavailable, as long
                as (1) the historical fluctuations in the original and replacement
                indices were substantially similar; and (2) the replacement index and
                replacement margin will produce a rate substantially similar to the
                rate that was in effect at the time the original index became
                unavailable. If the replacement index is newly established and
                therefore does not have any rate history, it may be used if it and the
                replacement margin will produce a rate substantially similar to the
                rate in effect when the original index became unavailable.
                 The Bureau also is proposing comments 55(b)(7)(i)-1 through -2 with
                respect to proposed Sec. 1026.55(b)(7)(i).
                [[Page 36965]]
                For example, to reduce uncertainty with respect to selecting a
                replacement index that meets the standards under proposed Sec.
                1026.55(b)(7)(i), the Bureau is proposing to determine that Prime is an
                example of an index that has historical fluctuations that are
                substantially similar to those of certain USD LIBOR indices. The Bureau
                also is proposing to determine that certain spread-adjusted indices
                based on SOFR recommended by the ARRC have historical fluctuations that
                are substantially similar to those of certain USD LIBOR indices. The
                Bureau is proposing to make these revisions and provide additional
                detail, in case card issuers use the unavailability provisions in
                proposed Sec. 1026.55(b)(7)(i) to replace a LIBOR index used for
                credit card accounts, as discussed in more detail above in the section-
                by-section analysis of proposed Sec. 1026.55(b)(7).
                 Proposed Sec. 1026.55(b)(7)(i) differs from current comment
                55(b)(2)-6 in three ways. First, proposed Sec. 1026.55(b)(7)(i)
                provides that if an index that is not newly established is used to
                replace the original index, the replacement index and replacement
                margin will produce a rate ``substantially similar'' to the rate that
                was in effect at the time the original index became unavailable.
                Currently, comment 55(b)(2)-6 uses the term ``similar'' instead of
                ``substantially similar'' for the comparison of these rates.
                Nonetheless, comment 55(b)(2)-6 provides that if the replacement index
                is newly established and therefore does not have any rate history, it
                may be used if it produces a rate ``substantially similar'' to the rate
                in effect when the original index became unavailable. To correct this
                inconsistency between the comparison of rates when an existing
                replacement index is used and when a newly established index is used,
                the Bureau is proposing to use ``substantially similar'' consistently
                in proposed Sec. 1026.55(b)(7)(i) for the comparison of rates. As
                discussed in the section-by-section analysis of proposed Sec.
                1026.40(f)(3)(ii)(A), the Bureau also is proposing to use
                ``substantially similar'' as the standard for the comparison of rates
                for HELOC plans when the LIBOR index used under the plan becomes
                unavailable.
                 Second, proposed Sec. 1026.55(b)(7)(i) differs from current
                comment 55(b)(2)-6 in that the proposed provision makes clear that a
                card issuer that is using a newly established index may also adjust the
                margin so that the newly established index and replacement margin will
                produce an APR substantially similar to the rate in effect when the
                original index became unavailable. The newly established index may not
                have the same index value as the original index, and the card issuer
                may need to adjust the margin to meet the condition that the newly
                established index and replacement margin will produce an APR
                substantially similar to the rate in effect when the original index
                became unavailable.
                 Third, proposed Sec. 1026.55(b)(7)(i) differs from current comment
                55(b)(2)-6 in that the proposed provision uses the term ``the
                replacement index and replacement margin'' instead of ``the replacement
                index and margin'' to make clear when proposed Sec. 1026.55(b)(7)(i)
                is referring to a replacement margin and not the original margin.
                 To effectuate the purposes of TILA and to facilitate compliance,
                the Bureau is proposing to use its TILA section 105(a) authority to
                propose Sec. 1026.55(b)(7)(i). TILA section 105(a) \88\ directs the
                Bureau to prescribe regulations to carry out the purposes of TILA, and
                provides that such regulations may contain additional requirements,
                classifications, differentiations, or other provisions, and may provide
                for such adjustments and exceptions for all or any class of
                transactions, that the Bureau judges are necessary or proper to
                effectuate the purposes of TILA, to prevent circumvention or evasion
                thereof, or to facilitate compliance. The Bureau is proposing this
                exception to facilitate compliance with TILA and effectuate its
                purposes. Specifically, the Bureau interprets ``facilitate compliance''
                to include enabling or fostering continued operation in conformity with
                the law.
                ---------------------------------------------------------------------------
                 \88\ 15 U.S.C. 1604(a).
                ---------------------------------------------------------------------------
                 The Bureau is proposing to move comment 55(b)(2)-6 to proposed
                Sec. 1026.55(b)(7)(i) as an exception to the general rule in current
                Sec. 1026.55(a) restricting rate increases. The Bureau believes that
                an index change could produce a rate increase at the time of the
                replacement or in the future. The Bureau is proposing to provide this
                exception to the general rule in Sec. 1026.55(a) in the circumstances
                in which an index becomes unavailable in the limited conditions set
                forth in proposed Sec. 1026.55(b)(7)(i) to enable or foster continued
                operation in conformity with the law. If the index that is used under a
                credit card account under an open-end (not home-secured) consumer
                credit plan becomes unavailable, the card issuer would need to replace
                the index with another index, so the rate remains a variable rate under
                the plan. The Bureau is proposing this exception to facilitate
                compliance with the rule by allowing the card issuer to maintain the
                rate as a variable rate, which is also likely to be consistent with the
                consumer's expectation that the rate on the account will be a variable
                rate. The Bureau is not aware of legislative history suggesting that
                Congress intended card issuers, in this case, to be required to convert
                variable-rate plans to a non-variable-rate plans when the index becomes
                unavailable.
                 The Bureau solicits comments on proposed Sec. 1026.55(b)(7)(i) and
                proposed comments 55(b)(7)(i)-1 through -2. The proposed comments are
                discussed in more detail below.
                 Historical fluctuations substantially similar for the LIBOR index
                and replacement index. Proposed comment 55(b)(7)(i)-1 provides detail
                on determining whether a replacement index that is not newly
                established has ``historical fluctuations'' that are ``substantially
                similar'' to those of the LIBOR index used under the plan for purposes
                of proposed Sec. 1026.55(b)(7)(i). Specifically, proposed comment
                55(b)(7)(i)-1 provides that for purposes of replacing a LIBOR index
                used under a plan pursuant to Sec. 1026.55(b)(7)(i), a replacement
                index that is not newly established must have historical fluctuations
                that are substantially similar to those of the LIBOR index used under
                the plan, considering the historical fluctuations up through when the
                LIBOR index becomes unavailable or up through the date indicated in a
                Bureau determination that the replacement index and the LIBOR index
                have historical fluctuations that are substantially similar, whichever
                is earlier. To facilitate compliance, proposed comment 55(b)(7)(i)-1.i
                includes a proposed determination that Prime has historical
                fluctuations that are substantially similar to those of the 1-month and
                3-month USD LIBOR indices and includes a placeholder for the date when
                this proposed determination would be effective, if adopted in the final
                rule.\89\ The Bureau understands that some card issuers may choose to
                replace a LIBOR index with Prime. Proposed comment 55(b)(7)(i)-1.i also
                clarifies that in order to use Prime as the replacement index for the
                1-month or 3-month USD LIBOR index, the card issuer also must comply
                with the condition in Sec. 1026.55(b)(7)(i) that Prime and the
                replacement margin will produce a rate substantially similar to the
                rate that was in effect at the time the LIBOR index became unavailable.
                This condition for comparing the rates under
                [[Page 36966]]
                proposed Sec. 1026.55(b)(7)(i) is discussed in more detail below.
                ---------------------------------------------------------------------------
                 \89\ See the section-by-section analysis of proposed Sec.
                1026.40(f)(3)(ii)(A) for a discussion of the rationale for the
                Bureau proposing this determination.
                ---------------------------------------------------------------------------
                 To facilitate compliance, proposed comment 55(b)(7)(i)-1.ii
                provides a proposed determination that the spread-adjusted indices
                based on SOFR recommended by the ARRC to replace the 1-month, 3-month,
                6-month, and 1-year USD LIBOR indices have historical fluctuations that
                are substantially similar to those of the 1-month, 3-month, 6-month,
                and 1-year USD LIBOR indices respectively. The proposed comment
                provides a placeholder for the date when this proposed determination
                would be effective, if adopted in the final rule.\90\ The Bureau is
                proposing this determination in case some card issuers choose to
                replace a LIBOR index with the SOFR-based spread-adjusted index.
                ---------------------------------------------------------------------------
                 \90\ See the section-by-section analysis of proposed Sec.
                1026.40(f)(3)(ii)(A) for a discussion of the rationale for the
                Bureau proposing this determination. Also, as discussed in the
                section-by-section analysis of proposed Sec. 1026.40(f)(3)(ii)(A),
                the Bureau solicits comment on whether the Bureau should
                alternatively consider these SOFR-based spread-adjusted indices to
                be newly established indices for purposes of proposed Sec.
                1026.55(b)(7)(i), to the extent these indices are not being
                published by the effective date of the final rule, if adopted.
                ---------------------------------------------------------------------------
                 Proposed comment 55(b)(7)(i)-1.ii also clarifies that in order to
                use this SOFR-based spread-adjusted index as the replacement index for
                the applicable LIBOR index, the card issuer also must comply with the
                condition in Sec. 1026.55(b)(7)(i) that the SOFR-based spread-adjusted
                index and replacement margin would have resulted in an APR
                substantially similar to the rate in effect at the time the LIBOR index
                became unavailable. This condition under proposed Sec.
                1026.55(b)(7)(i) is discussed in more detail below. Also, as discussed
                in more detail below, the Bureau solicits comment on whether the Bureau
                in the final rule, if adopted, should provide for purposes of proposed
                Sec. 1026.55(b)(7)(i) that the rate using the SOFR-based spread-
                adjusted index is ``substantially similar'' to the rate in effect at
                the time the LIBOR index becomes unavailable, so long as the card
                issuer uses as the replacement margin the same margin in effect on the
                day that the LIBOR index becomes unavailable.
                 The Bureau also solicits comment on whether there are other indices
                that are not newly established for which the Bureau should make a
                determination that the index has historical fluctuations that are
                substantially similar to those of the LIBOR indices for purposes of
                proposed Sec. 1026.55(b)(7)(i). If so, what are these other indices,
                and why should the Bureau make such a determination with respect to
                those indices?
                 Newly established index as replacement for a LIBOR index. Proposed
                Sec. 1026.55(b)(7)(i) provides that if the replacement index is newly
                established and therefore does not have any rate history, it may be
                used if it and the replacement margin will produce an APR substantially
                similar to the rate in effect when the original index became
                unavailable. The Bureau solicits comment on whether the Bureau should
                provide any additional guidance on, or regulatory changes addressing,
                when an index is newly established with respect to replacing the LIBOR
                indices for purposes of proposed Sec. 1026.55(b)(7)(i). The Bureau
                also solicits comment on whether the Bureau should provide any examples
                of indices that are newly established with respect to replacing the
                LIBOR indices for purposes of Sec. 1026.55(b)(7)(i). If so, what are
                these indices and why should the Bureau determine these indices are
                newly established with respect to replacing the LIBOR indices?
                 Substantially similar rate when LIBOR becomes unavailable. Under
                proposed Sec. 1026.55(b)(7)(i), the replacement index and replacement
                margin must produce an APR substantially similar to the rate that was
                in effect based on the LIBOR index used under the plan when the LIBOR
                index became unavailable. Proposed comment 55(b)(7)(i)-2 explains that
                for the comparison of the rates, a card issuer must use the value of
                the replacement index and the LIBOR index on the day that LIBOR becomes
                unavailable. The Bureau solicits comment on whether it should address
                the situation where the replacement index is not be published on the
                day that the LIBOR index becomes unavailable. For example, should the
                Bureau provide that if the replacement index is not published on the
                day that the LIBOR index becomes unavailable, the card issuer must use
                the previous calendar day that both indices are published as the date
                on which the annual percentage rate based on the replacement index must
                be substantially similar to the rate based on the LIBOR index?
                 Proposed comment 55(b)(7)(i)-2 clarifies that the replacement index
                and replacement margin are not required to produce an APR that is
                substantially similar on the day that the replacement index and
                replacement margin become effective on the plan. Proposed comment
                55(b)(7)(i)-2.i provides an example to illustrate this comment.
                 The Bureau believes that it may raise compliance issues if the rate
                calculated using the replacement index and replacement margin at the
                time the replacement index and replacement margin became effective had
                to be substantially similar to the rate calculated using the LIBOR
                index on the date that the LIBOR index became unavailable.
                Specifically, under Sec. 1026.9(c)(2), the card issuer must provide a
                change-in-terms notice of the replacement index and replacement margin
                (including disclosing any reduced margin in change-in-terms notices
                provided on or after October 1, 2021, which would be required under
                proposed Sec. 1026.9(c)(2)(v)(A)) at least 45 days prior to the
                effective date of the changes. The Bureau believes that this advance
                notice is important to consumers to inform them of how variable rates
                will be determined going forward after the LIBOR index is replaced.
                Because advance notice of the changes must be given prior to the
                changes becoming effective, a card issuer would not be able to ensure
                that the rate based on the replacement index and margin at the time the
                change-in-terms notice becomes effective will be substantially similar
                to the rate calculated using the LIBOR index in effect at the time the
                LIBOR index becomes unavailable. The value of the replacement index may
                change after the LIBOR index becomes unavailable and before the change-
                in-terms notice becomes effective.
                 The Bureau notes that proposed Sec. 1026.55(b)(7)(i) would require
                a card issuer to use the index values of the replacement index and the
                original index on a single day (namely, the day that the original index
                becomes unavailable) to compare the rates to determine if they are
                ``substantially similar.'' In using a single day to compare the rates,
                this proposed provision is consistent with the condition in the
                unavailability provision in current comment 55(b)(2)-6, in the sense
                that it provides that the new index and margin must result in an APR
                that is substantially similar to the rate in effect on a single day.
                For the reasons discussed in the section-by-section analysis of
                proposed Sec. 1026.40(f)(3)(ii)(A), the Bureau solicits comment on
                whether the Bureau should adopt a different approach to determine
                whether a rate using the replacement index is ``substantially similar''
                to the rate using the original index for purposes of Sec.
                1026.55(b)(7)(i) and, if so, what criteria the Bureau should use in
                selecting such a different approach. For example, the Bureau solicits
                comment on whether it should require card issuers to use a historical
                median or average of the spread between the replacement index and the
                original index over a certain time frame (e.g., the
                [[Page 36967]]
                time period the historical data are available or 5 years, whichever is
                shorter) for purposes of determining whether a rate using the
                replacement index is ``substantially similar'' to the rate using the
                original index. The Bureau also solicits comments on any compliance
                challenges that might arise as a result of adopting a potentially more
                complicated method of comparing the rates calculated using the
                replacement index and the rates calculated using the original index,
                and for any identified compliance challenges, how the Bureau could ease
                those compliance challenges.
                 For the reasons discussed in more detail in the section-by-section
                analysis of proposed Sec. 1026.40(f)(3)(ii)(A), the Bureau is not
                proposing to address for purposes of proposed Sec. 1026.55(b)(7)(i)
                when a rate calculated using the replacement index and replacement
                margin is ``substantially similar'' to the rate in effect when the
                LIBOR index becomes unavailable. The Bureau solicits comment, however,
                on whether the Bureau should provide guidance on, or regulatory changes
                addressing, the ``substantially similar'' standard in comparing the
                rates for purposes of proposed Sec. 1026.55(b)(7)(i), and if so, what
                guidance, or regulatory changes, the Bureau should provide. For
                example, should the Bureau provide a range of rates that would be
                considered ``substantially similar'' as described above, and if so, how
                should the range be determined? Should the range of rates depend on
                context, and if so, what contexts should be considered? As an
                alternative to the range of rates approach, the Bureau solicits comment
                on whether it should provide factors that card issuers must consider in
                deciding whether the rates are ``substantially similar'' and if so,
                what those factors should be. Are there other approaches the Bureau
                should consider for addressing the ``substantially similar'' standard
                for comparing rates?
                 As discussed above, proposed comment 55(b)(7)(i)-1.ii clarifies
                that in order to use the SOFR-based spread-adjusted index as the
                replacement index for the applicable LIBOR index, the card issuer must
                comply with the condition in Sec. 1026.55(b)(7)(i) that the SOFR-based
                spread-adjusted index and replacement margin would have resulted in an
                APR substantially similar to the rate in effect at the time the LIBOR
                index became unavailable. For the reasons discussed in more detail in
                the section-by-section analysis of proposed Sec. 1026.40(f)(3)(ii)(A),
                the Bureau solicits comment on whether the Bureau in the final rule, if
                adopted, should provide for purposes of proposed Sec. 1026.55(b)(7)(i)
                that the rate using the SOFR-based spread-adjusted index is
                ``substantially similar'' to the rate in effect at the time the LIBOR
                index becomes unavailable, so long as the card issuer uses as the
                replacement margin the same margin in effect on the day that the LIBOR
                index becomes unavailable.
                55(b)(7)(ii)
                The Proposal
                 For the reasons discussed below and in the section-by-section
                analysis of proposed Sec. 1026.55(b)(7), the Bureau is proposing to
                add new LIBOR-specific provisions to proposed Sec. 1026.55(b)(7)(ii)
                that would permit card issuers for a credit card account under an open-
                end (not home-secured) consumer credit plan that uses a LIBOR index
                under the plan for calculating variable rates to replace the LIBOR
                index and change the margins for calculating the variable rates on or
                after March 15, 2021, in certain circumstances. Specifically, proposed
                Sec. 1026.55(b)(7)(ii) provides that if a variable rate on a credit
                card account under an open-end (not home-secured) consumer credit plan
                is calculated using a LIBOR index, a card issuer may replace the LIBOR
                index and change the margin for calculating the variable rate on or
                after March 15, 2021, as long as (1) the historical fluctuations in the
                LIBOR index and replacement index were substantially similar; and (2)
                the replacement index value in effect on December 31, 2020, and
                replacement margin will produce an APR substantially similar to the
                rate calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan.
                Proposed Sec. 1026.55(b)(7)(ii) also provides that if the replacement
                index is newly established and therefore does not have any rate
                history, it may be used if the replacement index value in effect on
                December 31, 2020, and replacement margin will produce an APR
                substantially similar to the rate calculated using the LIBOR index
                value in effect on December 31, 2020, and the margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. In addition, proposed Sec.
                1026.55(b)(7)(ii) provides that if either the LIBOR index or the
                replacement index is not published on December 31, 2020, the card
                issuer must use the next calendar day that both indices are published
                as the date on which the APR based on the replacement index must be
                substantially similar to the rate based on the LIBOR index.
                 In addition, the Bureau is proposing to add detail in proposed
                comments 55(b)(7)(ii)-1 through -3 on the conditions set forth in
                proposed Sec. 1026.55(b)(7)(ii). For example, to reduce uncertainty
                with respect to selecting a replacement index that meets the standards
                in proposed Sec. 1026.55(b)(7)(ii), the Bureau is proposing to
                determine that Prime is an example of an index that has historical
                fluctuations that are substantially similar to those of certain USD
                LIBOR indices. The Bureau also is proposing to determine that certain
                spread-adjusted indices based on SOFR recommended by the ARRC have
                historical fluctuations that are substantially similar to those of
                certain USD LIBOR indices. Proposed Sec. 1026.55(b)(7)(ii) and
                proposed comments 55(b)(7)(ii)-1 through -3 applicable to credit card
                accounts under an open-end (not home-secured) consumer credit plan are
                similar to the LIBOR-specific provisions set forth in proposed Sec.
                1026.40(f)(3)(ii)(B) and proposed comments 40(f)(3)(ii)(B)-1 through -3
                applicable to HELOCs subject to Sec. 1026.40.
                 To effectuate the purposes of TILA and to facilitate compliance,
                the Bureau is proposing to use its TILA section 105(a) authority to
                propose new LIBOR-specific provisions under proposed Sec.
                1026.55(b)(7)(ii). TILA section 105(a) \91\ directs the Bureau to
                prescribe regulations to carry out the purposes of TILA, and provides
                that such regulations may contain additional requirements,
                classifications, differentiations, or other provisions, and may provide
                for such adjustments and exceptions for all or any class of
                transactions, that the Bureau judges are necessary or proper to
                effectuate the purposes of TILA, to prevent circumvention or evasion
                thereof, or to facilitate compliance. The Bureau is proposing this
                exception to facilitate compliance with TILA and effectuate its
                purposes. Specifically, the Bureau interprets ``facilitate compliance''
                to include enabling or fostering continued operation in conformity with
                the law.
                ---------------------------------------------------------------------------
                 \91\ 15 U.S.C. 1604(a).
                ---------------------------------------------------------------------------
                 The Bureau is proposing to set March 15, 2021, as the date on or
                after which card issuers are permitted to replace the LIBOR index used
                for a credit card account under an open-end (not home-secured) consumer
                credit plan under the plan pursuant to proposed Sec. 1026.55(b)(7)(ii)
                prior to LIBOR becoming unavailable to facilitate compliance with the
                change-in-terms
                [[Page 36968]]
                notice requirements applicable to card issuers by allowing them to
                provide the 45-day change-in-terms notices required under Sec.
                1026.9(c)(2) prior to the LIBOR indices becoming unavailable. This
                proposed change will allow those card issuers to avoid being left
                without a LIBOR index to use in calculating the variable rate before
                the replacement index and margin become effective. Also, it will allow
                card issuers to provide the change-in-terms notices, and replace the
                LIBOR index used under the plans, on accounts on a rolling basis,
                rather than having to provide the change-in-terms notices, and replace
                the LIBOR index, for all its accounts at the same time when the LIBOR
                index used under the plan becomes unavailable.
                 Without the proposed LIBOR-specific provisions in proposed Sec.
                1026.55(b)(7)(ii), as a practical matter, card issuers would have to
                wait until LIBOR becomes unavailable to provide the 45-day change-in-
                terms notice under Sec. 1026.9(c)(2) disclosing the replacement index
                and replacement margin (including disclosing any reduced margin in
                change-in-terms notices provided on or after October 1, 2021, which
                would be required under proposed Sec. 1026.9(c)(2)(v)(A)). The Bureau
                believes that this advance notice is important to consumers to inform
                them of how variable rates will be determined going forward after the
                LIBOR index is replaced.
                 Card issuers would not be able to send out change-in-terms notices
                disclosing the replacement index and replacement margin prior to the
                LIBOR indices becoming unavailable for several reasons. First, although
                LIBOR is expected to become unavailable around the end of 2021, there
                is no specific date known with certainty on which LIBOR will become
                unavailable. Thus, card issuers could not send out the change-in-terms
                notices prior to the LIBOR index becoming unavailable because they will
                not know when it will become unavailable and thus would not know when
                to make the replacement index and replacement margin effective on the
                account.
                 Second, card issuers would need to know the index values of the
                LIBOR index and the replacement index prior to sending out the change-
                in-terms notice so that they could disclose the replacement margin in
                the change-in-terms notice. Card issuers will not know these index
                values until the day that LIBOR becomes unavailable. Thus, card issuers
                would have to wait until the LIBOR indices become unavailable before
                the card issuer could send the 45-day change-in-terms notice under
                Sec. 1026.9(c)(2) to replace the LIBOR index with a replacement index.
                Some card issuers could be left without a LIBOR index value to use
                during the 45-day period before the replacement index and replacement
                margin become effective, depending on their existing contractual terms.
                The Bureau is concerned this could cause compliance and systems issues.
                 Also, as discussed in part III, the industry has raised concerns
                that LIBOR may continue for some time after December 2021 but become
                less representative or reliable until LIBOR finally is discontinued.
                Allowing card issuers to replace the LIBOR indices on existing credit
                card accounts prior to the LIBOR indices becoming unavailable may
                address some of these concerns.
                 The Bureau solicits comments on proposed Sec. 1026.55(b)(7)(ii)
                and proposed comments 55(b)(7)(ii)-1 through -3. The proposed comments
                are discussed in more detail below.
                 Consistent conditions with proposed Sec. 1026.55(b)(7)(i). The
                Bureau is proposing conditions in the LIBOR-specific provisions in
                proposed Sec. 1026.55(b)(7)(ii) for how a card issuer must select a
                replacement index and compare rates that are consistent with the
                conditions set forth in the unavailability provisions set forth in
                proposed Sec. 1026.55(b)(7)(i). For example, the availability
                provisions in proposed Sec. 1026.55(b)(7)(i) and the LIBOR-specific
                provisions in proposed Sec. 1026.55(b)(7)(ii) contain a consistent
                requirement that the APR calculated using the replacement index must be
                ``substantially similar'' to the rate calculated using the LIBOR
                index.\92\ In addition, both proposed Sec. 1026.55(b)(7)(i) and (ii)
                would allow a card issuer to use an index that is not newly established
                as a replacement index only if the index has historical fluctuations
                that are substantially similar to those of the LIBOR index.
                ---------------------------------------------------------------------------
                 \92\ The conditions in proposed Sec. 1026.55(b)(7)(i) and (ii)
                are consistent, but they are not the same. For example, although
                both proposed provisions use the ``substantially similar'' standard
                to compare the rates, they use different dates for selecting the
                index values in calculating the rates. The proposed provisions
                differ in the timing of when card issuers are permitted to
                transition away from LIBOR, which creates some differences in how
                the conditions apply.
                ---------------------------------------------------------------------------
                 For several reasons, the Bureau is proposing to keep the conditions
                for these two provisions consistent. First, as discussed above in the
                section-by-section analysis of proposed Sec. 1026.55(b)(7), to the
                extent some card issuers may need to wait until the LIBOR indices
                become unavailable to transition to a replacement index because of
                contractual reasons, the Bureau believes that keeping the conditions
                consistent in the unavailability provisions in proposed Sec.
                1026.55(b)(7)(i) and the LIBOR-specific provisions in proposed Sec.
                1026.55(b)(7)(ii) will help ensure that card issuers must meet
                consistent conditions in selecting a replacement index and setting the
                rates, regardless of whether they are using the unavailability
                provisions in proposed Sec. 1026.55(b)(7)(i), or the LIBOR-specific
                provisions in proposed Sec. 1026.55(b)(7)(ii).
                 Second, most card issuers may have the ability to choose between
                the unavailability provisions and LIBOR-specific provisions to switch
                away from using a LIBOR index, and if the conditions between those two
                provisions are inconsistent, these differences could undercut the
                purpose of the LIBOR-specific provisions to allow card issuers to
                switch out earlier. For example, if the conditions for selecting a
                replacement index or setting the rates were stricter in the LIBOR-
                specific provisions than in the unavailability provisions, this may
                cause a card issuer to wait until the LIBOR indices become unavailable
                to switch to a replacement index, which would undercut the purpose of
                the LIBOR-specific provisions to allow card issuers to switch out
                earlier and prevent these card issuers from having the time required to
                transition from using a LIBOR index.
                 Historical fluctuations substantially similar for the LIBOR index
                and replacement index. Proposed comment 55(b)(7)(ii)-1 provides detail
                on determining whether a replacement index that is not newly
                established has ``historical fluctuations'' that are ``substantially
                similar'' to those of the LIBOR index used under the plan for purposes
                of proposed Sec. 1026.55(b)(7)(ii). Specifically, proposed comment
                55(b)(7)(ii)-1 provides that for purposes of replacing a LIBOR index
                used under a plan pursuant to proposed Sec. 1026.55(b)(7)(ii), a
                replacement index that is not newly established must have historical
                fluctuations that are substantially similar to those of the LIBOR index
                used under the plan, considering the historical fluctuations up through
                December 31, 2020, or up through the date indicated in a Bureau
                determination that the replacement index and the LIBOR index have
                historical fluctuations that are substantially similar, whichever is
                earlier. The Bureau is proposing the December 31, 2020, date to be
                consistent with the date that card issuers generally must use for
                selecting the index values to use in comparing the rates under
                [[Page 36969]]
                proposed Sec. 1026.55(b)(7)(ii). The Bureau solicits comment on the
                December 31, 2020 date for purposes of proposed comment 55(b)(7)(ii)-1
                and whether another date or timeframe would be more appropriate for
                purposes of that proposed comment.
                 To facilitate compliance, proposed comment 55(b)(7)(ii)-1.i
                includes a proposed determination that Prime has historical
                fluctuations that are substantially similar to those of the 1-month and
                3-month USD LIBOR indices and includes a placeholder for the date when
                this proposed determination would be effective, if adopted in the final
                rule.\93\ The Bureau understands some card issuers may choose to
                replace a LIBOR index with Prime. Proposed comment 55(b)(7)(ii)-1.i
                also clarifies that in order to use Prime as the replacement index for
                the 1-month or 3-month USD LIBOR index, the card issuer also must
                comply with the condition in Sec. 1026.55(b)(7)(ii) that the Prime
                index value in effect on December 31, 2020, and replacement margin will
                produce an APR substantially similar to the rate calculated using the
                LIBOR index value in effect on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. If either the LIBOR index or the
                prime rate is not published on December 31, 2020, the card issuer must
                use the next calendar day that both indices are published as the date
                on which the annual percentage rate based on the prime rate must be
                substantially similar to the rate based on the LIBOR index. This
                condition for comparing the rates under proposed Sec.
                1026.55(b)(7)(ii) is discussed in more detail below.
                ---------------------------------------------------------------------------
                 \93\ See the section-by-section analysis of proposed Sec.
                1026.40(f)(3)(ii)(A) for a discussion of the rationale for the
                Bureau proposing this determination.
                ---------------------------------------------------------------------------
                 To facilitate compliance, proposed comment 55(b)(7)(ii)-1.ii
                provides a proposed determination that the spread-adjusted indices
                based on SOFR recommended by the ARRC to replace the 1-month, 3-month,
                6-month, and 1-year USD LIBOR indices have historical fluctuations that
                are substantially similar to those of the 1-month, 3-month, 6-month,
                and 1-year USD LIBOR indices respectively. The proposed comment
                provides a placeholder for the date when this proposed determination
                would be effective, if adopted in the final rule.\94\ The Bureau is
                making this proposed determination in case some card issuers choose to
                replace a LIBOR index with the SOFR-based spread-adjusted index.
                Proposed comment 55(b)(7)(ii)-1.ii also clarifies that in order to use
                this SOFR-based spread-adjusted index as the replacement index for the
                applicable LIBOR index, the card issuer also must comply with the
                condition in Sec. 1026.55(b)(7)(ii) that the SOFR-based spread-
                adjusted index value in effect on December 31, 2020, and replacement
                margin will produce an APR substantially similar to the rate calculated
                using the LIBOR index value in effect on December 31, 2020, and the
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. If either the LIBOR
                index or the SOFR-based spread-adjusted index is not published on
                December 31, 2020, the card issuer must use the next calendar day that
                both indices are published as the date on which the annual percentage
                rate based on the SOFR-based spread-adjusted index must be
                substantially similar to the rate based on the LIBOR index. This
                condition for comparing the rates under proposed Sec.
                1026.55(b)(7)(ii) is discussed in more detail below. For the reasons
                discussed below, the Bureau solicits comment on whether the Bureau in
                the final rule, if adopted, should provide for purposes of proposed
                Sec. 1026.55(b)(7)(ii) that the rate using the SOFR-based spread-
                adjusted index is ``substantially similar'' to the rate calculated
                using the LIBOR index, so long as the card issuer uses as the
                replacement margin the same margin that applied to the variable rate
                immediately prior to the replacement of the LIBOR index.
                ---------------------------------------------------------------------------
                 \94\ See the section-by-section analysis of proposed Sec.
                1026.40(f)(3)(ii)(A) for a discussion of the rationale for the
                Bureau proposing this determination. Also, as discussed in the
                section-by-section analysis of proposed Sec. 1026.40(f)(3)(ii)(A),
                the Bureau solicits comment on whether the Bureau should
                alternatively consider these SOFR-based spread-adjusted indices to
                be newly established indices for purposes of proposed Sec.
                1026.55(b)(7)(ii), to the extent these indices are not being
                published by the effective date of the final rule, if adopted.
                ---------------------------------------------------------------------------
                 The Bureau also solicits comment on whether there are other indices
                that are not newly established for which the Bureau should make a
                determination that the index has historical fluctuations that are
                substantially similar to those of the LIBOR indices for purposes of
                proposed Sec. 1026.55(b)(7)(ii). If so, what are these other indices,
                and why should the Bureau make such a determination with respect to
                those indices?
                 Newly established index as replacement for a LIBOR index. Proposed
                Sec. 1026.55(b)(7)(ii) provides that if the replacement index is newly
                established and therefore does not have any rate history, it may be
                used if the replacement index value in effect on December 31, 2020, and
                the replacement margin will produce an APR substantially similar to the
                rate calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan. The
                Bureau solicits comment on whether the Bureau should provide any
                additional guidance on, or regulatory changes addressing, when an index
                is newly established with respect to replacing the LIBOR indices for
                purposes of proposed Sec. 1026.55(b)(7)(ii). The Bureau also solicits
                comment on whether the Bureau should provide any examples of indices
                that are newly established with respect to replacing the LIBOR indices
                for purposes of Sec. 1026.55(b)(7)(ii). If so, what are these indices
                and why should the Bureau determine these indices are newly established
                with respect to replacing the LIBOR indices?
                 Substantially similar rate using index values on December 31, 2020,
                and the margin that applied to the variable rate immediately prior to
                the replacement of the LIBOR index used under the plan. Under proposed
                Sec. 1026.55(b)(7)(ii), if both the replacement index and LIBOR index
                used under the plan are published on December 31, 2020, the replacement
                index value in effect on December 31, 2020, and replacement margin must
                produce an APR substantially similar to the rate calculated using the
                LIBOR index value in effect on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. Proposed comment 55(b)(7)(ii)-2
                explains that the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan is the
                margin that applied to the variable rate immediately prior to when the
                card issuer provides the change-in-terms notice disclosing the
                replacement index for the variable rate. Proposed comment 55(b)(7)(ii)-
                2.i and ii provides examples to illustrate this comment for the
                following two different scenarios: (1) When the margin used to
                calculate the variable rate is increased pursuant to Sec.
                1026.55(b)(3) for new transactions; and (2) when the margin used to
                calculate the variable rate is increased for the outstanding balances
                and new transactions pursuant to Sec. 1026.55(b)(4) because the
                consumer pays the minimum payment more than 60 days late. In both these
                proposed examples, the change in the margin occurs after December 31,
                2020, but prior to date that the card issuer provides a change-in-term
                notice under Sec. 1026.9(c)(2),
                [[Page 36970]]
                disclosing the replacement index for the variable rates.
                 In calculating the comparison rates using the replacement index and
                the LIBOR index used under a credit card account under an open-end (not
                home-secured) consumer credit plan, the Bureau generally is proposing
                to require card issuers to use the index values for the replacement
                index and the LIBOR index in effect on December 31, 2020. The Bureau is
                proposing to require card issuers to use these index values to promote
                consistency for card issuers and consumers in which index values are
                used to compare the two rates. Under proposed Sec. 1026.55(b)(7)(ii),
                card issuers are permitted to replace the LIBOR index used under the
                plan and adjust the margin used in calculating the variable rate used
                under the plan on or after March 15, 2021, but card issuers may vary in
                the timing of when they provide change-in-terms notices to replace the
                LIBOR index used on their credit card accounts and when these
                replacements become effective. For example, one card issuer may replace
                the LIBOR index used under its credit card plans in April 2021, while
                another card issuer may replace the LIBOR index used under its credit
                card plans in October 2021. In addition, a card issuer may not replace
                the LIBOR index used under its credit card plans at the same time. For
                example, a card issuer may replace the LIBOR index used under some of
                its credit card plans in April 2021 but replace the LIBOR index used
                under other of its credit card plans in May 2021. Nonetheless,
                regardless of when a particular card issuer replaces the LIBOR index
                used under its credit card plans, proposed Sec. 1026.55(b)(7)(ii)
                generally would require that all card issuers to use the index values
                for the replacement index and the LIBOR index in effect on December 31,
                2020, to promote consistency for card issuers and consumers in which
                index values are used to compare the two rates.
                 In addition, using the December 31, 2020 date for the index values
                in comparing the rates may allow card issuers to send out change-in-
                terms notices prior to March 15, 2021, and have the changes be
                effective on March 15, 2021, the proposed date on or after which card
                issuers would be permitted to switch away from using LIBOR as an index
                on an existing credit card account under proposed Sec.
                1026.55(b)(7)(ii). If the Bureau instead required card issuers to use
                the index values on March 15, 2021, card issuers as a practical matter
                would not be able to provide change-in-terms notices of the replacement
                index and any adjusted margin until after March 15, 2021, because they
                would need the index values from that date in order to calculate the
                replacement margin. Thus, using the index values on March 15, 2021,
                would delay when card issuers could switch away from using LIBOR as an
                index on an existing credit card account.
                 Also, as discussed in part III, the industry has raised concerns
                that LIBOR may continue for some time after December 2021 but become
                less representative or reliable until LIBOR finally is discontinued.
                Using the index values for the replacement index and the LIBOR index
                used under the plan in effect on December 31, 2020, may address some of
                these concerns.
                 The Bureau solicits comment specifically on the use of the December
                31, 2020 index values in calculating the comparison rates under
                proposed Sec. 1026.55(b)(7)(ii).
                 Proposed Sec. 1026.55(b)(7)(ii) provides one exception to the
                proposed general requirement to use the index values for the
                replacement index and the LIBOR index used under the plan in effect on
                December 31, 2020. Proposed Sec. 1026.55(b)(7)(ii) provides that if
                either the LIBOR index or the replacement index is not published on
                December 31, 2020, the card issuer must use the next calendar day that
                both indices are published as the date on which the APR based on the
                replacement index must be substantially similar to the rate based on
                the LIBOR index.
                 As discussed above, proposed Sec. 1026.55(b)(7)(ii) would require
                a card issuer to use the index values of the replacement index and the
                LIBOR index on a single day (generally December 31, 2020) \95\ to
                compare the rates to determine if they are ``substantially similar.''
                In using a single day to compare the rates, this proposed provision is
                consistent with the condition in the unavailability provision in
                current comment 55(b)(2)-6, in the sense that it provides that the new
                index and margin must result in an APR that is substantially similar to
                the rate in effect on a single day. For the reasons discussed in the
                section-by-section analysis of proposed Sec. 1026.40(f)(3)(ii)(B), the
                Bureau solicits comment on whether the Bureau should adopt a different
                approach to determine whether a rate using the replacement index is
                ``substantially similar'' to the rate using the LIBOR index for
                purposes of proposed Sec. 1026.55(b)(7)(ii). For example, the Bureau
                solicits comment on whether it should require card issuers to use a
                historical median or average of the spread between the replacement
                index and the LIBOR index over a certain time frame (e.g., the time
                period the historical data are available or 5 years, whichever is
                shorter) for purposes of determining whether a rate using the
                replacement index is ``substantially similar'' to the rate using the
                LIBOR index The Bureau also solicits comments on any compliance
                challenges that might arise as a result of adopting a potentially more
                complicated method of comparing the rates calculated using the
                replacement index and the rates calculated using the LIBOR index, and
                for any identified compliance challenges, how the Bureau could ease
                those compliance challenges.
                ---------------------------------------------------------------------------
                 \95\ If one or both of the indices are not available on December
                31, 2020, proposed Sec. 1026.55(b)(7)(ii) would require that the
                card issuer use the index values of the indices on the next calendar
                day that both indices are published.
                ---------------------------------------------------------------------------
                 Under proposed Sec. 1026.55(b)(7)(ii), in calculating the
                comparison rates using the replacement index and the LIBOR index used
                under the plan, the card issuer must use the margin that applied to the
                variable rate immediately prior to when the card issuer provides the
                change-in-terms notice disclosing the replacement index for the
                variable rate. The Bureau is proposing that card issuers must use this
                margin, rather than the margin that applied to the variable rate on
                December 31, 2020. The Bureau recognizes that card issuers in certain
                instances may change the margin that is used to calculate the LIBOR
                variable rate after December 31, 2020, but prior to when the card
                issuer provides a change-in-terms notice to replace the LIBOR index
                used under the plan. If the Bureau were to require that the card issuer
                use the margin that applied to the variable rate on December 31, 2020,
                this would undo any margin changes that occurred after December 31,
                2020, but prior to the card issuer providing a change-in-terms notice
                of the replacement of the LIBOR index used under the plan, which is
                inconsistent with the purpose of the comparisons of the rates under
                proposed Sec. 1026.55(b)(7)(ii).
                 Proposed comment 55(b)(7)(ii)-3 clarifies that the replacement
                index and replacement margin are not required to produce an APR that is
                substantially similar on the day that the replacement index and
                replacement margin become effective on the plan. Proposed comment
                55(b)(7)(ii)-3.i provides an example to illustrate this comment.
                 The Bureau believes that it may raise compliance issues if the rate
                calculated using the replacement index and replacement margin at the
                time the replacement index and replacement margin became effective had
                to be substantially similar to the rate calculated using the LIBOR
                index in effect on December 31, 2020. Under
                [[Page 36971]]
                Sec. 1026.9(c)(2), the card issuer must provide a change-in-terms
                notice of the replacement index and replacement margin (including
                disclosing a reduced margin in a change-in-terms notice provided on or
                after October 1, 2021, which would be required under proposed Sec.
                1026.9(c)(2)(v)(A)) at least 45 days prior to the effective date of the
                changes. The Bureau believes that this advance notice is important to
                consumers to inform them of how variable rates will be determined going
                forward after the LIBOR index is replaced. Because advance notice of
                the changes must be given prior to the changes becoming effective, a
                card issuer would not be able to ensure that the rate based on the
                replacement index and margin at the time the change-in-terms notice
                becomes effective will be substantially similar to the rate calculated
                using the LIBOR index in effect on December 31, 2020. The value of the
                replacement index may change after December 31, 2020, and before the
                change-in-terms notice becomes effective.
                 For the reasons discussed in more detail in the section-by-section
                analysis of proposed Sec. 1026.40(f)(3)(ii)(B), the Bureau is not
                proposing to address for purposes of proposed Sec. 1026.55(b)(7)(ii)
                when a rate calculated using the replacement index and replacement
                margin is ``substantially similar'' to the rate calculated using the
                LIBOR index value in effect on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. The Bureau solicits comment,
                however, on whether the Bureau should provide guidance on, or
                regulatory changes addressing, the ``substantially similar'' standard
                in comparing the rates for purposes of proposed Sec.
                1026.55(b)(7)(ii), and if so, what guidance, or regulatory changes, the
                Bureau should provide. For example, should the Bureau provide a range
                of rates that would be considered ``substantially similar'' as
                described above, and if so, how should the range be determined? Should
                the range of rates depend on context, and if so, what contexts should
                be considered? As an alternative to the range of rates approach, the
                Bureau solicits comment on whether it should provide factors that card
                issuers must consider in deciding whether the rates are ``substantially
                similar'' and if so, what those factors should be. Are there other
                approaches the Bureau should consider for addressing the
                ``substantially similar'' standard for comparing rates?
                 As discussed above, proposed comment 55(b)(7)(ii)-1.ii clarifies
                that in order to use the SOFR-based spread-adjusted index as the
                replacement index for the applicable LIBOR index, the card issuer must
                comply with the condition in Sec. 1026.55(b)(7)(ii) that the SOFR-
                based spread-adjusted index value in effect on December 31, 2020, and
                replacement margin will produce an APR substantially similar to the
                rate calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan. If
                either the LIBOR index or the SOFR-based spread-adjusted index is not
                published on December 31, 2020, the card issuer must use the next
                calendar day that both indices are published as the date on which the
                annual percentage rate based on the SOFR-based spread-adjusted index
                must be substantially similar to the rate based on the LIBOR index. For
                the reasons discussed in the section-by-section analysis of proposed
                Sec. 1026.40(f)(3)(ii)(B), the Bureau solicits comment on whether the
                Bureau in the final rule, if adopted, should provide for purposes of
                proposed Sec. 1026.55(b)(7)(ii) that the rate using the SOFR-based
                spread-adjusted index is ``substantially similar'' to the rate
                calculated using the LIBOR index, so long as the card issuer uses as
                the replacement margin the same margin that applied to the variable
                rate immediately prior to the replacement of the LIBOR index used under
                the plan.
                Section 1026.59 Reevaluation of Rate Increases
                 TILA section 148, which was added by the Credit CARD Act, provides
                that if a creditor increases the APR applicable to a credit card
                account under an open-end consumer credit plan, based on factors
                including the credit risk of the obligor, market conditions, or other
                factors, the creditor shall consider changes in such factors in
                subsequently determining whether to reduce the APR for such
                obligor.\96\ Section 1026.59 implements this provision. The provisions
                in Sec. 1026.59 generally apply to card issuers that increase an APR
                applicable to a credit card account, based on the credit risk of the
                consumer, market conditions, or other factors. For any rate increase
                imposed on or after January 1, 2009, card issuers are required to
                review the account no less frequently than once each six months and, if
                appropriate based on that review, reduce the APR. The requirement to
                reevaluate rate increases applies both to increases in APRs based on
                consumer-specific factors, such as changes in the consumer's
                creditworthiness, and to increases in APRs imposed based on factors
                that are not specific to the consumer, such as changes in market
                conditions or the card issuer's cost of funds. If based on its review a
                card issuer is required to reduce the rate applicable to an account,
                the rule requires that the rate be reduced within 45 days after
                completion of the evaluation. Section 1026.59(f) requires that a card
                issuer continue to review a consumer's account each six months unless
                the rate is reduced to the rate in effect prior to the increase.
                ---------------------------------------------------------------------------
                 \96\ 15 U.S.C. 1665c.
                ---------------------------------------------------------------------------
                 As discussed in part III, the industry has raised concerns about
                how the requirements in Sec. 1026.59 would apply to accounts that are
                transitioning away from using LIBOR indices. The Bureau believes that
                the sunset of the LIBOR indices and transition to a new index for
                credit card accounts presents two interrelated issues with respect to
                compliance with Sec. 1026.59 generally. First, the transition from a
                LIBOR index to a different index on an account under proposed Sec.
                1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii) may constitute a rate
                increase for purposes of whether an account is subject to Sec.
                1026.59. Under current Sec. 1026.59 that potential rate increase could
                occur at the time of transition from the LIBOR index to a different
                index, or it could occur at a later time. Second, Sec. 1026.59(f)
                states that, once an account is subject to the general provisions of
                Sec. 1026.59, the obligation to review factors under Sec. 1026.59(a)
                ceases to apply if the card issuer reduces the APR to a rate equal to
                or less than the rate applicable immediately prior to the increase, or
                if the rate immediately prior to the increase was a variable rate, to a
                rate equal to or less than a variable rate determined by the same index
                and margin that applied prior to the increase. In the case where the
                LIBOR index is no longer available to serve as the ``same index'' that
                applied prior to the increase, the current regulation does not provide
                a mechanism by which a card issuer can determine the rate at which it
                can discontinue the obligation to review factors.
                 The proposed revisions and additions to the regulation and
                commentary of Sec. 1026.59 are meant to address these two issues. With
                respect to the first issue, the addition of proposed Sec. 1026.59(h)
                excepts rate increases that occur as a result of the transition from
                the LIBOR index to another index under proposed Sec. 1026.55(b)(7)(i)
                or Sec. 1026.55(b)(7)(ii) from triggering the requirements of Sec.
                1026.59. The proposed provision does not except rate
                [[Page 36972]]
                increases already subject to the requirements of Sec. 1026.59 prior to
                the transition from the LIBOR index from the requirements of Sec.
                1026.59. With respect to the second issue, proposed Sec. 1026.59(f)(3)
                provides a mechanism by which card issuers can determine the rate at
                which they can discontinue the obligations under Sec. 1026.59 where
                the rate applicable immediately prior to the increase was a variable
                rate with a formula based on a LIBOR index.
                 As discussed in more detail below, the Bureau also is proposing
                technical edits to comment 59(d)-2 to replace references to LIBOR with
                references to the SOFR index.
                59(d) Factors
                 Section 1026.59(d) identifies the factors that card issuers must
                review if they increase an APR that applies to a credit card account
                under an open-end (not home-secured) consumer credit plan. Under Sec.
                1026.59(a), if a card issuer evaluates an existing account using the
                same factors that it considers in determining the rates applicable to
                similar new accounts, the review of factors need not result in existing
                accounts being subject to exactly the same rates and rate structure as
                a creditor imposes on similar new accounts. Comment 59(d)-2 provides an
                illustrative example in which a creditor may offer variable rates on
                similar new accounts that are computed by adding a margin that depends
                on various factors to the value of the LIBOR index. In light of the
                anticipated discontinuation of LIBOR, the proposed rule would amend the
                example in comment 59(d)-2 to substitute a SOFR index for the LIBOR
                index. The proposed rule would also make technical changes for clarity
                by changing ``prime rate'' to ``prime index.'' In addition, the
                proposed rule would change ``creditor'' to ``card issuer'' in the
                comment to be consistent with the terminology used in Sec. 1026.59.
                59(f) Termination of the Obligation To Review Factors
                59(f)(3)
                 Current Sec. 1026.59(f) provides that the obligation to review
                factors under Sec. 1026.59(a) ceases to apply if the card issuer
                reduces the APR to a rate equal to or less than the rate applicable
                immediately prior to the increase, or if the rate applicable
                immediately prior to the increase was a variable rate, to a rate
                determined by the same index and margin (previous formula) that applied
                prior to the increase. Once LIBOR is discontinued, it will not be
                possible for card issuers to use the ``same index.'' Thus, neither
                current Sec. 1026.59(f)(1) nor Sec. 1026.59(f)(2) would appear to
                allow termination of the obligation to review.
                 Accordingly, proposed Sec. 1026.59(f)(3) provides, effective March
                15, 2021, a replacement formula that the card issuers can use to
                terminate the obligation to review factors under Sec. 1026.59(a) when
                the rate applicable immediately prior to the increase was a variable
                rate with a formula based on a LIBOR index. Proposed Sec.
                1026.59(f)(3) is intended to apply to situations in which a LIBOR index
                is used as the index in the formula used to determine the rate at which
                the obligation to review factors ceases,\97\ and is intended to cover
                situations where LIBOR will be discontinued.
                ---------------------------------------------------------------------------
                 \97\ As noted below in the discussion regarding proposed Sec.
                1026.59(h)(3), proposed Sec. 1026.59(f)(3) is not intended to apply
                to rate increases that may result from the switch from a LIBOR index
                to another index under proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii) as those potential rate increases will be excepted
                from the provisions of Sec. 1026.59. Proposed Sec. 1026.59(f)(3)
                is, however, intended to cover rate increases that were already
                subject to the provisions of Sec. 1026.59 and use a formula under
                Sec. 1026.59(f) based on a LIBOR index to determine whether to
                terminate the review obligations under Sec. 1026.59.
                ---------------------------------------------------------------------------
                 Proposed Sec. 1026.59(f)(3), if adopted, will be effective as of
                March 15, 2021, for accounts that are subject to Sec. 1026.59 and use
                a LIBOR index as the index in the formula to determine the rate at
                which a card issuer can cease the obligation to review factors under
                Sec. 1026.59(a). The Bureau believes that March 15, 2021, may be a
                reasonable date at which issuers can begin using the replacement
                formula outlined in proposed Sec. 1026.59(f)(3). It is the date when
                the proposed rulemaking generally is proposed to be effective and
                provides issuers with a sufficient amount of time to transition to the
                replacement formula before the estimated sunset of LIBOR. The Bureau
                solicits comment on whether proposed Sec. 1026.59(f)(3) should have an
                effective date different than March 15, 2021.
                 Proposed Sec. 1026.59(f)(3) provides a replacement formula that
                issuers can use to determine the rate at which a card issuer can cease
                the obligation to review factors under Sec. 1026.59(a). Under proposed
                Sec. 1026.59(f)(3), the replacement formula, which includes the
                replacement index on December 31, 2020, plus replacement margin, must
                equal the LIBOR index value on December 31, 2020, plus the margin used
                to calculate the rate immediately prior to the increase. Proposed Sec.
                1026.59(f)(3) also provides that a card issuer must satisfy the
                conditions set forth in proposed Sec. 1026.55(b)(7)(ii) for selecting
                a replacement index. The Bureau believes that the conditions set forth
                in proposed Sec. 1026.55(b)(7)(ii) may provide a reasonable method of
                selecting a replacement index to the LIBOR index for the reasons set
                forth in the discussion regarding proposed Sec. 1026.55(b)(7)(ii),
                above. Proposed comment 59(f)-4 provides further clarification on how
                the replacement index must be selected and refers to the requirements
                described in proposed Sec. 1026.55(b)(7)(ii) and proposed comment
                55(b)(7)(ii)-1.
                 Proposed Sec. 1026.59(f)(3) uses, in part, the values of the
                replacement index and the LIBOR index on December 31, 2020, to
                determine the replacement formula. The Bureau believes that using the
                December 31, 2020, value of both indices provides a static and
                consistent reference point by which to determine the formula and is
                consistent with the index values used in proposed Sec.
                1026.55(b)(7)(ii). If either the replacement index or the LIBOR index
                is not published on December 31, 2020, the card issuer must use the
                next available date that both indices are published as the index values
                to use to determine the replacement formula. Proposed Sec.
                1026.59(f)(3) also provides that in calculating the replacement
                formula, the card issuer must use the margin used to calculate the rate
                immediately prior to the rate increase.
                 In essence, the replacement formula is calculated as: (Replacement
                index on December 31, 2020) plus (replacement margin) equals (LIBOR
                index on December 31, 2020) plus (margin immediately prior to the rate
                increase). If the replacement index on December 31, 2020, the LIBOR
                index on December 31, 2020, and the margin immediately prior to the
                rate increase are known, the replacement margin can be calculated. Once
                the replacement margin is calculated, the replacement formula is the
                replacement index value plus the replacement margin value. Proposed
                comment 59(f)-3 sets forth two examples of how to calculate the
                replacement formula. Proposed comment 59(f)-3ii.A provides an example
                of how to calculate the replacement formula in the scenario where the
                account was subject to Sec. 1026.59 as of March 15, 2021. Proposed
                comment 59(f)-3ii.B provides an example of how to calculate the
                replacement formula in the scenario where the account was not subject
                to Sec. 1026.59 as of March 15, 2021, but does become subject to Sec.
                1026.59 prior to the account being transitioned from a LIBOR index in
                accordance with proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii).
                 Proposed Sec. 1026.59(f)(3) provides that the replacement formula
                must equal the
                [[Page 36973]]
                previous formula, within the context of the timing constraints (namely
                the value of the replacement and LIBOR indices as of December 31,
                2020). The Bureau believes that providing that the rates must match up
                when determining the replacement formula may provide the fairest way to
                produce a replacement mechanism where consumers will not be unduly
                harmed by the transition away from a LIBOR index used in the formula to
                determine the rate at which a card issuer may cease its review
                obligation under Sec. 1026.59.
                 The Bureau recognizes that this may create some inconsistencies in
                the rates on some accounts. For example, assume that Account A is a
                variable-rate account with a LIBOR index where an APR increase occurred
                under Sec. 1026.55(b)(4) prior to the transition from a LIBOR index
                under proposed Sec. 1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii). In
                order to cease the obligation for review on Account A under Sec.
                1026.59, the card issuer must reduce the APR on Account A to an amount
                based on a formula that is ``equal'' to the LIBOR index value on
                December 31, 2020, plus the margin immediately prior to the rate
                increase. In contrast, Account B is a variable-rate account with a
                LIBOR index that is not subject to Sec. 1026.59. Account B is
                transitioned from the LIBOR index under proposed Sec. 1026.55(b)(7)(i)
                or Sec. 1026.55(b)(7)(ii) and the resulting APR on Account B must be
                ``substantially similar'' to the account's pre-transition rate, which
                means the rate does not have to exactly equal to the pre-transition
                rate. Account B is subject to the exception in proposed Sec.
                1026.59(h)(3) with respect to the transition away from the LIBOR index,
                and will not be required to meet the requirements of proposed Sec.
                1026.59(f)(3). Thus, Account A and Account B may be treated differently
                with respect to what rate must be applied to the account. The Bureau
                solicits comment on whether the standard for proposed Sec.
                1026.59(f)(3) should be that the replacement formula should be
                substantially similar to the previous formula (rather than equal to as
                in the current proposal) to provide consistency with the language in
                proposed Sec. 1026.55(b)(7)(ii).
                59(h) Exceptions
                59(h)(3) Transition From LIBOR Exception
                 Current Sec. 1026.59(h) provides two situations that are excepted
                from the requirements of Sec. 1026.59. Proposed Sec. 1026.59(h)(3)
                would add a third exception based upon the transition from a LIBOR
                index to a replacement index used in setting a variable rate.
                Specifically, proposed Sec. 1026.59(h)(3) excepts from the
                requirements of Sec. 1026.59 increases in an APR that occur as the
                result of the transition from the use of a LIBOR index as the index in
                setting a variable rate to the use of a replacement index in setting a
                variable rate if the change from the use of the LIBOR index to a
                replacement index occurs in accordance with proposed Sec.
                1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii). Proposed comment 59(h)-1
                clarifies that the proposed exception to the requirements of Sec.
                1026.59 does not apply to rate increases already subject to Sec.
                1026.59 prior to the transition from the use of a LIBOR index as the
                index in setting a variable rate to the use of a different index in
                setting a variable rate, where the change from the use of a LIBOR index
                to a different index occurred in accordance with proposed Sec.
                1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii).
                 The Bureau is proposing this exception because the requirements of
                proposed Sec. 1026.55(b)(7)(i) and (ii) may provide sufficient
                protection for the consumers when a card issuer is replacing an index
                under these circumstances for the reasons listed above in the
                discussion of proposed Sec. 1026.55(b)(7)(i) and (ii). The Bureau
                believes that absent this proposed exception, some of the accounts
                transitioning away from a LIBOR index to a replacement index in setting
                a variable rate under proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii) would become subject to the requirements of Sec.
                1026.59, either at the time of transition or at a later date. The
                Bureau believes that the potential for compliance issues in
                transitioning away from a LIBOR index under proposed Sec.
                1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii) while also complying with
                the requirements of Sec. 1026.59 may be heightened. The Bureau is
                concerned that requiring card issuers to comply with the rate
                reevaluation requirements under Sec. 1026.59 with respect to the LIBOR
                transition under Sec. 1026.55(b)(7)(ii) may cause some card issuers to
                delay the transition away from the LIBOR index so as to avoid the
                requirements under Sec. 1026.59. Even if the requirements of Sec.
                1026.59 were to apply to the LIBOR transition under Sec.
                1026.55(b)(7)(ii), the card issuer would likely only be required to
                perform one review prior to LIBOR's expected discontinuance sometime
                after December 2021. Nonetheless, the card issuer could avoid this
                review if it delayed transitioning the account under Sec.
                1026.55(b)(7)(ii) so that the transition occurred within six months of
                when LIBOR is likely to be discontinued. The Bureau does not believe
                that this delay in the LIBOR transition would benefit card issuers or
                consumers. The Bureau seeks comment on issuers' understanding as to
                whether, and to what extent, the accounts in their portfolios will
                become subject to Sec. 1026.59 in the transition away from a LIBOR
                index under proposed Sec. 1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii),
                absent the proposed Sec. 1026.59(h)(3) exception. The Bureau also
                seeks comment on potential compliance issues in transitioning away from
                a LIBOR index while also becoming subject to the requirements of Sec.
                1026.59.
                 As noted above, proposed comment 59(h)-1 provides clarification
                that the exception in proposed Sec. 1026.59(h)(3) does not apply to
                rate increases already subject to the requirements of Sec. 1026.59
                prior to the transition away from a LIBOR index to a replacement index
                under proposed Sec. 1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii). In
                these circumstances, the Bureau is proposing that the accounts should
                continue to be subject to the requirements of Sec. 1026.59 and
                consumers should not have to forego reviews on their accounts that
                could potentially result in rate reductions. The Bureau is proposing
                not to except these circumstances (where an account is already subject
                to the requirements of Sec. 1026.59 prior to the transition away from
                a LIBOR index under proposed Sec. 1026.55(b)(7)(i) or Sec.
                1026.55(b)(7)(ii)) because they differ from the situation where an
                account may become subject to the requirements of Sec. 1026.59 as a
                result of the transition away from a LIBOR index to a replacement index
                under proposed Sec. 1026.55(b)(7)(i) or Sec. 1026.55(b)(7)(ii). In
                particular, proposed Sec. 1026.55(b)(7)(i) and (ii) provide that the
                replacement index plus replacement margin must produce a rate that is
                substantially similar to the rate in effect at the time the original
                index became unavailable or the rate that was in effect based on the
                LIBOR index on December 31, 2020, depending on the provision. These
                provisions provide safeguards that the consumer will not be unduly
                harmed after the transition away from a LIBOR index with a rate that is
                substantially dissimilar to the rate prior to the transition. No
                similar safeguard exists for accounts on which a rate increase occurred
                prior to the transition that subjected the account to the requirements
                of Sec. 1026.59. Absent the requirements of Sec. 1026.59, issuers
                would not have to continue to review these accounts for possible rate
                reductions that could potentially bring
                [[Page 36974]]
                the rate on the account in line with the rate prior to the increase, as
                the requirements of Sec. 1026.59 (and proposed Sec. 1026.59(f)(3))
                ensure that the account continues to be reviewed for a rate reduction
                that could potentially return the rate on the account to a rate that is
                the same as the rate before the increase.
                Appendix H to Part 1026--Closed-End Model Forms and Clauses
                 Appendix H to part 1026 provides a sample form for ARMs for
                complying with the requirements of Sec. 1026.20(c) in form H-4(D)(2)
                and a sample form for ARMs for complying with the requirements of Sec.
                1026.20(d) in form H-4(D)(4).\98\ Both of these sample forms refer to
                the 1-year LIBOR. In light of the anticipated discontinuation of LIBOR,
                the proposed rule would substitute the 30-day average SOFR index for
                the 1-year LIBOR index in the explanation of how the interest rate is
                determined in sample forms H-4(D)(2) and H-4(D)(4) in appendix H to
                provide more relevant samples. The proposed rule would also make
                related changes to other information listed on these sample forms, such
                as the effective date of the interest rate adjustment, the dates when
                future interest rate adjustments are scheduled to occur, the date the
                first new payment is due, the source of information about the index,
                the margin added in determining the new payment, and the limits on
                interest rate increases at each interest rate adjustment. To conform to
                the requirements in Sec. 1026.20(d)(2)(i) and (d)(3)(ii) and to make
                form H-4(D)(4) consistent with form H-4(D)(3), the Bureau is also
                proposing to add the date of the disclosure at the top of form H-
                4(D)(4), which was inadvertently omitted from the original form H-
                4(D)(4) as published in the Federal Register on February 14, 2013.\99\
                ---------------------------------------------------------------------------
                 \98\ The Bureau notes that these are not required forms and that
                forms that meet the requirements of Sec. 1026.20(c) or (d) would be
                considered in compliance with those subsections, respectively.
                 \99\ 78 FR 10902, 11012 (Feb. 14, 2013).
                ---------------------------------------------------------------------------
                 The Bureau requests comment on whether these revisions to sample
                forms H-4(D)(2) and H-4(D)(4) are appropriate and whether the Bureau
                should make any other changes to the forms in appendix H in connection
                with the LIBOR transition. If the Bureau finalizes the proposed changes
                to forms H-4(D)(2) and H-4(D)(4), the Bureau also requests comment on
                whether some creditors, assignees, or servicers might still wish to use
                the original forms H-4(D)(2) and H-4(D)(4) as published on February 14,
                2013, after this final rule's effective date. This might include, for
                example, creditors, assignees, or servicers who might wish to rely on
                the original sample forms for notices sent out for LIBOR loans after
                the proposed March 15, 2021 effective date but before the LIBOR index
                is replaced or, alternatively, for non-LIBOR loans after the proposed
                effective date. The Bureau requests comment on whether it would be
                helpful for the Bureau to indicate in the final rule that the Bureau
                will deem creditors, assignees, or servicers properly using the
                original forms H-4(D)(2) and H-4(D)(4) to be in compliance with the
                regulation with regard to the disclosures required by Sec. 1026.20(c)
                and (d) respectively, even after the final rule's effective date.
                VI. Effective Date
                 Except as noted below, the Bureau is proposing that the final rule
                would take effect on March 15, 2021. This proposed effective date
                generally would mean that the changes to the regulation and commentary
                would be effective around nine months prior to the expected
                discontinuation of LIBOR, which is some time after December 2021. For
                example, creditors for HELOCs and card issuers would have around nine
                months to transition away from using the LIBOR indices for existing
                accounts prior to the expected discontinuation of LIBOR. The Bureau
                requests comment on this proposed effective date.
                 The Bureau notes that the updated change-in-term disclosure
                requirements for HELOCs and credit card accounts in the final rule
                would apply as of October 1, 2021, if the final rule is adopted. This
                proposed October 1, 2021, date is consistent with TILA section 105(d),
                which generally requires that changes in disclosures required by TILA
                or Regulation Z have an effective date of the October 1 that is at
                least six months after the date the final rule is adopted.\100\
                ---------------------------------------------------------------------------
                 \100\ 15 U.S.C. 1604(d).
                ---------------------------------------------------------------------------
                VII. Dodd-Frank Act Section 1022(b) Analysis
                A. Overview
                 In developing the proposed rule, the Bureau has considered the
                proposed rule's potential benefits, costs, and impacts.\101\ The Bureau
                requests comment on the preliminary analysis presented below as well as
                submissions of additional data that could inform the Bureau's analysis
                of the benefits, costs, and impacts. In developing the proposed rule,
                the Bureau has consulted, or offered to consult with, the appropriate
                prudential regulators and other Federal agencies, including regarding
                consistency with any prudential, market, or systemic objectives
                administered by such agencies.
                ---------------------------------------------------------------------------
                 \101\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
                (12 U.S.C. 5512(b)(2)(A)) requires the Bureau to consider the
                potential benefits and costs of the regulation to consumers and
                covered persons, including the potential reduction of access by
                consumers to consumer financial products and services; the impact of
                proposed rules on insured depository institutions and insured credit
                unions with $10 billion or less in total assets as described in
                section 1026 of the Dodd-Frank Act (12 U.S.C. 5516); and the impact
                on consumers in rural areas.
                ---------------------------------------------------------------------------
                 The proposed rule is primarily designed to address potential
                compliance issues for creditors affected by the sunset of LIBOR. At
                this time, LIBOR is expected to be discontinued some time after 2021.
                 The proposed rule would amend and add several provisions for open-
                end credit. First, the proposed rule would add LIBOR-specific
                provisions that would permit creditors for HELOCs and card issuers for
                credit card accounts to replace the LIBOR index and adjust the margin
                used to set a variable rate on or after March 15, 2021, if certain
                conditions are met. Specifically, under the proposed rule, the APR
                calculated using the replacement index must be substantially similar to
                the rate calculated using the LIBOR index, based on the values of these
                indices on December 31, 2020. In addition, creditors for HELOCs and
                card issuers would be required to meet certain requirements in
                selecting a replacement index. Under the proposed rule, creditors for
                HELOCs and card issuers can select an index that is not newly
                established as a replacement index only if the index has historical
                fluctuations that are substantially similar to those of the LIBOR
                index. Creditors for HELOCs or card issuers can also use a replacement
                index that is newly established in certain circumstances. To reduce
                uncertainty with respect to selecting a replacement index that meets
                these standards, the Bureau is proposing to determine that Prime is an
                example of an index that has historical fluctuations that are
                substantially similar to those of certain USD LIBOR indices.\102\ The
                Bureau is also proposing to determine that certain spread-adjusted
                indices based on the SOFR recommended by the ARRC are indices that have
                historical fluctuations that are substantially similar to those of
                certain USD LIBOR indices.\103\
                ---------------------------------------------------------------------------
                 \102\ Specifically, the Bureau is proposing to add to the
                commentary a proposed determination that Prime has historical
                fluctuations that are substantially similar to those of the 1-month
                and 3-month USD LIBOR.
                 \103\ Specifically, the Bureau is proposing to add to the
                commentary a proposed determination that the spread-adjusted indices
                based on SOFR recommended by the ARRC to replace the 1-month, 3-
                month, 6-month, and 1-year USD LIBOR indices have historical
                fluctuations that are substantially similar to those of the 1-month,
                3-month, 6-month, and 1-year USD LIBOR indices respectively.
                ---------------------------------------------------------------------------
                [[Page 36975]]
                 Second, the proposed rule also would revise existing language in
                Regulation Z that allows creditors for HELOCs and card issuers to
                replace an index and adjust the margin on an account if the index
                becomes unavailable if certain conditions are met.
                 Third, the proposed rule would revise change-in-terms notice
                requirements, effective October 1, 2021, for HELOCs and credit card
                accounts to provide that if a creditor is replacing a LIBOR index on an
                account pursuant to the proposed LIBOR-specific provisions or because
                the LIBOR index becomes unavailable as discussed above, the creditor
                must provide a change-in-terms notice of any reduced margin that will
                be used to calculate the consumer's variable rate. This would help
                ensure that consumers are informed of how their variable rates will be
                determined after the LIBOR index is replaced.
                 Fourth, the proposed rule would add a LIBOR-specific exception from
                the rate reevaluation requirements of Sec. 1026.59 applicable to
                credit card accounts for increases that occur as a result of replacing
                a LIBOR index to another index in accordance with the LIBOR-specific
                provisions or as a result of the LIBOR indices becoming unavailable as
                discussed above.
                 Fifth, the proposed rule would add provisions to address how a card
                issuer, where an account was subject to the requirements of the
                reevaluation reviews in Sec. 1026.59 prior to the switch from a LIBOR
                index, can terminate the obligation to review where the rate applicable
                immediately prior to the increase was a variable rate calculated using
                a LIBOR index.
                 Sixth, the proposed rule would make technical edits to several
                open-end provisions to replace LIBOR references with references to a
                SOFR index and to make related changes.
                 The Bureau is also proposing several amendments to the closed-end
                provisions to address the sunset of LIBOR. First, the Bureau is
                proposing to amend comment 20(a)-3.ii to identify specific indices as
                an example of a ``comparable index'' for purposes of the closed-end
                refinancing provisions.\104\ Second, the Bureau is proposing technical
                edits to various closed-end provisions to replace LIBOR references with
                references to a SOFR index and to make related changes and corrections.
                ---------------------------------------------------------------------------
                 \104\ Specifically, the Bureau is proposing to add to the
                comment an illustrative example indicating that a creditor does not
                add a variable-rate feature by changing the index of a variable-rate
                transaction from the 1-month, 3-month, 6-month, or 1-year USD LIBOR
                index to the spread-adjusted index based on the SOFR recommended by
                the ARRC as replacements for these indices, because the replacement
                index is a comparable index to the corresponding USD LIBOR index.
                ---------------------------------------------------------------------------
                B. Provisions To Be Analyzed
                 The analysis below considers the potential benefits, costs, and
                impacts to consumers and covered persons of significant provisions of
                the proposed rule (proposed provisions), which include the first,
                third, and fourth open-end provisions described above. The analysis
                also includes the first closed-end provision described above.\105\
                Therefore, the Bureau has analyzed in more detail the following four
                proposed provisions:
                ---------------------------------------------------------------------------
                 \105\ The Bureau does not believe that the other provisions
                described above would have any significant costs, benefits, or
                impacts for consumers or covered persons.
                ---------------------------------------------------------------------------
                 1. LIBOR-specific provisions for index changes for HELOCs and
                credit card accounts,
                 2. Revisions to change-in-terms notices requirements for HELOCs and
                credit card accounts to disclose margin decreases, if any,
                 3. LIBOR-specific exception from the rate reevaluation provisions
                applicable to credit card accounts, and
                 4. Commentary stating that specific indices are comparable to
                certain LIBOR tenors for purposes of the closed-end refinancing
                provisions.
                 Because the proposed rule would address the transition of credit
                products from LIBOR to other indices, which should be complete within
                the next several years under both the baseline and the proposed rule,
                the analysis below is limited to considering the benefits, costs, and
                impacts of the proposed provisions over the next several years.
                C. Data Limitations and Quantification of Benefits, Costs, and Impacts
                 The discussion below relies on information that the Bureau has
                obtained from industry, other regulatory agencies, and publicly
                available sources. The Bureau has performed outreach on many of the
                issues addressed by the proposed rule, as described in part III.
                However, as discussed further below, the data are generally limited
                with which to quantify the potential costs, benefits, and impacts of
                the proposed provisions.
                 In light of these data limitations, the analysis below generally
                provides a qualitative discussion of the benefits, costs, and impacts
                of the proposed provisions. General economic principles and the
                Bureau's expertise in consumer financial markets, together with the
                limited data that are available, provide insight into these benefits,
                costs, and impacts. The Bureau requests additional data or studies that
                could help quantify the benefits and costs to consumers and covered
                persons of the proposed provisions.
                D. Baseline for Analysis
                 In evaluating the potential benefits, costs, and impacts of the
                proposed rule, the Bureau takes as a baseline the current legal
                framework governing changes in indices used for variable-rate open-end
                and closed-end credit products, as applicable. The FCA has announced
                that it cannot guarantee the publication of LIBOR beyond 2021 and has
                urged relevant parties to prepare for the transition to alternative
                reference rates. Therefore, it is likely that even under current
                regulations, existing contracts for HELOCs, credit card accounts, and
                closed-end credit tied to a LIBOR index will have transitioned to other
                indices soon after the end of 2021. Furthermore, for HELOCs, credit
                card accounts, and closed-end credit, the proposed rule would not
                significantly alter the requirements that replacement indices for a
                LIBOR index must satisfy, nor would it alter how these requirements
                must be evaluated. Hence, the analysis below assumes the proposed rule
                would not substantially alter the number of HELOCs, credit card
                accounts, and closed-end credit accounts switched from a LIBOR index to
                other indices nor would it significantly alter the indices that HELOC
                creditors, card issuers, and closed-end creditors use to replace a
                LIBOR index. However, the proposed rule would enable HELOC creditors,
                card issuers, and closed-end creditors under Regulation Z to transfer
                existing contracts away from a LIBOR index with more certainty about
                what is required by and permitted under Regulation Z. The proposed rule
                would also enable HELOC creditors and card issuers to transfer existing
                contracts away from a LIBOR index earlier they could under the
                baseline, if they choose to do so.
                 The proposed rule, however, would not excuse creditors or card
                issuers from noncompliance with contractual provisions. For example, a
                contract for a HELOC or a credit card account may provide that the
                creditor or card issuer respectively may not replace an index
                unilaterally under a plan unless the original index becomes
                unavailable. In this case, even under the proposed rule, the creditor
                or card issuer would be contractually prohibited from unilaterally
                replacing a LIBOR index used under the plan until LIBOR becomes
                unavailable.
                [[Page 36976]]
                E. Potential Benefits and Costs of the Proposed Rule for Consumers and
                Covered Persons
                 Reliable data on the indices credit products are linked to is not
                generally available, so the Bureau cannot estimate the dollar value of
                debt tied to LIBOR in the distinct credit markets that may be impacted
                by the proposed rule. However, the ARRC has estimated that, at the end
                of 2016, there was $1.2 trillion of mortgage debt (including ARMs,
                HELOCs, and reverse mortgages) and $100 billion of non-mortgage debt
                tied to LIBOR.\106\
                ---------------------------------------------------------------------------
                 \106\ ARRC, Second Report (Mar. 2018), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report.
                ---------------------------------------------------------------------------
                1. LIBOR-Specific Provisions for Index Changes for HELOCs and Credit
                Card Accounts
                 For consumers with HELOCs and credit card accounts with APRs tied
                to a LIBOR index, and for creditors of HELOCs and card issuers with
                APRs tied to a LIBOR index, the main effect of the LIBOR-specific
                provisions that allows HELOC creditors or card issuers under Regulation
                Z to replace a LIBOR index before it becomes unavailable would be that
                some creditors and card issuers for HELOCs and credit card accounts
                respectively would switch those contracts from a LIBOR index to other
                indices earlier than they would have without the proposed provision.
                Since the LIBOR indices are likely to become unavailable some time
                after December 2021, and the proposed provision would allow many
                creditors and card issuers under Regulation Z to switch on or after
                March 15, 2021, creditors and card issuers would likely switch
                contracts from a LIBOR index to other indices at most around nine
                months earlier than they would without the proposed provision (if
                permitted by the contractual provisions as discussed above). The Bureau
                cannot estimate when these accounts will be switched from a LIBOR index
                under the proposed provision. The Bureau also cannot estimate the
                number of accounts that contractually cannot be switched from a LIBOR
                index until that LIBOR index becomes unavailable, although the Bureau
                believes that a larger proportion of HELOC contracts than credit card
                contracts are affected by this issue.\107\
                ---------------------------------------------------------------------------
                 \107\ Furthermore, some HELOC creditors and card issuers may be
                able to switch indices from LIBOR to replacement indices even before
                LIBOR becomes unavailable (under the baseline) or March 15, 2021
                (under the proposed rule). For HELOCs, some creditors may be able to
                switch earlier if the consumer specifically agrees to the change in
                writing under Sec. 1026.40(f)(3)(iii). For credit card accounts
                that have been open for at least a year, card issuers may be able to
                switch indices earlier for new transactions under Sec.
                1026.55(b)(3). The Bureau cannot estimate the number of such
                accounts that could be switched early.
                ---------------------------------------------------------------------------
                 The proposed provision also would include revisions to commentary
                to Regulation Z to state that certain SOFR-based indices have
                historical fluctuations that are substantially similar to those of
                certain tenors of LIBOR and that Prime has historical fluctuations that
                are substantially similar to those of certain tenors of LIBOR. The
                Bureau believes that market participants, using analysis similar to
                that the Bureau has performed, would come to these conclusions even
                without the proposed commentary. Therefore, the Bureau estimates that
                the proposed commentary would not significantly change the indices that
                HELOC creditors or card issuers switch to, the dates on which indices
                are switched, or the manner in which those switches are made.
                Potential Benefits and Costs to Consumers
                 The Bureau believes that the proposed provision would benefit
                consumers primarily by making their experience transitioning from a
                LIBOR index more informed and less disruptive than it otherwise could
                be, although the Bureau does not have the data to quantify the value of
                this benefit. The Bureau expects this consumer benefit to arise because
                creditors for HELOCs and card issuers would have more time to
                transition contracts from LIBOR indices to replacement indices, giving
                them more time to plan for the transition, communicate with consumers
                about the transition, and avoid technical or system issues that could
                affect consumers' accounts during the transition.
                 The Bureau does not anticipate that the proposed provision would
                impose any significant costs on consumers on average. Under the
                proposed provision, creditors for HELOCs and card issuers would have to
                adjust margins used to calculate the variable rates on the accounts so
                that consumers' APRs calculated using the value of the replacement
                index in effect on December 31, 2020, and the replacement margin will
                produce a rate that is substantially similar to their rates calculated
                using the value of the LIBOR index in effect on December 31, 2020, and
                the margins that applied to the variable rates immediately prior to the
                replacement of the LIBOR index. After the transition, consumers' APRs
                will be tied to the replacement indices and not to the LIBOR indices.
                Because the replacement indices creditors for HELOCs and card issuers
                would switch to are not identical to the LIBOR indices, they will not
                move identically to the LIBOR indices, and so for the roughly nine
                months affected by this proposed provision, affected consumers'
                payments will be different under the proposed provision than they would
                be under the baseline. On some dates in which indexed rates reset, some
                replacement indices may have increased relative to the LIBOR index.
                Consumers with these indices would then pay a cost due to the proposed
                provision until the next rate reset. On some dates in which indexed
                rates reset, some replacement indices may have decreased relative to
                the LIBOR index. Consumers with these indices would then benefit from
                the proposed provision until the next rate reset. Consumers vary in
                their constraints and preferences, the credit products they have, the
                dates those credit products reset, the replacement indices their
                creditors or card issuers would choose, and the transition dates their
                creditors or card issuers would choose. The benefits and costs that
                would accrue to consumers from the proposed provision and that arise
                because of differences in index movements will vary across consumers
                and over time. However, the Bureau expects ex-ante for these benefits
                and costs to be small on average, because the rates creditors or card
                issuers switch to must be substantially similar to existing LIBOR-based
                rates using index values in effect on December 31, 2020, and because
                replacement indices that are not newly established must have historical
                fluctuations that are substantially similar to those of the LIBOR
                index.
                Potential Benefits and Costs to Covered Persons
                 The Bureau believes the proposed provision will have three primary
                benefits for creditors for HELOCs and card issuers. First, under the
                proposed provision these creditors and card issuers would have more
                certainty about the transition date and more time to make the
                transition away from the LIBOR indices. This should increase the
                ability of HELOC creditors and card issuers to plan for the transition,
                improving their communication with consumers about the transition, and
                decreasing the likelihood of technical or system issues that affect
                consumers' accounts during the transition. Both of these effects should
                lower the cost of the transition to creditors. Second, the proposed
                provision will provide creditors for HELOCs and card issuers with
                additional detail for how to comply with their legal obligations
                [[Page 36977]]
                under Regulation Z with respect to the LIBOR transition. This should
                decrease the cost of legal and compliance staff time preparing for the
                transition beforehand and dealing with litigation after. Third, the
                proposed provision also would include revisions to commentary on
                Regulation Z stating that certain SOFR-based indices have historical
                fluctuations that are substantially similar to those of certain tenors
                of LIBOR and that Prime has historical fluctuations that are
                substantially similar to those of certain tenors of LIBOR. This should
                decrease the cost of compliance staff time coming to the same
                conclusions as the proposed commentary before the transition from
                LIBOR, and it should decrease the cost of litigation after.
                 As discussed under ``Potential Benefits and Costs to Consumers''
                above, because the replacement indices creditors for HELOCs and card
                issuers would switch to are not identical to the LIBOR indices, they
                will not move identically to the LIBOR indices, and so for the roughly
                nine months affected by this proposed provision, affected consumers'
                payments will be different under the proposed provision than they would
                be under the baseline. On some dates in which indexed rates reset, some
                replacement indices will have increased relative to the LIBOR index.
                HELOC creditors and card issuers with rates linked to these indices
                will then benefit from the proposed provision until the next rate
                reset. On some dates in which indexed rates reset, some replacement
                indices will have decreased relative to the LIBOR index. HELOC
                creditors and card issuers with rates linked to these indices will then
                pay a cost due to the proposed provision until the next rate reset.
                Creditors and card issuers vary in their constraints and preferences,
                the credit products they issue, the dates those credit products reset,
                the replacement indices they would choose under the proposed provision,
                and the transition dates they would choose under the proposed
                provision. The benefits and costs that would accrue to HELOC creditors
                and card issuers from the proposed provision and that arise because of
                differences in index movements will vary across creditors and card
                issuers and over time. However, the Bureau expects ex-ante for these
                benefits and costs to be small on average, because the rates creditors
                or card issuers switch to must be substantially similar to existing
                LIBOR-based rates using index values in effect on December 31, 2020,
                and replacement indices that are not newly established must have
                historical fluctuations that are substantially similar to those of the
                LIBOR index.
                 The proposed provision would allow creditors for HELOCs and card
                issuers under Regulation Z to switch contracts from a LIBOR index
                earlier than they otherwise would have, but it does not require them to
                do so. Therefore, this aspect of the proposed provision does not impose
                any significant costs on HELOC creditors and card issuers. The proposed
                commentary would not determine that any specific indices have
                historical fluctuations that are not substantially similar to those of
                LIBOR, so the proposed revisions would not prevent creditors or card
                issuers from switching to other indices as long as those indices still
                satisfy regulatory requirements. Therefore, the proposed commentary
                also does not impose any significant costs on HELOC creditors and card
                issuers. However, as noted above, the replacement indices HELOC
                creditors and card issuers choose may move less favorably for them than
                the LIBOR indices would have.
                2. Revisions to Change-in-Terms Notices Requirements for HELOCs and
                Credit Card Accounts To Disclose Margin Decreases, if Any
                 The proposed provision would, effective October 1, 2021, require
                creditors for HELOCs and card issuers to disclose margin reductions to
                consumers when they switch contracts from using LIBOR indices to other
                indices. Under both the existing regulation and this proposed
                provision, creditors for HELOCs and card issuers are required to send
                consumers change-in-term notices when indices change, disclosing the
                replacement index and any increase in the margin. Therefore, this
                proposed provision would not affect the number of consumers who receive
                change-in-terms notices nor the number of change-in-terms notices
                creditors for HELOCs or card issuers must provide.
                 The benefits, costs, and impacts of this proposed provision depend
                on whether HELOC creditors or card issuers would choose to disclose
                margin decreases even if not required to do so under the existing
                regulation. Creditors for HELOCs or card issuers that would not
                otherwise disclose margin decreases in their change-in-term notices
                would bear the cost of having to provide slightly longer notices. They
                may also have to develop distinct notices for different groups of
                consumers with different initial margins. Consumers with HELOC or
                credit card accounts from those creditors or card issuers would benefit
                by having an improved understanding of how and why their APRs would
                change. However, the Bureau believes it is likely that most creditors
                for HELOCs and card issuers would choose to disclose margin decreases
                in their change-in-terms notices even if the existing regulation does
                not require them to so, because margin decreases are beneficial for
                consumers, and because in these situations the creditors or card
                issuers likely benefit from improved consumer understanding. Further,
                this proposed provision would be effective only beginning October 1,
                2021. HELOC creditors and card issuers that would prefer not to
                disclose margin decreases could choose to change indices before this
                proposed provision becomes effective (if the change in indices are
                permitted by the contractual provisions at that time). Therefore, the
                Bureau expects that both the benefits and costs of this proposed
                provision for consumers and for HELOC creditors and card issuers would
                be small.
                3. LIBOR-Specific Exception From the Rate Reevaluation Provisions
                Applicable to Credit Card Accounts
                 Rate increases may occur due to the LIBOR transition either at the
                time of transition from the LIBOR index to a different index or at a
                later time. Under current Sec. 1026.59, in these scenarios card
                issuers would have to reevaluate the APRs until they equal or fall
                below what they would have been had they remained tied to LIBOR. The
                proposed provision would except card issuers from these rate
                reevaluation requirements for rate increases that occur as a result of
                the transition from the LIBOR index to another index under the LIBOR-
                specific provisions discussed above or under the existing regulation
                that allows card issuers to replace an index when the index becomes
                unavailable. The proposed provision does not except rate increases
                already subject to the rate reevaluation requirements prior to the
                transition from the LIBOR index to another index as discussed above.
                Because relative rate movements are hard to anticipate ex-ante, it is
                unlikely that this proposed provision would affect the indices that
                card issuers use as replacements. Because card issuers can only switch
                from LIBOR-based rates to rates that are substantially similar using
                index values in effect on December 31, 2020, and use a replacement
                index (if the replacement index is not newly established) that has
                historical fluctuations that are substantially similar to those of the
                LIBOR index, it is unlikely such rate reevaluations would result in
                significant rate reductions for consumers before LIBOR is discontinued.
                Therefore,
                [[Page 36978]]
                before LIBOR is discontinued, the impact of this proposed provision on
                consumers is likely to be small. After LIBOR is discontinued, it will
                not be possible to compute what consumer rates would have been under
                the LIBOR indices, and so it is not clear how card issuers would
                conduct such rate reevaluations after that time. Therefore, after LIBOR
                is discontinued, the impact of this proposed provision on consumers is
                not clear. This proposed provision would benefit affected card issuers
                by saving them the cost of reevaluating rates until LIBOR is
                discontinued. This proposed provision would impose no costs on affected
                card issuers because they could still perform rate reevaluations if
                they choose to do so prior to LIBOR being discontinued.
                4. Commentary Stating That Specific Indices are Comparable to Certain
                LIBOR Tenors for Purposes of the Closed-End Refinancing Provisions
                 The Bureau is proposing to revise comment 20(a)-3.ii to Regulation
                Z to state that certain SOFR-based indices are comparable to certain
                tenors of LIBOR. The Bureau believes that market participants, using
                analysis similar to that the Bureau has performed, would come to this
                conclusion even without the proposed commentary. Therefore, the Bureau
                believes that the proposed commentary would not significantly change
                the indices that creditors switch to, the dates on which indices are
                switched, or the manner in which those switches are made. Hence, the
                Bureau estimates that the proposed revisions would have no significant
                benefits, costs, or impacts for consumers.
                 For covered persons, the proposed provision would decrease costs by
                providing additional clarity and certainty about whether indices are
                comparable for purposes of Regulation Z. For creditors that would
                switch from certain LIBOR indices to certain SOFR indices, the proposed
                provision would decrease the compliance staff time required to come to
                the conclusion that the SOFR index is comparable to the LIBOR index.
                The proposed provision could also decrease litigation costs for
                creditors after the transition from certain LIBOR indices to certain
                SOFR indices.
                 The proposed commentary would not determine that any specific
                indices are not comparable to LIBOR. Therefore, the proposed provision
                would not prevent creditors from switching to other indices as long as
                those indices still satisfy regulatory requirements. Therefore, the
                proposed provision would impose no significant costs on creditors.
                F. Alternative Provisions Considered
                 As discussed above in the section-by-section analyses of Sec.
                1026.40(f)(3)(ii) and proposed Sec. 1026.55(b)(7), the Bureau
                considered interpreting the LIBOR indices to be unavailable as of a
                certain date prior to LIBOR being discontinued. The Bureau briefly
                discusses the costs, benefits, and impacts of the considered
                interpretation below.
                 If the Bureau were to interpret the LIBOR indices to be unavailable
                under the existing Regulation Z rules prior to LIBOR being
                discontinued, it could provide benefits similar to those of the
                proposed rule by allowing creditors and card issuers to switch away
                from LIBOR indices before LIBOR is discontinued. It might also
                potentially provide some benefit to consumers and covered persons whose
                contracts require them to wait until the LIBOR indices become
                unavailable before replacing the LIBOR index, by providing some
                additional clarity in interpreting that provision of their contracts.
                 However, a determination by the Bureau that the LIBOR indices are
                unavailable could have unintended consequences on other products or
                markets. For example, the Bureau is concerned that such a determination
                could unintentionally cause confusion for creditors for other products
                (e.g., ARMs) about whether the LIBOR indices are also unavailable for
                those products and could possibly put pressure on those creditors to
                replace the LIBOR index used for those products before those creditors
                are ready for the change. This could impose significant costs on
                affected consumers and creditors in the markets for these other
                products.
                 In addition, even if the Bureau interpreted unavailability to
                indicate that the LIBOR indices are unavailable prior to LIBOR being
                discontinued, this interpretation would not completely solve the
                contractual issues for creditors and card issuers whose contracts
                require them to wait until the LIBOR indices become unavailable before
                replacing the LIBOR index. Creditors and card issuers still would need
                to decide for their contracts whether the LIBOR indices are
                unavailable, and that decision could result in litigation or
                arbitration under the contracts. Thus, even if the Bureau decided that
                the LIBOR indices are unavailable under Regulation Z as described
                above, creditors and card issuers whose contracts require them to wait
                until the LIBOR indices become unavailable before replacing the LIBOR
                index essentially would be in the same position under the proposed rule
                as they would be under the current rule. Therefore, the benefits of the
                considered interpretation would be small even for the main intended
                beneficiaries of such an interpretation, specifically the consumers,
                creditors, and card issuers under contracts that require creditors and
                card issuers to wait until the LIBOR indices become unavailable before
                replacing the LIBOR index.
                G. Potential Specific Impacts of the Proposed Rule
                1. Depository Institutions and Credit Unions With $10 Billion or Less
                in Total Assets, as Described in Section 1026
                 The Bureau believes that the consideration of benefits and costs of
                covered persons presented above provides a largely accurate analysis of
                the impacts of the proposed provisions on depository institutions and
                credit unions with $10 billion or less in total assets that issue
                credit products that are tied to LIBOR and are covered by the proposed
                provisions.
                2. Impact of the Proposed Rule on Consumer Access to Credit and on
                Consumers in Rural Areas
                 Because the proposed rule would affect only existing accounts that
                are tied to LIBOR and would generally not affect new loans, the
                proposed rule would not directly impact consumer access to credit.
                While the proposed rule would provide some benefits and costs to
                creditors and card issuers in connection to the transition away from
                LIBOR, it is unlikely to affect the costs of providing new credit and
                therefore the Bureau believes that any impact on creditors and card
                issuers from the proposed rule is not likely to have a significant
                impact on consumer access to credit.
                 Consumers in rural areas may experience benefits or costs from the
                proposed rule that are larger or smaller than the benefits and costs
                experienced by consumers in general if credit products in rural areas
                are more or less likely to be linked to LIBOR than credit products in
                other areas. The Bureau does not have any data or other information to
                understand whether this is the case. The Bureau will further consider
                the impact of the proposed rule on consumers in rural areas. The Bureau
                therefore asks interested parties to provide data, research results,
                and other information on the impact of the proposed rule on consumers
                in rural areas.
                [[Page 36979]]
                VIII. Regulatory Flexibility Act Analysis
                A. Overview
                 The Regulatory Flexibility Act (RFA) generally requires an agency
                to conduct an initial regulatory flexibility analysis (IRFA) and a
                final regulatory flexibility analysis of any rule subject to notice-
                and-comment rulemaking requirements, unless the agency certifies that
                the rule will not have a significant economic impact on a substantial
                number of small entities.\108\ The Bureau also is subject to certain
                additional procedures under the RFA involving the convening of a panel
                to consult with small business representatives before proposing a rule
                for which an IRFA is required.\109\
                ---------------------------------------------------------------------------
                 \108\ 5 U.S.C. 601 et seq.
                 \109\ 5 U.S.C. 609.
                ---------------------------------------------------------------------------
                 An IRFA is not required for this proposed rule because the proposed
                rule, if adopted, would not have a significant economic impact on a
                substantial number of small entities.
                B. Impact of Proposed Provisions on Small Entities
                 The analysis below evaluates the potential economic impact of the
                proposed provisions on small entities as defined by the RFA.\110\ A
                card issuer or depository institution is considered ``small'' if it has
                $600 million or less in assets.\111\ Except for card issuers, non-
                depository creditors are considered ``small'' if their average annual
                receipts are less than $41.5 million.\112\
                ---------------------------------------------------------------------------
                 \110\ For purposes of assessing the impacts of the proposed rule
                on small entities, ``small entities'' is defined in the RFA to
                include small businesses, small not-for-profit organizations, and
                small government jurisdictions. 5 U.S.C. 601(6). A ``small
                business'' is determined by application of Small Business
                Administration regulations and reference to the North American
                Industry Classification System (NAICS) classifications and size
                standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
                for-profit enterprise which is independently owned and operated and
                is not dominant in its field.'' 5 U.S.C. 601(4). A ``small
                governmental jurisdiction'' is the government of a city, county,
                town, township, village, school district, or special district with a
                population of less than 50,000. 5 U.S.C. 601(5).
                 \111\ U. S. Small Bus. Admin., Table of Small Business Size
                Standards Matched to North American Industry Classification System
                Codes, https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf (current SBA size standards).
                 \112\ Id.
                ---------------------------------------------------------------------------
                 Based on its market intelligence, the Bureau believes that there
                are few, if any, small card issuers with LIBOR-based cards. Based on
                its market intelligence, the Bureau estimates that there are
                approximately 200 to 300 small institutional lenders with variable-rate
                student loans tied to LIBOR. There are also a few state-sponsored
                nonbank lenders that offer variable-rate student loans based on LIBOR.
                 To estimate the number of small mortgage lenders that may be
                impacted by the proposed rule, the Bureau has analyzed the 2018 Home
                Mortgage Disclosure Act (HMDA) data.\113\ The HMDA data cover mortgage
                originations, while entities may be impacted by the proposed rule if
                they hold debt tied to LIBOR. The data will therefore not include
                entities that originated LIBOR-linked debt before 2018 but not during
                2018, even if those entities still hold that debt. The data will
                include entities that originated LIBOR-linked debt in 2018 but will
                have sold it before the proposed rule would come into effect, and so
                would not be impacted by the proposed rule. Other limitations of the
                data are discussed below. Despite these limitations, the HMDA data are
                the best data source currently available to the Bureau to quantify the
                number of small mortgage lenders that may be impacted by the proposed
                rule.
                ---------------------------------------------------------------------------
                 \113\ See Bureau of Consumer Fin. Prot., Introducing New and
                Revised Data Points in HMDA (Aug. 2019), available at https://files.consumerfinance.gov/f/documents/cfpb_new-revised-data-points-in-hmda_report.pdf.
                ---------------------------------------------------------------------------
                 The HMDA data include entities that originate ARMs, HELOCs, and
                reverse mortgages. The data include information on whether mortgages
                are open-end or closed-end, although some entities are exempt from
                reporting this information.\114\ The data do not include information on
                whether or not mortgages have rates that are tied to LIBOR. The data do
                indicate whether or not mortgages have rates that may change. This
                measure is used as a proxy for potential exposure to the proposed rule.
                Mortgages may have rates that are linked to indices besides LIBOR. They
                may also have ``step rates'' that switch from one pre-determined rate
                to another pre-determined rate that is not linked to any index.
                Therefore, the proxy for potential exposure to the proposed rule likely
                overstates the number of entities with rates tied to LIBOR.
                ---------------------------------------------------------------------------
                 \114\ In May 2017, Congress passed the Economic Growth,
                Regulatory Relief, and Consumer Protection Act (EGRRCPA) that
                granted certain HMDA reporters partial exemptions from HMDA
                reporting. The closed-end partial exemption applies to HMDA
                reporters that are insured depository institutions or insured credit
                unions and that originated fewer than 500 closed-end mortgages in
                each of the two preceding years. HMDA reporters that are insured
                depository institutions or insured credit unions that originated
                fewer than 500 open-end lines of credit in each of the two preceding
                years also qualify for a partial exemption with respect to reporting
                their open-end transactions. The insured depository institutions
                must also not have received certain less than satisfactory
                examination ratings under the Community Reinvestment Act of 1977 to
                qualify for the partial exemptions.
                ---------------------------------------------------------------------------
                 Based on this data, the Bureau estimates that there are 117 small
                depositories that originated at least one closed-end adjustable-rate
                mortgage product in 2018 and so may be affected by the closed-end
                provisions of the proposed rule, and there are 669 small depositories
                that originated at least one open-end adjustable-rate mortgage product
                and so may be affected by the open-end provisions of the proposed rule.
                Of these, 82 small depositories originated at least one closed-end
                adjustable rate mortgage product and one open-end adjustable rate
                mortgage product, and so may be affected by both the open-end and
                closed-end provisions of the proposed rule.
                 The definition of ``small'' for purposes of the RFA for non-
                depository institutions that originate mortgages depends on average
                annual receipts. The HMDA data do not include this information, and so
                the Bureau cannot estimate the number of small non-depository mortgage
                lenders that may be affected by the proposed rule. The Bureau estimates
                that there are 50 non-depository mortgage lenders that originated at
                least one closed-end adjustable-rate mortgage product and 640 non-
                depository mortgage lenders that originated at least one open-end
                adjustable-rate mortgage product. Of these, 43 originated at least one
                closed-end and one open-end adjustable-rate mortgage product.
                 The numbers above do not include entities that reported originating
                mortgages but under the EGRRCPA were exempt from reporting whether or
                not those mortgages had adjustable rates. There are 1,530 such small
                depositories in the 2018 HMDA data. There are five such non-depository
                institutions in the 2018 HMDA data. These entities may have originated
                adjustable-rate mortgage products that were not explicitly reported as
                such.
                 Finally, the numbers above also do not include entities that may
                have originated adjustable-rate mortgages in 2018 that were exempt
                entirely from reporting any 2018 HMDA data. The Bureau has estimated
                that approximately 11,800 institutions originated at least one closed-
                end mortgage loan in 2018, and 5,666 institutions reported HMDA data in
                2018.\115\ This implies that approximately 6,134 institutions
                originated at least one closed-end
                [[Page 36980]]
                mortgage in 2018 but are not in the HMDA data. Because these
                institutions are not in the HMDA data, the Bureau cannot estimate the
                number that may have originated adjustable-rate mortgages. Furthermore,
                the Bureau cannot confirm that they are small for purposes of the RFA,
                although it is likely they are because HMDA reporting thresholds are
                based in part on origination volume. Finally, the Bureau cannot
                estimate the number of institutions that did not report HMDA data in
                2018 but did originate at least one open-end mortgage loan in 2018, or
                at least one closed-end and one open-end mortgage loan in 2018.
                ---------------------------------------------------------------------------
                 \115\ See Bureau of Consumer Fin. Prot., Data Point: 2018
                Mortgage Market Activity and Trends (Aug. 2019), available at
                https://files.consumerfinance.gov/f/documents/cfpb_2018-mortgage-market-activity-trends_report.pdf.
                ---------------------------------------------------------------------------
                 As discussed above in part VII, there are four main proposed
                provisions:
                 1. LIBOR-specific provisions for index changes for HELOCs and
                credit card accounts,
                 2. Revisions to change-in-terms notices requirements for HELOCs and
                credit card accounts to disclose margin decreases, if any,
                 3. LIBOR-specific exception from the rate reevaluation provisions
                applicable to credit card accounts, and
                 4. Commentary stating that specific indices are comparable to
                certain LIBOR tenors for purposes of the closed-end refinancing
                provisions.
                 The proposed LIBOR-specific provisions for index change
                requirements for open-end credit would allow HELOC creditors and card
                issuers, including small entities, under Regulation Z to switch away
                from LIBOR earlier than they would under the baseline, but it does not
                require them to do so.\116\ This additional flexibility would benefit
                small entities with these outstanding credit products tied to LIBOR, by
                reducing uncertainty and allowing them to implement the switch in a
                more orderly way. This additional flexibility would not impose any
                significant costs on HELOC creditors and card issuers, including small
                entities.
                ---------------------------------------------------------------------------
                 \116\ As discussed in the section-by-section analyses of Sec.
                1026.40(f)(3)(ii) and proposed Sec. 1026.55(b)(7) above, the
                proposal, however, would not excuse creditors or card issuers from
                noncompliance with contractual provisions. For example, a contract
                for a HELOC or a credit card account may provide that the creditor
                or card issuer respectively may not replace an index unilaterally
                under a plan unless the original index becomes unavailable. In this
                case, even under the proposal the creditor or card issuer would be
                contractually prohibited from unilaterally replacing a LIBOR index
                used under the plan until it becomes unavailable.
                ---------------------------------------------------------------------------
                 The proposed LIBOR-specific provisions for index change
                requirements for open-end credit also would include revisions to
                commentary to Regulation Z to state that certain SOFR-based indices
                have historical fluctuations that are substantially similar to those of
                certain tenors of LIBOR and that Prime has historical fluctuations that
                are substantially similar to those of certain tenors of LIBOR. The
                proposed commentary would not determine that any specific indices have
                historical fluctuations that are not substantially similar to those of
                LIBOR, so the proposed revisions would not prevent creditors or card
                issuers from switching to other indices as long as those indices still
                satisfy regulatory requirements. Therefore, the proposed commentary
                does not impose any significant costs on HELOC creditors and card
                issuers, including small entities. Therefore, the proposed LIBOR-
                specific provisions for index change requirements for open-end credit
                would impose no significant burden on small entities.
                 The proposed revisions to change-in-terms notices requirements to
                disclose margin decreases, if any, expand regulatory requirements for
                creditors for HELOCs and card issuers, including small entities, and
                therefore may increase their compliance costs. The proposed provision
                would, effective October 1, 2021, require creditors for HELOCs and card
                issuers, including small entities, to disclose margin reductions to
                consumers when they switch contracts from using LIBOR indices to other
                indices. Under both the existing regulation and the proposed provision,
                creditors for HELOCs and card issuers, including small entities, are
                required to send consumers change-in-term notices when indices change,
                disclosing the replacement index and any increase in the margin.
                Therefore, this proposed provision would not affect the number of
                consumers who receive change-in-terms notices nor the number of change-
                in-terms notices creditors for HELOCs or card issuers, including small
                entities, must provide.
                 The benefits, costs, and impacts of this proposed provision depend
                on whether HELOC creditors or card issuers, including small entities,
                would choose to disclose margin decreases even if not required to do so
                under the existing regulation. Creditors for HELOCs or card issuers,
                including small entities, that would not otherwise disclose margin
                decreases in their change-in-term notices would bear the cost of having
                to provide slightly longer notices. They may also have to develop
                distinct notices for different groups of consumers with different
                initial margins. However, the Bureau believes it is likely that most
                creditors for HELOCs and card issuers, including small entities, would
                choose to disclose margin decreases in their change-in-terms notices
                even if the existing regulation does not require them to so, because
                margin decreases are beneficial for consumers, and because in these
                situations the creditors or card issuers likely benefit from improved
                consumer understanding. Further, this proposed provision would be
                effective only beginning effective October 1, 2021. HELOC creditors and
                card issuers, including small entities, that would prefer not to
                disclose margin decreases could choose to change indices before this
                proposed provision becomes effective (if the change in indices are
                permitted by the contractual provisions at that time). Therefore, the
                Bureau expects that both the benefits and costs of this proposed
                provision for HELOC creditors and card issuers, including small
                entities, would be small. Therefore, this proposed provision would not
                impose significant costs on a significant number of small entities.
                 The LIBOR-specific exception from the rate reevaluation provisions
                applicable to credit card accounts would benefit affected card issuers,
                including small entities, by saving them the cost of reevaluating rate
                increases that occur as a result of the transition from the LIBOR index
                to another index under the LIBOR-specific provisions discussed above or
                under the existing regulation that allows card issuers to replace an
                index when the index becomes unavailable. This proposed provision would
                impose no costs on affected card issuers, including small entities,
                because they could still perform rate reevaluations if they choose to
                do so until LIBOR is discontinued. Therefore, this proposed provision
                would impose no significant burden on small entities.
                 The Bureau is proposing to revise comment 20(a)-3.ii to Regulation
                Z to state that certain SOFR-based indices are comparable to certain
                tenors of LIBOR. The proposed commentary would not determine that any
                specific indices are not comparable to LIBOR. Therefore, the proposed
                provision would not prevent creditors from switching to other indices
                as long as those indices still satisfy regulatory requirements.
                Therefore, the proposed provision would impose no significant costs on
                creditors, including small entities.
                 Accordingly, the Director hereby certifies that this proposed rule,
                if adopted, would not have a significant economic impact on a
                substantial number of small entities. Thus, neither an IRFA nor a small
                business review panel is required for this proposal. The Bureau
                requests comment on the
                [[Page 36981]]
                analysis above and requests any relevant data.
                IX. Paperwork Reduction Act
                 Under the Paperwork Reduction Act of 1995 (PRA),\117\ Federal
                agencies are generally required to seek the Office of Management and
                Budget's (OMB's) approval for information collection requirements prior
                to implementation. The collections of information related to Regulation
                Z have been previously reviewed and approved by OMB and assigned OMB
                Control number 3170-0015. Under the PRA, the Bureau may not conduct or
                sponsor and, notwithstanding any other provision of law, a person is
                not required to respond to an information collection unless the
                information collection displays a valid control number assigned by OMB.
                ---------------------------------------------------------------------------
                 \117\ 44 U.S.C. 3501 et seq.
                ---------------------------------------------------------------------------
                 The Bureau has determined that this proposed rule would not impose
                any new or revised information collection requirements (recordkeeping,
                reporting or disclosure requirements) on covered entities or members of
                the public that would constitute collections of information requiring
                OMB approval under the PRA.
                X. Signing Authority
                 The Director of the Bureau, having reviewed and approved this
                document, is delegating the authority to electronically sign this
                document to Laura Galban, a Bureau Federal Register Liaison, for
                purposes of publication in the Federal Register.
                List of Subjects in 12 CFR Part 1026
                 Advertising, Appraisal, Appraiser, Banking, Banks, Consumer
                protection, Credit, Credit unions, Mortgages, National banks, Reporting
                and recordkeeping requirements, Savings associations, Truth in lending.
                Authority and Issuance
                 For the reasons set forth above, the Bureau proposes to amend
                Regulation Z, 12 CFR part 1026, as set forth below:
                PART 1026--TRUTH IN LENDING (REGULATION Z)
                0
                1. The authority citation for part 1026 continues to read as follows:
                 Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353,
                5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.
                Subpart B--Open-End Credit
                0
                2. Section 1026.9 is amended by revising paragraphs (c)(1)(ii) and
                (c)(2)(v)(A) to read as follows:
                Sec. 1026.9 Subsequent disclosure requirements.
                * * * * *
                 (c) * * *
                 (1) * * *
                 (ii) Notice not required. For home-equity plans subject to the
                requirements of Sec. 1026.40, a creditor is not required to provide
                notice under this section when the change involves a reduction of any
                component of a finance or other charge (except that on or after October
                1, 2021, this provision on when the change involves a reduction of any
                component of a finance or other charge does not apply to any change in
                the margin when a LIBOR index is replaced, as permitted by Sec.
                1026.40(f)(3)(ii)(A) or (B)) or when the change results from an
                agreement involving a court proceeding.
                * * * * *
                 (2) * * *
                 (v) * * *
                 (A) When the change involves charges for documentary evidence; a
                reduction of any component of a finance or other charge (except that on
                or after October 1, 2021, this provision on when the change involves a
                reduction of any component of a finance or other charge does not apply
                to any change in the margin when a LIBOR index is replaced, as
                permitted by Sec. 1026.55(b)(7)(i) or (ii)); suspension of future
                credit privileges (except as provided in paragraph (c)(2)(vi) of this
                section) or termination of an account or plan; when the change results
                from an agreement involving a court proceeding; when the change is an
                extension of the grace period; or if the change is applicable only to
                checks that access a credit card account and the changed terms are
                disclosed on or with the checks in accordance with paragraph (b)(3) of
                this section;
                * * * * *
                Subpart E--Special Rules for Certain Home Mortgage Transactions
                Sec. 1026.36 [Amended]
                0
                3. Section 1026.36 is amended by removing ``LIBOR'' and adding in its
                place ``SOFR'' in paragraphs (a)(4)(iii)(C) and (a)(5)(iii)(B).
                0
                4. Section 1026.40 is amended by revising paragraph (f)(3)(ii) to read
                as follows:
                Sec. 1026.40 Requirements for home equity plans.
                * * * * *
                 (f) * * *
                 (3) * * *
                 (ii)(A) Change the index and margin used under the plan if the
                original index is no longer available, the replacement index has
                historical fluctuations substantially similar to that of the original
                index, and the replacement index and replacement margin would have
                resulted in an annual percentage rate substantially similar to the rate
                in effect at the time the original index became unavailable. If the
                replacement index is newly established and therefore does not have any
                rate history, it may be used if it and the replacement margin will
                produce an annual percentage rate substantially similar to the rate in
                effect when the original index became unavailable; or
                 (B) If a variable rate on the plan is calculated using a LIBOR
                index, change the LIBOR index and the margin for calculating the
                variable rate on or after March 15, 2021, to a replacement index and a
                replacement margin, as long as historical fluctuations in the LIBOR
                index and replacement index were substantially similar, and as long as
                the replacement index value in effect on December 31, 2020, and
                replacement margin will produce an annual percentage rate substantially
                similar to the rate calculated using the LIBOR index value in effect on
                December 31, 2020, and the margin that applied to the variable rate
                immediately prior to the replacement of the LIBOR index used under the
                plan. If the replacement index is newly established and therefore does
                not have any rate history, it may be used if the replacement index
                value in effect on December 31, 2020, and the replacement margin will
                produce an annual percentage rate substantially similar to the rate
                calculated using the LIBOR index value in effect on December 31, 2020,
                and the margin that applied to the variable rate immediately prior to
                the replacement of the LIBOR index used under the plan. If either the
                LIBOR index or the replacement index is not published on December 31,
                2020, the creditor must use the next calendar day that both indices are
                published as the date on which the annual percentage rate based on the
                replacement index must be substantially similar to the rate based on
                the LIBOR index.
                * * * * *
                Subpart G--Special Rules Applicable to Credit Card Accounts and
                Open-End Credit Offered to College Students
                0
                5. Section 1026.55 is amended by adding paragraph (b)(7) to read as
                follows:
                Sec. 1026.55 Limitations on increasing annual percentage rates, fees,
                and charges.
                * * * * *
                 (b) * * *
                 (7) Index replacement and margin change exception. A card issuer
                may
                [[Page 36982]]
                increase an annual percentage rate when:
                 (i) The card issuer changes the index and margin used to determine
                the annual percentage rate if the original index becomes unavailable,
                as long as historical fluctuations in the original and replacement
                indices were substantially similar, and as long as the replacement
                index and replacement margin will produce a rate substantially similar
                to the rate that was in effect at the time the original index became
                unavailable. If the replacement index is newly established and
                therefore does not have any rate history, it may be used if it and the
                replacement margin will produce a rate substantially similar to the
                rate in effect when the original index became unavailable; or
                 (ii) If a variable rate on the plan is calculated using a LIBOR
                index, the card issuer changes the LIBOR index and the margin for
                calculating the variable rate on or after March 15, 2021, to a
                replacement index and a replacement margin, as long as historical
                fluctuations in the LIBOR index and replacement index were
                substantially similar, and as long as the replacement index value in
                effect on December 31, 2020, and replacement margin will produce an
                annual percentage rate substantially similar to the rate calculated
                using the LIBOR index value in effect on December 31, 2020, and the
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. If the replacement
                index is newly established and therefore does not have any rate
                history, it may be used if the replacement index value in effect on
                December 31, 2020, and the replacement margin will produce an annual
                percentage rate substantially similar to the rate calculated using the
                LIBOR index value in effect on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. If either the LIBOR index or the
                replacement index is not published on December 31, 2020, the card
                issuer must use the next calendar day that both indices are published
                as the date on which the annual percentage rate based on the
                replacement index must be substantially similar to the rate based on
                the LIBOR index.
                * * * * *
                0
                6. Section 1026.59 is amended by adding paragraphs (f)(3) and (h)(3) to
                read as follows:
                Sec. 1026.59 Reevaluation of rate increases.
                * * * * *
                 (f) * * *
                 (3) Effective March 15, 2021, in the case where the rate applicable
                immediately prior to the increase was a variable rate with a formula
                based on a LIBOR index, the card issuer reduces the annual percentage
                rate to a rate determined by a replacement formula that is derived from
                a replacement index value on December 31, 2020, plus replacement margin
                that is equal to the LIBOR index value on December 31, 2020, plus the
                margin used to calculate the rate immediately prior to the increase
                (previous formula). A card issuer must satisfy the conditions set forth
                in Sec. 1026.55(b)(7)(ii) for selecting a replacement index. If either
                the LIBOR index or the replacement index is not published on December
                31, 2020, the card issuer must use the values of the indices on the
                next calendar day that both indices are published as the index values
                to use to determine the replacement formula.
                * * * * *
                 (h) * * *
                 (3) Transition from LIBOR. The requirements of this section do not
                apply to increases in an annual percentage rate that occur as a result
                of the transition from the use of a LIBOR index as the index in setting
                a variable rate to the use of a replacement index in setting a variable
                rate if the change from the use of the LIBOR index to a replacement
                index occurs in accordance with Sec. 1026.55(b)(7)(i) or (ii).
                0
                7. Appendix H to part 1026 is amended by revising the entries for H-
                4(D)(2) and H-4(D)(4) to read as follows:
                Appendix H to Part 1026--Closed-End Model Forms and Clauses
                * * * * *
                H-4(D)(2) Sample Form for Sec. 1026.20(c)
                BILLING CODE 4810-AM-P
                [[Page 36983]]
                [GRAPHIC] [TIFF OMITTED] TP18JN20.000
                * * * * *
                H-4(D)(4) Sample Form for Sec. 1026.20(d)
                [[Page 36984]]
                [GRAPHIC] [TIFF OMITTED] TP18JN20.001
                BILLING CODE 4810-AM-C
                * * * * *
                0
                8. In supplement I to part 1026:
                0
                a. Under Section 1026.9--Subsequent Disclosure Requirements, revise
                9(c)(1)(ii) Notice not Required, 9(c)(2)(iv) Disclosure Requirements,
                and 9(c)(2)(v) Notice not Required.
                0
                b. Under Section 1026.20--Disclosure Requirements Regarding Post-
                Consummation Events, revise 20(a) Refinancings.
                0
                c. Under Section 1026.37--Content of Disclosures for Certain Mortgage
                Transactions (Loan Estimate), revise 37(j)(1) Index and margin.
                0
                d. Under Section 1026.40--Requirements for Home-Equity Plans, revise
                Paragraph 40(f)(3)(ii) and add Paragraph 40(f)(3)(ii)(A) and Paragraph
                40(f)(3)(ii)(B).
                0
                e. Under Section 1026.55--Limitations on Increasing Annual Percentage
                Rates, Fees, and Charges,
                [[Page 36985]]
                revise 55(b)(2) Variable rate exception and add 55(b)(7) Index
                replacement and margin change exception.
                0
                f. Under Section 1026.59--Reevaluation of Rate Increases, revise 59(d)
                Factors and 59(f) Termination of Obligation to Review Factors and add
                59(h) Exceptions.
                 The revisions and additions read as follows:
                Supplement I to Part 1026--Official Interpretations
                * * * * *
                 Section 1026.9--Subsequent Disclosure Requirements
                * * * * *
                9(c)(1)(ii) Notice Not Required
                 1. Changes not requiring notice. The following are examples of
                changes that do not require a change-in-terms notice:
                 i. A change in the consumer's credit limit.
                 ii. A change in the name of the credit card or credit card plan.
                 iii. The substitution of one insurer for another.
                 iv. A termination or suspension of credit privileges. (But see
                Sec. 1026.40(f).)
                 v. Changes arising merely by operation of law; for example, if
                the creditor's security interest in a consumer's car automatically
                extends to the proceeds when the consumer sells the car.
                 2. Skip features. If a credit program allows consumers to skip
                or reduce one or more payments during the year, or involves
                temporary reductions in finance charges, no notice of the change in
                terms is required either prior to the reduction or upon resumption
                of the higher rates or payments if these features are explained on
                the initial disclosure statement (including an explanation of the
                terms upon resumption). For example, a merchant may allow consumers
                to skip the December payment to encourage holiday shopping, or a
                teachers' credit union may not require payments during summer
                vacation. Otherwise, the creditor must give notice prior to resuming
                the original schedule or rate, even though no notice is required
                prior to the reduction. The change-in-terms notice may be combined
                with the notice offering the reduction. For example, the periodic
                statement reflecting the reduction or skip feature may also be used
                to notify the consumer of the resumption of the original schedule or
                rate, either by stating explicitly when the higher payment or
                charges resume, or by indicating the duration of the skip option.
                Language such as ``You may skip your October payment,'' or ``We will
                waive your finance charges for January,'' may serve as the change-
                in-terms notice.
                 3. Replacing LIBOR. The exception in Sec. 1026.9(c)(1)(ii)
                under which a creditor is not required to provide a change-in-terms
                notice under Sec. 1026.9(c)(1) when the change involves a reduction
                of any component of a finance or other charge does not apply on or
                after October 1, 2021, to margin reductions when a LIBOR index is
                replaced, as permitted by Sec. 1026.40(f)(3)(ii)(A) or
                (f)(3)(ii)(B). For change-in-terms notices provided under Sec.
                1026.9(c)(1) on or after October 1, 2021 covering changes permitted
                by Sec. 1026.40(f)(3)(ii)(A) or (f)(3)(ii)(B), a creditor must
                provide a change-in-terms notice under Sec. 1026.9(c)(1) disclosing
                the replacement index for a LIBOR index and any adjusted margin that
                is permitted under Sec. 1026.40(f)(3)(ii)(A) or (f)(3)(ii)(B), even
                if the margin is reduced. Prior to October 1, 2021, a creditor has
                the option of disclosing a reduced margin in the change-in-terms
                notice that discloses the replacement index for a LIBOR index as
                permitted by Sec. 1026.40(f)(3)(ii)(A) or (f)(3)(ii)(B).
                * * * * *
                9(c)(2)(iv) Disclosure Requirements
                 1. Changing margin for calculating a variable rate. If a
                creditor is changing a margin used to calculate a variable rate, the
                creditor must disclose the amount of the new rate (as calculated
                using the new margin) in the table described in Sec.
                1026.9(c)(2)(iv), and include a reminder that the rate is a variable
                rate. For example, if a creditor is changing the margin for a
                variable rate that uses the prime rate as an index, the creditor
                must disclose in the table the new rate (as calculated using the new
                margin) and indicate that the rate varies with the market based on
                the prime rate.
                 2. Changing index for calculating a variable rate. If a creditor
                is changing the index used to calculate a variable rate, the
                creditor must disclose the amount of the new rate (as calculated
                using the new index) and indicate that the rate varies and how the
                rate is determined, as explained in Sec. 1026.6(b)(2)(i)(A). For
                example, if a creditor is changing from using a prime index to using
                a SOFR index in calculating a variable rate, the creditor would
                disclose in the table the new rate (using the new index) and
                indicate that the rate varies with the market based on a SOFR index.
                 3. Changing from a variable rate to a non-variable rate. If a
                creditor is changing a rate applicable to a consumer's account from
                a variable rate to a non-variable rate, the creditor generally must
                provide a notice as otherwise required under Sec. 1026.9(c) even if
                the variable rate at the time of the change is higher than the non-
                variable rate. However, a creditor is not required to provide a
                notice under Sec. 1026.9(c) if the creditor provides the
                disclosures required by Sec. 1026.9(c)(2)(v)(B) or (c)(2)(v)(D) in
                connection with changing a variable rate to a lower non-variable
                rate. Similarly, a creditor is not required to provide a notice
                under Sec. 1026.9(c) when changing a variable rate to a lower non-
                variable rate in order to comply with 50 U.S.C. app. 527 or a
                similar Federal or state statute or regulation. Finally, a creditor
                is not required to provide a notice under Sec. 1026.9(c) when
                changing a variable rate to a lower non-variable rate in order to
                comply with Sec. 1026.55(b)(4).
                 4. Changing from a non-variable rate to a variable rate. If a
                creditor is changing a rate applicable to a consumer's account from
                a non-variable rate to a variable rate, the creditor generally must
                provide a notice as otherwise required under Sec. 1026.9(c) even if
                the non-variable rate is higher than the variable rate at the time
                of the change. However, a creditor is not required to provide a
                notice under Sec. 1026.9(c) if the creditor provides the
                disclosures required by Sec. 1026.9(c)(2)(v)(B) or (c)(2)(v)(D) in
                connection with changing a non-variable rate to a lower variable
                rate. Similarly, a creditor is not required to provide a notice
                under Sec. 1026.9(c) when changing a non-variable rate to a lower
                variable rate in order to comply with 50 U.S.C. app. 527 or a
                similar Federal or state statute or regulation. Finally, a creditor
                is not required to provide a notice under Sec. 1026.9(c) when
                changing a non-variable rate to a lower variable rate in order to
                comply with Sec. 1026.55(b)(4). See comment 55(b)(2)-4 regarding
                the limitations in Sec. 1026.55(b)(2) on changing the rate that
                applies to a protected balance from a non-variable rate to a
                variable rate.
                 5. Changes in the penalty rate, the triggers for the penalty
                rate, or how long the penalty rate applies. If a creditor is
                changing the amount of the penalty rate, the creditor must also
                redisclose the triggers for the penalty rate and the information
                about how long the penalty rate applies even if those terms are not
                changing. Likewise, if a creditor is changing the triggers for the
                penalty rate, the creditor must redisclose the amount of the penalty
                rate and information about how long the penalty rate applies. If a
                creditor is changing how long the penalty rate applies, the creditor
                must redisclose the amount of the penalty rate and the triggers for
                the penalty rate, even if they are not changing.
                 6. Changes in fees. If a creditor is changing part of how a fee
                that is disclosed in a tabular format under Sec. 1026.6(b)(1) and
                (2) is determined, the creditor must redisclose all relevant
                information related to that fee regardless of whether this other
                information is changing. For example, if a creditor currently
                charges a cash advance fee of ``Either $5 or 3% of the transaction
                amount, whichever is greater (Max: $100),'' and the creditor is only
                changing the minimum dollar amount from $5 to $10, the issuer must
                redisclose the other information related to how the fee is
                determined. For example, the creditor in this example would disclose
                the following: ``Either $10 or 3% of the transaction amount,
                whichever is greater (Max: $100).''
                 7. Combining a notice described in Sec. 1026.9(c)(2)(iv) with a
                notice described in Sec. 1026.9(g)(3). If a creditor is required to
                provide a notice described in Sec. 1026.9(c)(2)(iv) and a notice
                described in Sec. 1026.9(g)(3) to a consumer, the creditor may
                combine the two notices. This would occur if penalty pricing has
                been triggered, and other terms are changing on the consumer's
                account at the same time.
                 8. Content. Sample G-20 contains an example of how to comply
                with the requirements in Sec. 1026.9(c)(2)(iv) when a variable rate
                is being changed to a non-variable rate on a credit card account.
                The sample explains when the new rate will apply to new transactions
                and to which balances the current rate will continue to apply.
                Sample G-21 contains an example of how to comply with the
                requirements in Sec. 1026.9(c)(2)(iv) when the late payment fee on
                a credit card account is being increased, and the returned payment
                fee is also being
                [[Page 36986]]
                increased. The sample discloses the consumer's right to reject the
                changes in accordance with Sec. 1026.9(h).
                 9. Clear and conspicuous standard. See comment 5(a)(1)-1 for the
                clear and conspicuous standard applicable to disclosures required
                under Sec. 1026.9(c)(2)(iv)(A)(1).
                 10. Terminology. See Sec. 1026.5(a)(2) for terminology
                requirements applicable to disclosures required under Sec.
                1026.9(c)(2)(iv)(A)(1).
                 11. Reasons for increase. i. In general. Section
                1026.9(c)(2)(iv)(A)(8) requires card issuers to disclose the
                principal reason(s) for increasing an annual percentage rate
                applicable to a credit card account under an open-end (not home-
                secured) consumer credit plan. The regulation does not mandate a
                minimum number of reasons that must be disclosed. However, the
                specific reasons disclosed under Sec. 1026.9(c)(2)(iv)(A)(8) are
                required to relate to and accurately describe the principal factors
                actually considered by the card issuer in increasing the rate. A
                card issuer may describe the reasons for the increase in general
                terms. For example, the notice of a rate increase triggered by a
                decrease of 100 points in a consumer's credit score may state that
                the increase is due to ``a decline in your creditworthiness'' or ``a
                decline in your credit score.'' Similarly, a notice of a rate
                increase triggered by a 10% increase in the card issuer's cost of
                funds may be disclosed as ``a change in market conditions.'' In some
                circumstances, it may be appropriate for a card issuer to combine
                the disclosure of several reasons in one statement. However, Sec.
                1026.9(c)(2)(iv)(A)(8) requires that the notice specifically
                disclose any violation of the terms of the account on which the rate
                is being increased, such as a late payment or a returned payment, if
                such violation of the account terms is one of the four principal
                reasons for the rate increase.
                 ii. Example. Assume that a consumer made a late payment on the
                credit card account on which the rate increase is being imposed,
                made a late payment on a credit card account with another card
                issuer, and the consumer's credit score decreased, in part due to
                such late payments. The card issuer may disclose the reasons for the
                rate increase as a decline in the consumer's credit score and the
                consumer's late payment on the account subject to the increase.
                Because the late payment on the credit card account with the other
                issuer also likely contributed to the decline in the consumer's
                credit score, it is not required to be separately disclosed.
                However, the late payment on the credit card account on which the
                rate increase is being imposed must be specifically disclosed even
                if that late payment also contributed to the decline in the
                consumer's credit score.
                9(c)(2)(v) Notice Not Required
                 1. Changes not requiring notice. The following are examples of
                changes that do not require a change-in-terms notice:
                 i. A change in the consumer's credit limit except as otherwise
                required by Sec. 1026.9(c)(2)(vi).
                 ii. A change in the name of the credit card or credit card plan.
                 iii. The substitution of one insurer for another.
                 iv. A termination or suspension of credit privileges.
                 v. Changes arising merely by operation of law; for example, if
                the creditor's security interest in a consumer's car automatically
                extends to the proceeds when the consumer sells the car.
                 2. Skip features. i. Skipped or reduced payments. If a credit
                program allows consumers to skip or reduce one or more payments
                during the year, no notice of the change in terms is required either
                prior to the reduction in payments or upon resumption of the higher
                payments if these features are explained on the account-opening
                disclosure statement (including an explanation of the terms upon
                resumption). For example, a merchant may allow consumers to skip the
                December payment to encourage holiday shopping, or a teacher's
                credit union may not require payments during summer vacation.
                Otherwise, the creditor must give notice prior to resuming the
                original payment schedule, even though no notice is required prior
                to the reduction. The change-in-terms notice may be combined with
                the notice offering the reduction. For example, the periodic
                statement reflecting the skip feature may also be used to notify the
                consumer of the resumption of the original payment schedule, either
                by stating explicitly when the higher resumes or by indicating the
                duration of the skip option. Language such as ``You may skip your
                October payment'' may serve as the change-in-terms notice.
                 ii. Temporary reductions in interest rates or fees. If a credit
                program involves temporary reductions in an interest rate or fee, no
                notice of the change in terms is required either prior to the
                reduction or upon resumption of the original rate or fee if these
                features are disclosed in advance in accordance with the
                requirements of Sec. 1026.9(c)(2)(v)(B). Otherwise, the creditor
                must give notice prior to resuming the original rate or fee, even
                though no notice is required prior to the reduction. The notice
                provided prior to resuming the original rate or fee must comply with
                the timing requirements of Sec. 1026.9(c)(2)(i) and the content and
                format requirements of Sec. 1026.9(c)(2)(iv)(A), (B) (if
                applicable), (C) (if applicable), and (D). See comment 55(b)-3 for
                guidance regarding the application of Sec. 1026.55 in these
                circumstances.
                 3. Changing from a variable rate to a non-variable rate. See
                comment 9(c)(2)(iv)-3.
                 4. Changing from a non-variable rate to a variable rate. See
                comment 9(c)(2)(iv)-4.
                 5. Temporary rate or fee reductions offered by telephone. The
                timing requirements of Sec. 1026.9(c)(2)(v)(B) are deemed to have
                been met, and written disclosures required by Sec.
                1026.9(c)(2)(v)(B) may be provided as soon as reasonably practicable
                after the first transaction subject to a rate that will be in effect
                for a specified period of time (a temporary rate) or the imposition
                of a fee that will be in effect for a specified period of time (a
                temporary fee) if:
                 i. The consumer accepts the offer of the temporary rate or
                temporary fee by telephone;
                 ii. The creditor permits the consumer to reject the temporary
                rate or temporary fee offer and have the rate or rates or fee that
                previously applied to the consumer's balances reinstated for 45 days
                after the creditor mails or delivers the written disclosures
                required by Sec. 1026.9(c)(2)(v)(B), except that the creditor need
                not permit the consumer to reject a temporary rate or temporary fee
                offer if the rate or rates or fee that will apply following
                expiration of the temporary rate do not exceed the rate or rates or
                fee that applied immediately prior to commencement of the temporary
                rate or temporary fee; and
                 iii. The disclosures required by Sec. 1026.9(c)(2)(v)(B) and
                the consumer's right to reject the temporary rate or temporary fee
                offer and have the rate or rates or fee that previously applied to
                the consumer's account reinstated, if applicable, are disclosed to
                the consumer as part of the temporary rate or temporary fee offer.
                 6. First listing. The disclosures required by Sec.
                1026.9(c)(2)(v)(B)(1) are only required to be provided in close
                proximity and in equal prominence to the first listing of the
                temporary rate or fee in the disclosure provided to the consumer.
                For purposes of Sec. 1026.9(c)(2)(v)(B), the first statement of the
                temporary rate or fee is the most prominent listing on the front
                side of the first page of the disclosure. If the temporary rate or
                fee does not appear on the front side of the first page of the
                disclosure, then the first listing of the temporary rate or fee is
                the most prominent listing of the temporary rate on the subsequent
                pages of the disclosure. For advertising requirements for
                promotional rates, see Sec. 1026.16(g).
                 7. Close proximity--point of sale. Creditors providing the
                disclosures required by Sec. 1026.9(c)(2)(v)(B) of this section in
                person in connection with financing the purchase of goods or
                services may, at the creditor's option, disclose the annual
                percentage rate or fee that would apply after expiration of the
                period on a separate page or document from the temporary rate or fee
                and the length of the period, provided that the disclosure of the
                annual percentage rate or fee that would apply after the expiration
                of the period is equally prominent to, and is provided at the same
                time as, the disclosure of the temporary rate or fee and length of
                the period.
                 8. Disclosure of annual percentage rates. If a rate disclosed
                pursuant to Sec. 1026.9(c)(2)(v)(B) or (c)(2)(v)(D) is a variable
                rate, the creditor must disclose the fact that the rate may vary and
                how the rate is determined. For example, a creditor could state
                ``After October 1, 2009, your APR will be 14.99%. This APR will vary
                with the market based on the Prime Rate.''
                 9. Deferred interest or similar programs. If the applicable
                conditions are met, the exception in Sec. 1026.9(c)(2)(v)(B)
                applies to deferred interest or similar promotional programs under
                which the consumer is not obligated to pay interest that accrues on
                a balance if that balance is paid in full prior to the expiration of
                a specified period of time. For purposes of this comment and Sec.
                1026.9(c)(2)(v)(B), ``deferred interest'' has the same meaning as in
                Sec. 1026.16(h)(2) and associated commentary. For such programs, a
                creditor must disclose pursuant to Sec. 1026.9(c)(2)(v)(B)(1) the
                length of the deferred interest period and the rate that will
                [[Page 36987]]
                apply to the balance subject to the deferred interest program if
                that balance is not paid in full prior to expiration of the deferred
                interest period. Examples of language that a creditor may use to
                make the required disclosures under Sec. 1026.9(c)(2)(v)(B)(1)
                include:
                 i. ``No interest if paid in full in 6 months. If the balance is
                not paid in full in 6 months, interest will be imposed from the date
                of purchase at a rate of 15.99%.''
                 ii. ``No interest if paid in full by December 31, 2010. If the
                balance is not paid in full by that date, interest will be imposed
                from the transaction date at a rate of 15%.''
                 10. Relationship between Sec. Sec. 1026.9(c)(2)(v)(B) and
                1026.6(b). A disclosure of the information described in Sec.
                1026.9(c)(2)(v)(B)(1) provided in the account-opening table in
                accordance with Sec. 1026.6(b) complies with the requirements of
                Sec. 1026.9(c)(2)(v)(B)(2), if the listing of the introductory rate
                in such tabular disclosure also is the first listing as described in
                comment 9(c)(2)(v)-6.
                 11. Disclosure of the terms of a workout or temporary hardship
                arrangement. In order for the exception in Sec. 1026.9(c)(2)(v)(D)
                to apply, the disclosure provided to the consumer pursuant to Sec.
                1026.9(c)(2)(v)(D)(2) must set forth:
                 i. The annual percentage rate that will apply to balances
                subject to the workout or temporary hardship arrangement;
                 ii. The annual percentage rate that will apply to such balances
                if the consumer completes or fails to comply with the terms of, the
                workout or temporary hardship arrangement;
                 iii. Any reduced fee or charge of a type required to be
                disclosed under Sec. 1026.6(b)(2)(ii), (b)(2)(iii), (b)(2)(viii),
                (b)(2)(ix), (b)(2)(xi), or (b)(2)(xii) that will apply to balances
                subject to the workout or temporary hardship arrangement, as well as
                the fee or charge that will apply if the consumer completes or fails
                to comply with the terms of the workout or temporary hardship
                arrangement;
                 iv. Any reduced minimum periodic payment that will apply to
                balances subject to the workout or temporary hardship arrangement,
                as well as the minimum periodic payment that will apply if the
                consumer completes or fails to comply with the terms of the workout
                or temporary hardship arrangement; and
                 v. If applicable, that the consumer must make timely minimum
                payments in order to remain eligible for the workout or temporary
                hardship arrangement.
                 12. Index not under creditor's control. See comment 55(b)(2)-2
                for guidance on when an index is deemed to be under a creditor's
                control.
                 13. Temporary rates--relationship to Sec. 1026.59. i. General.
                Section 1026.59 requires a card issuer to review rate increases
                imposed due to the revocation of a temporary rate. In some
                circumstances, Sec. 1026.59 may require an issuer to reinstate a
                reduced temporary rate based on that review. If, based on a review
                required by Sec. 1026.59, a creditor reinstates a temporary rate
                that had been revoked, the card issuer is not required to provide an
                additional notice to the consumer when the reinstated temporary rate
                expires, if the card issuer provided the disclosures required by
                Sec. 1026.9(c)(2)(v)(B) prior to the original commencement of the
                temporary rate. See Sec. 1026.55 and the associated commentary for
                guidance on the permissibility and applicability of rate increases.
                 i. Example. A consumer opens a new credit card account under an
                open-end (not home-secured) consumer credit plan on January 1, 2011.
                The annual percentage rate applicable to purchases is 18%. The card
                issuer offers the consumer a 15% rate on purchases made between
                January 1, 2012 and January 1, 2014. Prior to January 1, 2012, the
                card issuer discloses, in accordance with Sec. 1026.9(c)(2)(v)(B),
                that the rate on purchases made during that period will increase to
                the standard 18% rate on January 1, 2014. In March 2012, the
                consumer makes a payment that is ten days late. The card issuer,
                upon providing 45 days' advance notice of the change under Sec.
                1026.9(g), increases the rate on new purchases to 18% effective as
                of June 1, 2012. On December 1, 2012, the issuer performs a review
                of the consumer's account in accordance with Sec. 1026.59. Based on
                that review, the card issuer is required to reduce the rate to the
                original 15% temporary rate as of January 15, 2013. On January 1,
                2014, the card issuer may increase the rate on purchases to 18%, as
                previously disclosed prior to January 1, 2012, without providing an
                additional notice to the consumer.
                 14. Replacing LIBOR. The exception in Sec. 1026.9(c)(2)(v)(A)
                under which a creditor is not required to provide a change-in-terms
                notice under Sec. 1026.9(c)(2) when the change involves a reduction
                of any component of a finance or other charge does not apply on or
                after October 1, 2021, to margin reductions when a LIBOR index is
                replaced as permitted by Sec. 1026.55(b)(7)(i) or (b)(7)(ii). For
                change-in-terms notices provided under Sec. 1026.9(c)(2) on or
                after October 1, 2021, covering changes permitted by Sec.
                1026.55(b)(7)(i) or (b)(7)(ii), a creditor must provide a change-in-
                terms notice under Sec. 1026.9(c)(2) disclosing the replacement
                index for a LIBOR index and any adjusted margin that is permitted
                under Sec. 1026.55(b)(7)(i) or (b)(7)(ii), even if the margin is
                reduced. Prior to October 1, 2021, a creditor has the option of
                disclosing a reduced margin in the change-in-terms notice that
                discloses the replacement index for a LIBOR index as permitted by
                Sec. 1026.55(b)(7)(i) or (b)(7)(ii).
                * * * * *
                Section 1026.20--Disclosure Requirements Regarding Post-
                Consummation Events
                20(a) Refinancings
                 1. Definition. A refinancing is a new transaction requiring a
                complete new set of disclosures. Whether a refinancing has occurred
                is determined by reference to whether the original obligation has
                been satisfied or extinguished and replaced by a new obligation,
                based on the parties' contract and applicable law. The refinancing
                may involve the consolidation of several existing obligations,
                disbursement of new money to the consumer or on the consumer's
                behalf, or the rescheduling of payments under an existing
                obligation. In any form, the new obligation must completely replace
                the prior one.
                 i. Changes in the terms of an existing obligation, such as the
                deferral of individual installments, will not constitute a
                refinancing unless accomplished by the cancellation of that
                obligation and the substitution of a new obligation.
                 ii. A substitution of agreements that meets the refinancing
                definition will require new disclosures, even if the substitution
                does not substantially alter the prior credit terms.
                 2. Exceptions. A transaction is subject to Sec. 1026.20(a) only
                if it meets the general definition of a refinancing. Section
                1026.20(a)(1) through (5) lists 5 events that are not treated as
                refinancings, even if they are accomplished by cancellation of the
                old obligation and substitution of a new one.
                 3. Variable-rate. i. If a variable-rate feature was properly
                disclosed under the regulation, a rate change in accord with those
                disclosures is not a refinancing. For example, no new disclosures
                are required when the variable-rate feature is invoked on a
                renewable balloon-payment mortgage that was previously disclosed as
                a variable-rate transaction.
                 ii. Even if it is not accomplished by the cancellation of the
                old obligation and substitution of a new one, a new transaction
                subject to new disclosures results if the creditor either:
                 A. Increases the rate based on a variable-rate feature that was
                not previously disclosed; or
                 B. Adds a variable-rate feature to the obligation. A creditor
                does not add a variable-rate feature by changing the index of a
                variable-rate transaction to a comparable index, whether the change
                replaces the existing index or substitutes an index for one that no
                longer exists. For example, a creditor does not add a variable-rate
                feature by changing the index of a variable-rate transaction from
                the 1-month, 3-month, 6-month, or 1-year U.S. Dollar LIBOR index to
                the spread-adjusted index based on SOFR recommended by the
                Alternative Reference Rates Committee to replace the 1-month, 3-
                month, 6-month, or 1-year U.S. Dollar LIBOR index respectively
                because the replacement index is a comparable index to the
                corresponding U.S. Dollar LIBOR index.
                 iii. If either of the events in paragraph 20(a)-3.ii.A or ii.B
                occurs in a transaction secured by a principal dwelling with a term
                longer than one year, the disclosures required under Sec.
                1026.19(b) also must be given at that time.
                 4. Unearned finance charge. In a transaction involving
                precomputed finance charges, the creditor must include in the
                finance charge on the refinanced obligation any unearned portion of
                the original finance charge that is not rebated to the consumer or
                credited against the underlying obligation. For example, in a
                transaction with an add-on finance charge, a creditor advances new
                money to a consumer in a fashion that extinguishes the original
                obligation and replaces it with a new one. The creditor neither
                refunds the unearned finance charge on the original obligation to
                the consumer
                [[Page 36988]]
                nor credits it to the remaining balance on the old obligation. Under
                these circumstances, the unearned finance charge must be included in
                the finance charge on the new obligation and reflected in the annual
                percentage rate disclosed on refinancing. Accrued but unpaid finance
                charges are included in the amount financed in the new obligation.
                 5. Coverage. Section 1026.20(a) applies only to refinancings
                undertaken by the original creditor or a holder or servicer of the
                original obligation. A ``refinancing'' by any other person is a new
                transaction under the regulation, not a refinancing under this
                section.
                Paragraph 20(a)(1)
                 1. Renewal. This exception applies both to obligations with a
                single payment of principal and interest and to obligations with
                periodic payments of interest and a final payment of principal. In
                determining whether a new obligation replacing an old one is a
                renewal of the original terms or a refinancing, the creditor may
                consider it a renewal even if:
                 i. Accrued unpaid interest is added to the principal balance.
                 ii. Changes are made in the terms of renewal resulting from the
                factors listed in Sec. 1026.17(c)(3).
                 iii. The principal at renewal is reduced by a curtailment of the
                obligation.
                Paragraph 20(a)(2)
                 1. Annual percentage rate reduction. A reduction in the annual
                percentage rate with a corresponding change in the payment schedule
                is not a refinancing. If the annual percentage rate is subsequently
                increased (even though it remains below its original level) and the
                increase is effected in such a way that the old obligation is
                satisfied and replaced, new disclosures must then be made.
                 2. Corresponding change. A corresponding change in the payment
                schedule to implement a lower annual percentage rate would be a
                shortening of the maturity, or a reduction in the payment amount or
                the number of payments of an obligation. The exception in Sec.
                1026.20(a)(2) does not apply if the maturity is lengthened, or if
                the payment amount or number of payments is increased beyond that
                remaining on the existing transaction.
                Paragraph 20(a)(3)
                 1. Court agreements. This exception includes, for example,
                agreements such as reaffirmations of debts discharged in bankruptcy,
                settlement agreements, and post-judgment agreements. (See the
                commentary to Sec. 1026.2(a)(14) for a discussion of court-approved
                agreements that are not considered ``credit.'')
                Paragraph 20(a)(4)
                 1. Workout agreements. A workout agreement is not a refinancing
                unless the annual percentage rate is increased or additional credit
                is advanced beyond amounts already accrued plus insurance premiums.
                Paragraph 20(a)(5)
                 1. Insurance renewal. The renewal of optional insurance added to
                an existing credit transaction is not a refinancing, assuming that
                appropriate Truth in Lending disclosures were provided for the
                initial purchase of the insurance.
                * * * * *
                Section 1026.37--Content of Disclosures for Certain Mortgage
                Transactions (Loan Estimate)
                * * * * *
                37(j)(1) Index and Margin
                 1. Index and margin. The index disclosed pursuant to Sec.
                1026.37(j)(1) must be stated such that a consumer reasonably can
                identify it. A common abbreviation or acronym of the name of the
                index may be disclosed in place of the proper name of the index, if
                it is a commonly used public method of identifying the index. For
                example, ``SOFR'' may be disclosed instead of Secured Overnight
                Financing Rate. The margin should be disclosed as a percentage. For
                example, if the contract determines the interest rate by adding 4.25
                percentage points to the index, the margin should be disclosed as
                ``4.25%.''
                * * * * *
                Section 1026.40--Requirements for Home-Equity Plans
                * * * * *
                Paragraph 40(f)(3)(ii)
                 1. Replacing LIBOR. A creditor may use either the provision in
                Sec. 1026.40(f)(3)(ii)(A) or (f)(3)(ii)(B) to replace a LIBOR index
                used under a plan so long as the applicable conditions are met for
                the provision used. Neither provision, however, excuses the creditor
                from noncompliance with contractual provisions. The following
                examples illustrate when a creditor may use the provisions in Sec.
                1026.40(f)(3)(ii)(A) or (f)(3)(ii)(B) to replace the LIBOR index
                used under a plan.
                 i. Assume that LIBOR becomes unavailable after March 15, 2021,
                and assume a contract provides that a creditor may not replace an
                index unilaterally under a plan unless the original index becomes
                unavailable and provides that the replacement index and replacement
                margin will result in an annual percentage rate substantially
                similar to a rate that is in effect when the original index becomes
                unavailable. In this case, the creditor may use Sec.
                1026.40(f)(3)(ii)(A) to replace the LIBOR index used under the plan
                so long as the conditions of that provision are met. Section
                1026.40(f)(3)(ii)(B) provides that a creditor may replace the LIBOR
                index if, among other conditions, the replacement index value in
                effect on December 31, 2020, and replacement margin will produce an
                annual percentage rate substantially similar to the rate calculated
                using the LIBOR index value in effect on December 31, 2020, and the
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. In this case,
                however, the creditor would be contractually prohibited from
                replacing the LIBOR index used under the plan unless the replacement
                index and replacement margin also will produce an annual percentage
                rate substantially similar to a rate that is in effect when the
                LIBOR index becomes unavailable.
                 ii. Assume that LIBOR becomes unavailable after March 15, 2021,
                and assume a contract provides that a creditor may not replace an
                index unilaterally under a plan unless the original index becomes
                unavailable but does not require that the replacement index and
                replacement margin will result in an annual percentage rate
                substantially similar to a rate that is in effect when the original
                index becomes unavailable. In this case, the creditor would be
                contractually prohibited from unilaterally replacing a LIBOR index
                used under the plan until it becomes unavailable. At that time, the
                creditor has the option of using Sec. 1026.40(f)(3)(ii)(A) or
                (f)(3)(ii)(B) to replace the LIBOR index if the conditions of the
                applicable provision are met.
                 iii. Assume that LIBOR becomes unavailable after March 15, 2021,
                and assume a contract provides that a creditor may change the terms
                of the contract (including the index) as permitted by law. In this
                case, if the creditor replaces a LIBOR index under a plan on or
                after March 15, 2021, but does not wait until the LIBOR index
                becomes unavailable to do so, the creditor may only use Sec.
                1026.40(f)(3)(ii)(B) to replace the LIBOR index if the conditions of
                that provision are met. In this case, the creditor may not use Sec.
                1026.40(f)(3)(ii)(A). If the creditor waits until the LIBOR index
                used under the plan becomes unavailable to replace the LIBOR index,
                the creditor has the option of using Sec. 1026.40(f)(3)(ii)(A) or
                (f)(3)(ii)(B) to replace the LIBOR index if the conditions of the
                applicable provision are met.
                Paragraph 40(f)(3)(ii)(A)
                 1. Substitution of index. A creditor may change the index and
                margin used under the plan if the original index becomes
                unavailable, as long as historical fluctuations in the original and
                replacement indices were substantially similar, and as long as the
                replacement index and replacement margin will produce a rate
                substantially similar to the rate that was in effect at the time the
                original index became unavailable. If the replacement index is newly
                established and therefore does not have any rate history, it may be
                used if it and the replacement margin will produce a rate
                substantially similar to the rate in effect when the original index
                became unavailable.
                 2. Replacing LIBOR. For purposes of replacing a LIBOR index used
                under a plan, a replacement index that is not newly established must
                have historical fluctuations that are substantially similar to those
                of the LIBOR index used under the plan, considering the historical
                fluctuations up through when the LIBOR index becomes unavailable or
                up through the date indicated in a Bureau determination that the
                replacement index and the LIBOR index have historical fluctuations
                that are substantially similar, whichever is earlier.
                 i. The Bureau has determined that effective [applicable date]
                the prime rate published in the Wall Street Journal has historical
                fluctuations that are substantially similar to those of the 1-month
                and 3-month U.S. Dollar LIBOR indices. In order to use this prime
                rate as the replacement index for the 1-month or 3-month U.S. Dollar
                LIBOR index, the creditor also must comply with the condition
                [[Page 36989]]
                in Sec. 1026.40(f)(3)(ii)(A) that the prime rate and replacement
                margin would have resulted in an annual percentage rate
                substantially similar to the rate in effect at the time the LIBOR
                index became unavailable. See also comment 40(f)(3)(ii)(A)-3.
                 ii. The Bureau has determined that effective [applicable date]
                the spread-adjusted indices based on SOFR recommended by the
                Alternative Reference Rates Committee to replace the 1-month, 3-
                month, 6-month, and 1-year U.S. Dollar LIBOR indices have historical
                fluctuations that are substantially similar to those of the 1-month,
                3-month, 6-month, and 1-year U.S. Dollar LIBOR indices respectively.
                In order to use this SOFR-based spread-adjusted index as the
                replacement index for the applicable LIBOR index, the creditor also
                must comply with the condition in Sec. 1026.40(f)(3)(ii)(A) that
                the SOFR-based spread-adjusted index and replacement margin would
                have resulted in an annual percentage rate substantially similar to
                the rate in effect at the time the LIBOR index became unavailable.
                See also comment 40(f)(3)(ii)(A)-3.
                 3. Substantially similar rate when LIBOR becomes unavailable.
                Under Sec. 1026.40(f)(3)(ii)(A), the replacement index and
                replacement margin must produce an annual percentage rate
                substantially similar to the rate that was in effect based on the
                LIBOR index used under the plan when the LIBOR index became
                unavailable. For this comparison of the rates, a creditor must use
                the value of the replacement index and the LIBOR index on the day
                that LIBOR becomes unavailable. The replacement index and
                replacement margin are not required to produce an annual percentage
                rate that is substantially similar on the day that the replacement
                index and replacement margin become effective on the plan. The
                following example illustrates this comment.
                 i. Assume that the LIBOR index used under a plan becomes
                unavailable on December 31, 2021, and on that day the LIBOR index
                value is 2%, the margin is 10%, and the annual percentage rate is
                12%. Also, assume that a creditor has selected a prime index as the
                replacement index, and the value of the prime index is 5% on
                December 31, 2021. The creditor would satisfy the requirement to use
                a replacement index and replacement margin that will produce an
                annual percentage rate substantially similar to the rate that was in
                effect when the LIBOR index used under the plan became unavailable
                by selecting a 7% replacement margin. (The prime index value of 5%
                and the replacement margin of 7% would produce a rate of 12% on
                December 31, 2021.) Thus, if the creditor provides a change-in-terms
                notice under Sec. 1026.9(c)(1) on January 2, 2022, disclosing the
                prime index as the replacement index and a replacement margin of 7%,
                where these changes will become effective on January 18, 2022, the
                creditor satisfies the requirement to use a replacement index and
                replacement margin that will produce an annual percentage rate
                substantially similar to the rate that was in effect when the LIBOR
                index used under the plan became unavailable. This is true even if
                the prime index value changes after December 31, 2021, and the
                annual percentage rate calculated using the prime index value and 7%
                margin on January 18, 2022, is not substantially similar to the rate
                calculated using the LIBOR index value on December 31, 2021.
                Paragraph 40(f)(3)(ii)(B)
                 1. Replacing LIBOR. For purposes of replacing a LIBOR index used
                under a plan, a replacement index that is not newly established must
                have historical fluctuations that are substantially similar to those
                of the LIBOR index used under the plan, considering the historical
                fluctuations up through December 31, 2020, or up through the date
                indicated in a Bureau determination that the replacement index and
                the LIBOR index have historical fluctuations that are substantially
                similar, whichever is earlier.
                 i. The Bureau has determined that effective [applicable date]
                the prime rate published in the Wall Street Journal has historical
                fluctuations that are substantially similar to those of the 1-month
                and 3-month U.S. Dollar LIBOR indices. In order to use this prime
                rate as the replacement index for the 1-month or 3-month U.S. Dollar
                LIBOR index, the creditor also must comply with the condition in
                Sec. 1026.40(f)(3)(ii)(B) that the prime rate index value in effect
                on December 31, 2020, and replacement margin will produce an annual
                percentage rate substantially similar to the rate calculated using
                the LIBOR index value in effect on December 31, 2020, and the margin
                that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. If either the
                LIBOR index or the prime rate is not published on December 31, 2020,
                the creditor must use the next calendar day that both indices are
                published as the date on which the annual percentage rate based on
                the prime rate must be substantially similar to the rate based on
                the LIBOR index. See also comments 40(f)(3)(ii)(B)-2 and -3.
                 ii. The Bureau has determined that effective [applicable date]
                the spread-adjusted indices based on SOFR recommended by the
                Alternative Reference Rates Committee to replace the 1-month, 3-
                month, 6-month, and 1-year U.S. Dollar LIBOR indices have historical
                fluctuations that are substantially similar to those of the 1-month,
                3-month, 6-month, and 1-year U.S. Dollar LIBOR indices respectively.
                In order to use this SOFR-based spread-adjusted index as the
                replacement index for the applicable LIBOR index, the creditor also
                must comply with the condition in Sec. 1026.40(f)(3)(ii)(B) that
                the SOFR-based spread-adjusted index value in effect on December 31,
                2020, and replacement margin will produce an annual percentage rate
                substantially similar to the rate calculated using the LIBOR index
                value in effect on December 31, 2020, and the margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. If either the LIBOR index or the SOFR-
                based spread-adjusted index is not published on December 31, 2020,
                the creditor must use the next calendar day that both indices are
                published as the date on which the annual percentage rate based on
                the SOFR-based spread-adjusted index must be substantially similar
                to the rate based on the LIBOR index. See also comments
                40(f)(3)(ii)(B)-2 and -3.
                 2. Using index values on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. Under Sec.
                1026.40(f)(3)(ii)(B), if both the replacement index and the LIBOR
                index used under the plan are published on December 31, 2020, the
                replacement index value in effect on December 31, 2020, and
                replacement margin must produce an annual percentage rate
                substantially similar to the rate calculated using the LIBOR index
                value in effect on December 31, 2020, and the margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. The margin that applied to the variable
                rate immediately prior to the replacement of the LIBOR index used
                under the plan is the margin that applied to the variable rate
                immediately prior to when the creditor provides the change-in-terms
                notice disclosing the replacement index for the variable rate. The
                following example illustrates this comment.
                 i. Assume a variable rate used under the plan that is based on a
                LIBOR index and assume that LIBOR becomes unavailable after March
                15, 2021. On December 31, 2020, the LIBOR index value is 2%, the
                margin on that day is 10% and the annual percentage rate using that
                index value and margin is 12%. Assume on January 1, 2021, a creditor
                provides a change-in-terms notice under Sec. 1026.9(c)(1)
                disclosing a new margin of 12% for the variable rate pursuant to a
                written agreement under Sec. 1026.40(f)(3)(iii), and this change in
                the margin becomes effective on January 1, 2021, pursuant to Sec.
                1026.9(c)(1). Assume that there are no more changes in the margin
                that is used in calculating the variable rate prior to February 27,
                2021, the date on which the creditor provides a change-in-term
                notice under Sec. 1026.9(c)(1), disclosing the replacement index
                and replacement margin for the variable rate that will be effective
                on March 15, 2021. In this case, the margin that applied to the
                variable rate immediately prior to the replacement of the LIBOR
                index used under the plan is 12%. Assume that the creditor has
                selected a prime index as the replacement index, and the value of
                the prime index is 5% on December 31, 2020. A replacement margin of
                9% is permissible under Sec. 1026.40(f)(3)(ii)(B) because that
                replacement margin combined with the prime index value of 5% on
                December 31, 2020, will produce an annual percentage rate of 14%,
                which is substantially similar to the 14% annual percentage rate
                calculated using the LIBOR index value in effect on December 31,
                2020, (which is 2%) and the margin that applied to the variable rate
                immediately prior to the replacement of the LIBOR index used under
                the plan (which is 12%).
                 3. Substantially similar rates using index values on December
                31, 2020. Under Sec. 1026.40(f)(3)(ii)(B), if both the replacement
                index and the LIBOR index used under the plan are published on
                December 31, 2020, the replacement index value in effect on December
                31, 2020, and replacement margin must produce an annual percentage
                rate substantially similar to the rate calculated using the LIBOR
                index value in effect on
                [[Page 36990]]
                December 31, 2020, and the margin that applied to the variable rate
                immediately prior to the replacement of the LIBOR index used under
                the plan. The replacement index and replacement margin are not
                required to produce an annual percentage rate that is substantially
                similar on the day that the replacement index and replacement margin
                become effective on the plan. The following example illustrates this
                comment.
                 i. Assume that the LIBOR index used under the plan has a value
                of 2% on December 31, 2020, the margin that applied to the variable
                rate immediately prior to the replacement of the LIBOR index used
                under the plan is 10%, and the annual percentage rate based on that
                LIBOR index value and that margin is 12%. Also, assume that the
                creditor has selected a prime index as the replacement index, and
                the value of the prime index is 5% on December 31, 2020. A creditor
                would satisfy the requirement to use a replacement index value in
                effect on December 31, 2020, and replacement margin that will
                produce an annual percentage rate substantially similar to the rate
                calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan, by
                selecting a 7% replacement margin. (The prime index value of 5% and
                the replacement margin of 7% would produce a rate of 12%.) Thus, if
                the creditor provides a change-in-terms notice under Sec.
                1026.9(c)(1) on February 27, 2021, disclosing the prime index as the
                replacement index and a replacement margin of 7%, where these
                changes will become effective on March 15, 2021, the creditor
                satisfies the requirement to use a replacement index value in effect
                on December 31, 2020, and replacement margin that will produce an
                annual percentage rate substantially similar to the rate calculated
                using the LIBOR value in effect on December 31, 2020, and the margin
                that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. This is true
                even if the prime index value or the LIBOR index value changes after
                December 31, 2020, and the annual percentage rate calculated using
                the prime index value and 7% margin on March 15, 2021, is not
                substantially similar to the rate calculated using the LIBOR index
                value on December 31, 2020, or substantially similar to the rate
                calculated using the LIBOR index value on March 15, 2021.
                * * * * *
                Section 1026.55--Limitations on Increasing Annual Percentage Rates,
                Fees, and Charges
                * * * * *
                55(b)(2) Variable Rate Exception
                 1. Increases due to increase in index. Section 1026.55(b)(2)
                provides that an annual percentage rate that varies according to an
                index that is not under the card issuer's control and is available
                to the general public may be increased due to an increase in the
                index. This section does not permit a card issuer to increase the
                rate by changing the method used to determine a rate that varies
                with an index (such as by increasing the margin), even if that
                change will not result in an immediate increase. However, from time
                to time, a card issuer may change the day on which index values are
                measured to determine changes to the rate.
                 2. Index not under card issuer's control. A card issuer may
                increase a variable annual percentage rate pursuant to Sec.
                1026.55(b)(2) only if the increase is based on an index or indices
                outside the card issuer's control. For purposes of Sec.
                1026.55(b)(2), an index is under the card issuer's control if:
                 i. The index is the card issuer's own prime rate or cost of
                funds. A card issuer is permitted, however, to use a published prime
                rate, such as that in the Wall Street Journal, even if the card
                issuer's own prime rate is one of several rates used to establish
                the published rate.
                 ii. The variable rate is subject to a fixed minimum rate or
                similar requirement that does not permit the variable rate to
                decrease consistent with reductions in the index. A card issuer is
                permitted, however, to establish a fixed maximum rate that does not
                permit the variable rate to increase consistent with increases in an
                index. For example, assume that, under the terms of an account, a
                variable rate will be adjusted monthly by adding a margin of 5
                percentage points to a publicly-available index. When the account is
                opened, the index is 10% and therefore the variable rate is 15%. If
                the terms of the account provide that the variable rate will not
                decrease below 15% even if the index decreases below 10%, the card
                issuer cannot increase that rate pursuant to Sec. 1026.55(b)(2).
                However, Sec. 1026.55(b)(2) does not prohibit the card issuer from
                providing in the terms of the account that the variable rate will
                not increase above a certain amount (such as 20%).
                 iii. The variable rate can be calculated based on any index
                value during a period of time (such as the 90 days preceding the
                last day of a billing cycle). A card issuer is permitted, however,
                to provide in the terms of the account that the variable rate will
                be calculated based on the average index value during a specified
                period. In the alternative, the card issuer is permitted to provide
                in the terms of the account that the variable rate will be
                calculated based on the index value on a specific day (such as the
                last day of a billing cycle). For example, assume that the terms of
                an account provide that a variable rate will be adjusted at the
                beginning of each quarter by adding a margin of 7 percentage points
                to a publicly-available index. At account opening at the beginning
                of the first quarter, the variable rate is 17% (based on an index
                value of 10%). During the first quarter, the index varies between
                9.8% and 10.5% with an average value of 10.1%. On the last day of
                the first quarter, the index value is 10.2%. At the beginning of the
                second quarter, Sec. 1026.55(b)(2) does not permit the card issuer
                to increase the variable rate to 17.5% based on the first quarter's
                maximum index value of 10.5%. However, if the terms of the account
                provide that the variable rate will be calculated based on the
                average index value during the prior quarter, Sec. 1026.55(b)(2)
                permits the card issuer to increase the variable rate to 17.1%
                (based on the average index value of 10.1% during the first
                quarter). In the alternative, if the terms of the account provide
                that the variable rate will be calculated based on the index value
                on the last day of the prior quarter, Sec. 1026.55(b)(2) permits
                the card issuer to increase the variable rate to 17.2% (based on the
                index value of 10.2% on the last day of the first quarter).
                 3. Publicly available. The index or indices must be available to
                the public. A publicly-available index need not be published in a
                newspaper, but it must be one the consumer can independently obtain
                (by telephone, for example) and use to verify the annual percentage
                rate applied to the account.
                 4. Changing a non-variable rate to a variable rate. Section
                1026.55 generally prohibits a card issuer from changing a non-
                variable annual percentage rate to a variable annual percentage rate
                because such a change can result in an increase. However, a card
                issuer may change a non-variable rate to a variable rate to the
                extent permitted by one of the exceptions in Sec. 1026.55(b). For
                example, Sec. 1026.55(b)(1) permits a card issuer to change a non-
                variable rate to a variable rate upon expiration of a specified
                period of time. Similarly, following the first year after the
                account is opened, Sec. 1026.55(b)(3) permits a card issuer to
                change a non-variable rate to a variable rate with respect to new
                transactions (after complying with the notice requirements in Sec.
                1026.9(b), (c) or (g)).
                 5. Changing a variable rate to a non-variable rate. Nothing in
                Sec. 1026.55 prohibits a card issuer from changing a variable
                annual percentage rate to an equal or lower non-variable rate.
                Whether the non-variable rate is equal to or lower than the variable
                rate is determined at the time the card issuer provides the notice
                required by Sec. 1026.9(c). For example, assume that on March 1 a
                variable annual percentage rate that is currently 15% applies to a
                balance of $2,000 and the card issuer sends a notice pursuant to
                Sec. 1026.9(c) informing the consumer that the variable rate will
                be converted to a non-variable rate of 14% effective April 15. On
                April 15, the card issuer may apply the 14% non-variable rate to the
                $2,000 balance and to new transactions even if the variable rate on
                March 2 or a later date was less than 14%.
                * * * * *
                55(b)(7) Index Replacement and Margin Change Exception
                 1. Replacing LIBOR. A card issuer may use either the provision
                in Sec. 1026.55(b)(7)(i) or (b)(7)(ii) to replace a LIBOR index
                used under the plan so long as the applicable conditions are met for
                the provision used. Neither provision, however, excuses the card
                issuer from noncompliance with contractual provisions. The following
                examples illustrate when a card issuer may use the provisions in
                Sec. 1026.55(b)(7)(i) or (b)(7)(ii) to replace a LIBOR index on the
                plan.
                 i. Assume that LIBOR becomes unavailable after March 15, 2021,
                and assume a contract provides that a card issuer may not replace an
                index unilaterally under a plan unless the original index becomes
                unavailable and provides that the replacement index and replacement
                margin will result in an annual percentage rate substantially
                similar to a rate that is in effect when the original index
                [[Page 36991]]
                becomes unavailable. The card issuer may use Sec. 1026.55(b)(7)(i)
                to replace the LIBOR index used under the plan so long as the
                conditions of that provision are met. Section 1026.55(b)(7)(ii)
                provides that a card issuer may replace the LIBOR index if, among
                other conditions, the replacement index value in effect on December
                31, 2020, and replacement margin will produce an annual percentage
                rate substantially similar to the rate calculated using the LIBOR
                index value in effect on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. In this case, however, the card
                issuer would be contractually prohibited from replacing the LIBOR
                index used under the plan unless the replacement index and
                replacement margin also will produce an annual percentage rate
                substantially similar to a rate that is in effect when the LIBOR
                index becomes unavailable.
                 ii. Assume that LIBOR becomes unavailable after March 15, 2021,
                and assume a contract provides that a card issuer may not replace an
                index unilaterally under a plan unless the original index becomes
                unavailable but does not require that the replacement index and
                replacement margin will result in an annual percentage rate
                substantially similar to a rate that is in effect when the original
                index becomes unavailable. In this case, the card issuer would be
                contractually prohibited from unilaterally replacing the LIBOR index
                used under the plan until it becomes unavailable. At that time, the
                card issuer has the option of using Sec. 1026.55(b)(7)(i) or
                (b)(7)(ii) to replace the LIBOR index used under the plan if the
                conditions of the applicable provision are met.
                 iii. Assume that LIBOR becomes unavailable after March 15, 2021,
                and assume a contract provides that a card issuer may change the
                terms of the contract (including the index) as permitted by law. In
                this case, if the card issuer replaces the LIBOR index used under
                the plan on or after March 15, 2021, but does not wait until the
                LIBOR index becomes unavailable to do so, the card issuer may only
                use Sec. 1026.55(b)(7)(ii) to replace the LIBOR index if the
                conditions of that provision are met. In that case, the card issuer
                may not use Sec. 1026.55(b)(7)(i). If the card issuer waits until
                the LIBOR index used under the plan becomes unavailable to replace
                LIBOR, the card issuer has the option of using Sec.
                1026.55(b)(7)(i) or (b)(7)(ii) to replace the LIBOR index if the
                conditions of the applicable provisions are met.
                Paragraph 55(b)(7)(i)
                 1. Replacing LIBOR. For purposes of replacing a LIBOR index used
                under a plan, a replacement index that is not newly established must
                have historical fluctuations that are substantially similar to those
                of the LIBOR index used under the plan, considering the historical
                fluctuations up through when the LIBOR index becomes unavailable or
                up through the date indicated in a Bureau determination that the
                replacement index and the LIBOR index have historical fluctuations
                that are substantially similar, whichever is earlier.
                 i. The Bureau has determined that effective [applicable date]
                the prime rate published in the Wall Street Journal has historical
                fluctuations that are substantially similar to those of the 1-month
                and 3-month U.S. Dollar LIBOR indices. In order to use this prime
                rate as the replacement index for the 1-month or 3-month U.S. Dollar
                LIBOR index, the card issuer also must comply with the condition in
                Sec. 1026.55(b)(7)(i) that the prime rate and replacement margin
                will produce a rate substantially similar to the rate that was in
                effect at the time the LIBOR index became unavailable. See also
                comment 55(b)(7)(i)-2.
                 ii. The Bureau has determined that effective [applicable date]
                the spread-adjusted indices based on SOFR recommended by the
                Alternative Reference Rates Committee to replace the 1-month, 3-
                month, 6-month, and 1-year U.S. Dollar LIBOR indices have historical
                fluctuations that are substantially similar to those of the 1-month,
                3-month, 6-month, and 1-year U.S. Dollar LIBOR indices respectively.
                In order to use this SOFR-based spread-adjusted index as the
                replacement index for the applicable LIBOR index, the card issuer
                also must comply with the condition in Sec. 1026.55(b)(7)(i) that
                the SOFR-based spread-adjusted index replacement margin will produce
                a rate substantially similar to the rate that was in effect at the
                time the LIBOR index became unavailable. See also comment
                55(b)(7)(i)-2.
                 2. Substantially similar rate when LIBOR becomes unavailable.
                Under Sec. 1026.55(b)(7)(i), the replacement index and replacement
                margin must produce an annual percentage rate substantially similar
                to the rate that was in effect at the time the LIBOR index used
                under the plan became unavailable. For this comparison of the rates,
                a card issuer must use the value of the replacement index and the
                LIBOR index on the day that LIBOR becomes unavailable. The
                replacement index and replacement margin are not required to produce
                an annual percentage rate that is substantially similar on the day
                that the replacement index and replacement margin become effective
                on the plan. The following example illustrates this comment.
                 i. Assume that the LIBOR index used under the plan becomes
                unavailable on December 31, 2021, and on that day the LIBOR value is
                2%, the margin is 10%, and the annual percentage rate is 12%. Also,
                assume that a card issuer has selected a prime index as the
                replacement index, and the value of the prime index is 5% on
                December 31, 2021. The card issuer would satisfy the requirement to
                use a replacement index and replacement margin that will produce an
                annual percentage rate substantially similar to the rate that was in
                effect when the LIBOR index used under the plan became unavailable
                by selecting a 7% replacement margin. (The prime index value of 5%
                and the replacement margin of 7% would produce a rate of 12% on
                December 31, 2021.) Thus, if the card issuer provides a change-in-
                terms notice under Sec. 1026.9(c)(2) on January 2, 2022, disclosing
                the prime index as the replacement index and a replacement margin of
                7%, where these changes will become effective on February 17, 2022,
                the card issuer satisfies the requirement to use a replacement index
                and replacement margin that will produce an annual percentage rate
                substantially similar to the rate that was in effect when the LIBOR
                index used under the plan became unavailable. This is true even if
                the prime index value changes after December 31, 2021, and the
                annual percentage rate calculated using the prime index value and 7%
                margin on February 17, 2022, is not substantially similar to the
                rate calculated using the LIBOR index value on December 31, 2021.
                Paragraph 55(b)(7)(ii)
                 1. Replacing LIBOR. For purposes of replacing a LIBOR index used
                under a plan, a replacement index that is not newly established must
                have historical fluctuations that are substantially similar to those
                of the LIBOR index used under the plan, considering the historical
                fluctuations up through December 31, 2020, or up through the date
                indicated in a Bureau determination that the replacement index and
                the LIBOR index have historical fluctuations that are substantially
                similar, whichever is earlier.
                 i. The Bureau has determined that effective [applicable date]
                the prime rate published in the Wall Street Journal has historical
                fluctuations that are substantially similar to those of the 1-month
                and 3-month U.S. Dollar LIBOR indices. In order to use this prime
                rate as the replacement index for the 1-month or 3-month U.S. Dollar
                LIBOR index, the card issuer also must comply with the condition in
                Sec. 1026.55(b)(7)(ii) that the prime rate index value in effect on
                December 31, 2020, and replacement margin will produce an annual
                percentage rate substantially similar to the rate calculated using
                the LIBOR index value in effect on December 31, 2020, and the margin
                that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. If either the
                LIBOR index or the prime rate is not published on December 31, 2020,
                the card issuer must use the next calendar day that both indices are
                published as the date on which the annual percentage rate based on
                the prime rate must be substantially similar to the rate based on
                the LIBOR index. See also comments 55(b)(7)(ii)-2 and -3.
                 ii. The Bureau has determined that effective [applicable date]
                the spread-adjusted indices based on SOFR recommended by the
                Alternative Reference Rates Committee to replace the 1-month, 3-
                month, 6-month, and 1-year U.S. Dollar LIBOR indices have historical
                fluctuations that are substantially similar to those of the 1-month,
                3-month, 6-month, and 1-year U.S. Dollar LIBOR indices respectively.
                In order to use this SOFR-based spread-adjusted index as the
                replacement index for the applicable LIBOR index, the card issuer
                also must comply with the condition in Sec. 1026.55(b)(7)(ii) that
                the SOFR-based spread-adjusted index value in effect on December 31,
                2020, and replacement margin will produce an annual percentage rate
                substantially similar to the rate calculated using the LIBOR index
                value in effect on December 31, 2020, and the margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. If either the LIBOR index or the SOFR-
                based spread-adjusted index is not published on December 31, 2020,
                the card
                [[Page 36992]]
                issuer must use the next calendar day that both indices are
                published as the date on which the annual percentage rate based on
                the SOFR-based spread-adjusted index must be substantially similar
                to the rate based on the LIBOR index. See also comments
                55(b)(7)(ii)-2 and -3.
                 2. Using index values on December 31, 2020, and the margin that
                applied to the variable rate immediately prior to the replacement of
                the LIBOR index used under the plan. Under Sec. 1026.55(b)(7)(ii),
                if both the replacement index and the LIBOR index used under the
                plan are published on December 31, 2020, the replacement index value
                in effect on December 31, 2020, and replacement margin must produce
                an annual percentage rate substantially similar to the rate
                calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan. The
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan is the margin
                that applied to the variable rate immediately prior to when the card
                issuer provides the change-in-terms notice disclosing the
                replacement index for the variable rate. The following examples
                illustrate how to determine the margin that applied to the variable
                rate immediately prior to the replacement of the LIBOR index used
                under the plan.
                 i. Assume a variable rate used under the plan that is based on a
                LIBOR index, and assume that LIBOR becomes unavailable after March
                15, 2021. On December 31, 2020, the LIBOR index value is 2%, the
                margin on that day is 10% and the annual percentage rate using that
                index value and margin is 12%. Assume that on November 16, 2020,
                pursuant to Sec. 1026.55(b)(3), a card issuer provides a change-in-
                terms notice under Sec. 1026.9(c)(2) disclosing a new margin of 12%
                for the variable rate that will apply to new transactions after
                November 30, 2020, and this change in the margin becomes effective
                on January 1, 2021. The margin for the variable rate applicable to
                the transactions that occurred on or prior to November 30, 2020,
                remains at 10%. Assume that there are no more changes in the margin
                used on the variable rate that applied to transactions that occurred
                after November 30, 2020, or to the margin used on the variable rate
                that applied to transactions that occurred on or prior to November
                30, 2020, prior to when the card issuer provides a change-in-terms
                notice on January 28, 2021, disclosing the replacement index and
                replacement margins for both variable rates that will be effective
                on March 15, 2021. In this case, the margin that applied to the
                variable rate immediately prior to the replacement of the LIBOR
                index used under the plan for transactions that occurred on or prior
                to November 30, 2020, is 10%. The margin that applied to the
                variable rate immediately prior to the replacement of the LIBOR
                index used under the plan for transactions that occurred after
                November 30, 2020, is 12%. Assume that the card issuer has selected
                a prime index as the replacement index, and the value of the prime
                index is 5% on December 31, 2020. A replacement margin of 7% is
                permissible under Sec. 1026.55(b)(7)(ii) for transactions that
                occurred on or prior to November 30, 2020, because that replacement
                margin combined with the prime index value of 5% on December 31,
                2020, will produce an annual percentage rate of 12%, which is
                substantially similar to the 12% annual percentage rate calculated
                using the LIBOR index value in effect on December 31, 2020, (which
                is 2%) and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan for
                that balance (which is 10%). A replacement margin of 9% is
                permissible under Sec. 1026.55(b)(7)(ii) for transactions that
                occurred after November 30, 2020, because that replacement margin
                combined with the prime index value of 5% on December 31, 2020, will
                produce an annual percentage rate of 14%, which is substantially
                similar to the 14% annual percentage rate calculated using the LIBOR
                index value in effect on December 31, 2020, (which is 2%) and the
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan for transactions
                that occurred after November 30, 2020, (which is 12%).
                 ii. Assume a variable rate used under the plan that is based on
                a LIBOR index, and assume that LIBOR becomes unavailable after March
                15, 2021. On December 31, 2020, the LIBOR index value is 2%, the
                margin on that day is 10% and the annual percentage rate using that
                index value and margin is 12%. Assume that on November 16, 2020,
                pursuant to Sec. 1026.55(b)(4), a card issuer provides a penalty
                rate notice under Sec. 1026.9(g) increasing the margin for the
                variable rate to 20% that will apply to both outstanding balances
                and new transactions effective January 1, 2021, because the consumer
                was more than 60 days late in making a minimum payment. Assume that
                there are no more changes in the margin used on the variable rate
                for either the outstanding balance or new transactions prior to
                January 28, 2021, the date on which the card issuer provides a
                change-in-terms notice under Sec. 1026.9(c)(2) disclosing the
                replacement index and replacement margin for the variable rate that
                will be effective on March 15, 2021. The margin that applied to the
                variable rate immediately prior to the replacement of the LIBOR
                index used under the plan for the outstanding balance and new
                transactions is 12%. Assume that the card issuer has selected a
                prime index as the replacement index, and the value of the prime
                index is 5% on December 31, 2020. A replacement margin of 17% is
                permissible under Sec. 1026.55(b)(7)(ii) for the outstanding
                balance and new transactions because that replacement margin
                combined with the prime index value of 5% on December 31, 2020, will
                produce an annual percentage rate of 22%, which is substantially
                similar to the 22% annual percentage rate calculated using the LIBOR
                index value in effect on December 31, 2020, (which is 2%) and the
                margin that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan for the
                outstanding balance and new transactions (which is 20%).
                 3. Substantially similar rate using index values on December 31,
                2020. Under Sec. 1026.55(b)(7)(ii), if both the replacement index
                and the LIBOR index used under the plan are published on December
                31, 2020, the replacement index value in effect on December 31,
                2020, and replacement margin must produce an annual percentage rate
                substantially similar to the rate calculated using the LIBOR index
                value in effect on December 31, 2020, and the margin that applied to
                the variable rate immediately prior to the replacement of the LIBOR
                index used under the plan. A card issuer is not required to produce
                an annual percentage rate that is substantially similar on the day
                that the replacement index and replacement margin become effective
                on the plan. The following example illustrates this comment.
                 i. Assume that the LIBOR index used under the plan has a value
                of 2% on December 31, 2020, the margin that applied to the variable
                rate immediately prior to the replacement of the LIBOR index used
                under the plan is 10%, and the annual percentage rate based on that
                LIBOR index value and that margin is 12%. Also, assume that the card
                issuer has selected a prime index as the replacement index, and the
                value of the prime index is 5% on December 31, 2020. A card issuer
                would satisfy the requirement to use a replacement index value in
                effect on December 31, 2020, and replacement margin that will
                produce an annual percentage rate substantially similar to the rate
                calculated using the LIBOR index value in effect on December 31,
                2020, and the margin that applied to the variable rate immediately
                prior to the replacement of the LIBOR index used under the plan, by
                selecting a 7% replacement margin. (The prime index value of 5% and
                the replacement margin of 7% would produce a rate of 12%.) Thus, if
                the card issuer provides a change-in-terms notice under Sec.
                1026.9(c)(2) on January 28, 2021, disclosing the prime index as the
                replacement index and a replacement margin of 7%, where these
                changes will become effective on March 15, 2021, the card issuer
                satisfies the requirement to use a replacement index value in effect
                on December 31, 2020, and replacement margin that will produce an
                annual percentage rate substantially similar to the rate calculated
                using the LIBOR value in effect on December 31, 2020, and the margin
                that applied to the variable rate immediately prior to the
                replacement of the LIBOR index used under the plan. This is true
                even if the prime index value or the LIBOR value change after
                December 31, 2020, and the annual percentage rate calculated using
                the prime index value and 7% margin on March 15, 2021, is not
                substantially similar to the rate calculated using the LIBOR index
                value on December 31, 2020, or substantially similar to the rate
                calculated using the LIBOR index value on March 15, 2021.
                * * * * *
                Section 1026.59--Reevaluation of Rate Increases
                * * * * *
                59(d) Factors
                 1. Change in factors. A creditor that complies with Sec.
                1026.59(a) by reviewing the factors it currently considers in
                determining
                [[Page 36993]]
                the annual percentage rates applicable to similar new credit card
                accounts may change those factors from time to time. When a creditor
                changes the factors it considers in determining the annual
                percentage rates applicable to similar new credit card accounts from
                time to time, it may comply with Sec. 1026.59(a) by reviewing the
                set of factors it considered immediately prior to the change in
                factors for a brief transition period, or may consider the new
                factors. For example, a creditor changes the factors it uses to
                determine the rates applicable to similar new credit card accounts
                on January 1, 2012. The creditor reviews the rates applicable to its
                existing accounts that have been subject to a rate increase pursuant
                to Sec. 1026.59(a) on January 25, 2012. The creditor complies with
                Sec. 1026.59(a) by reviewing, at its option, either the factors
                that it considered on December 31, 2011 when determining the rates
                applicable to similar new credit card accounts or the factors that
                it considers as of January 25, 2012. For purposes of compliance with
                Sec. 1026.59(d), a transition period of 60 days from the change of
                factors constitutes a brief transition period.
                 2. Comparison of existing account to factors used for similar
                new accounts. Under Sec. 1026.59(a), if a card issuer evaluates an
                existing account using the same factors that it considers in
                determining the rates applicable to similar new accounts, the review
                of factors need not result in existing accounts being subject to
                exactly the same rates and rate structure as a card issuer imposes
                on similar new accounts. For example, a card issuer may offer
                variable rates on similar new accounts that are computed by adding a
                margin that depends on various factors to the value of a SOFR index.
                The account that the card issuer is required to review pursuant to
                Sec. 1026.59(a) may have variable rates that were determined by
                adding a different margin, depending on different factors, to a
                published prime index. In performing the review required by Sec.
                1026.59(a), the card issuer may review the factors it uses to
                determine the rates applicable to similar new accounts. If a rate
                reduction is required, however, the card issuer need not base the
                variable rate for the existing account on the SOFR index but may
                continue to use the published prime index. Section 1026.59(a)
                requires, however, that the rate on the existing account after the
                reduction, as determined by adding the published prime index and
                margin, be comparable to the rate, as determined by adding the
                margin and the SOFR index, charged on a new account for which the
                factors are comparable.
                 3. Similar new credit card accounts. A card issuer complying
                with Sec. 1026.59(d)(1)(ii) is required to consider the factors
                that the card issuer currently considers when determining the annual
                percentage rates applicable to similar new credit card accounts
                under an open-end (not home-secured) consumer credit plan. For
                example, a card issuer may review different factors in determining
                the annual percentage rate that applies to credit card plans for
                which the consumer pays an annual fee and receives rewards points
                than it reviews in determining the rates for credit card plans with
                no annual fee and no rewards points. Similarly, a card issuer may
                review different factors in determining the annual percentage rate
                that applies to private label credit cards than it reviews in
                determining the rates applicable to credit cards that can be used at
                a wider variety of merchants. In addition, a card issuer may review
                different factors in determining the annual percentage rate that
                applies to private label credit cards usable only at Merchant A than
                it may review for private label credit cards usable only at Merchant
                B. However, Sec. 1026.59(d)(1)(ii) requires a card issuer to review
                the factors it considers when determining the rates for new credit
                card accounts with similar features that are offered for similar
                purposes.
                 4. No similar new credit card accounts. In some circumstances, a
                card issuer that complies with Sec. 1026.59(a) by reviewing the
                factors that it currently considers in determining the annual
                percentage rates applicable to similar new accounts may not be able
                to identify a class of new accounts that are similar to the existing
                accounts on which a rate increase has been imposed. For example,
                consumers may have existing credit card accounts under an open-end
                (not home-secured) consumer credit plan but the card issuer may no
                longer offer a product to new consumers with similar
                characteristics, such as the availability of rewards, size of credit
                line, or other features. Similarly, some consumers' accounts may
                have been closed and therefore cannot be used for new transactions,
                while all new accounts can be used for new transactions. In those
                circumstances, Sec. 1026.59 requires that the card issuer
                nonetheless perform a review of the rate increase on the existing
                customers' accounts. A card issuer does not comply with Sec.
                1026.59 by maintaining an increased rate without performing such an
                evaluation. In such circumstances, Sec. 1026.59(d)(1)(ii) requires
                that the card issuer compare the existing accounts to the most
                closely comparable new accounts that it offers.
                 5. Consideration of consumer's conduct on existing account. A
                card issuer that complies with Sec. 1026.59(a) by reviewing the
                factors that it currently considers in determining the annual
                percentage rates applicable to similar new accounts may consider the
                consumer's payment or other account behavior on the existing account
                only to the same extent and in the same manner that the issuer
                considers such information when one of its current cardholders
                applies for a new account with the card issuer. For example, a card
                issuer might obtain consumer reports for all of its applicants. The
                consumer reports contain certain information regarding the
                applicant's past performance on existing credit card accounts.
                However, the card issuer may have additional information about an
                existing cardholder's payment history or account usage that does not
                appear in the consumer report and that, accordingly, it would not
                generally have for all new applicants. For example, a consumer may
                have made a payment that is five days late on his or her account
                with the card issuer, but this information does not appear on the
                consumer report. The card issuer may consider this additional
                information in performing its review under Sec. 1026.59(a), but
                only to the extent and in the manner that it considers such
                information if a current cardholder applies for a new account with
                the issuer.
                 6. Multiple rate increases between January 1, 2009 and February
                21, 2010. i. General. Section 1026.59(d)(2) applies if an issuer
                increased the rate applicable to a credit card account under an
                open-end (not home- secured) consumer credit plan between January 1,
                2009 and February 21, 2010, and the increase was not based solely
                upon factors specific to the consumer. In some cases, a credit card
                account may have been subject to multiple rate increases during the
                period from January 1, 2009 to February 21, 2010. Some such rate
                increases may have been based solely upon factors specific to the
                consumer, while others may have been based on factors not specific
                to the consumer, such as the issuer's cost of funds or market
                conditions. In such circumstances, when conducting the first two
                reviews required under Sec. 1026.59, the card issuer may separately
                review: (i) Rate increases imposed based on factors not specific to
                the consumer, using the factors described in Sec. 1026.59(d)(1)(ii)
                (as required by Sec. 1026.59(d)(2)); and (ii) rate increases
                imposed based on consumer-specific factors, using the factors
                described in Sec. 1026.59(d)(1)(i). If the review of factors
                described in Sec. 1026.59(d)(1)(i) indicates that it is appropriate
                to continue to apply a penalty or other increased rate to the
                account as a result of the consumer's payment history or other
                factors specific to the consumer, Sec. 1026.59 permits the card
                issuer to continue to impose the penalty or other increased rate,
                even if the review of the factors described in Sec.
                1026.59(d)(1)(ii) would otherwise require a rate decrease.
                 i. Example. Assume a credit card account was subject to a rate
                of 15% on all transactions as of January 1, 2009. On May 1, 2009,
                the issuer increased the rate on existing balances and new
                transactions to 18%, based upon market conditions or other factors
                not specific to the consumer or the consumer's account.
                Subsequently, on September 1, 2009, based on a payment that was
                received five days after the due date, the issuer increased the
                applicable rate on existing balances and new transactions from 18%
                to a penalty rate of 25%. When conducting the first review required
                under Sec. 1026.59, the card issuer reviews the rate increase from
                15% to 18% using the factors described in Sec. 1026.59(d)(1)(ii)
                (as required by Sec. 1026.59(d)(2)), and separately but
                concurrently reviews the rate increase from 18% to 25% using the
                factors described in paragraph Sec. 1026.59(d)(1)(i). The review of
                the rate increase from 15% to 18% based upon the factors described
                in Sec. 1026.59(d)(1)(ii) indicates that a similarly situated new
                consumer would receive a rate of 17%. The review of the rate
                increase from 18% to 25% based upon the factors described in Sec.
                1026.59(d)(1)(i) indicates that it is appropriate to continue to
                apply the 25% penalty rate based upon the consumer's late payment.
                Section 1026.59 permits the rate on the account to remain at 25%.
                * * * * *
                [[Page 36994]]
                59(f) Termination of Obligation To Review Factors
                 1. Revocation of temporary rates. i. In general. If an annual
                percentage rate is increased due to revocation of a temporary rate,
                Sec. 1026.59(a) requires that the card issuer periodically review
                the increased rate. In contrast, if the rate increase results from
                the expiration of a temporary rate previously disclosed in
                accordance with Sec. 1026.9(c)(2)(v)(B), the review requirements in
                Sec. 1026.59(a) do not apply. If a temporary rate is revoked such
                that the requirements of Sec. 1026.59(a) apply, Sec. 1026.59(f)
                permits an issuer to terminate the review of the rate increase if
                and when the applicable rate is the same as the rate that would have
                applied if the increase had not occurred.
                 ii. Examples. Assume that on January 1, 2011, a consumer opens a
                new credit card account under an open-end (not home-secured)
                consumer credit plan. The annual percentage rate applicable to
                purchases is 15%. The card issuer offers the consumer a 10% rate on
                purchases made between February 1, 2012 and August 1, 2013 and
                discloses pursuant to Sec. 1026.9(c)(2)(v)(B) that on August 1,
                2013 the rate on purchases will revert to the original 15% rate. The
                consumer makes a payment that is five days late in July 2012.
                 A. Upon providing 45 days' advance notice and to the extent
                permitted under Sec. 1026.55, the card issuer increases the rate
                applicable to new purchases to 15%, effective on September 1, 2012.
                The card issuer must review that rate increase under Sec.
                1026.59(a) at least once each six months during the period from
                September 1, 2012 to August 1, 2013, unless and until the card
                issuer reduces the rate to 10%. The card issuer performs reviews of
                the rate increase on January 1, 2013 and July 1, 2013. Based on
                those reviews, the rate applicable to purchases remains at 15%.
                Beginning on August 1, 2013, the card issuer is not required to
                continue periodically reviewing the rate increase, because if the
                temporary rate had expired in accordance with its previously
                disclosed terms, the 15% rate would have applied to purchase
                balances as of August 1, 2013 even if the rate increase had not
                occurred on September 1, 2012.
                 B. Same facts as above except that the review conducted on July
                1, 2013 indicates that a reduction to the original temporary rate of
                10% is appropriate. Section 1026.59(a)(2)(i) requires that the rate
                be reduced no later than 45 days after completion of the review, or
                no later than August 15, 2013. Because the temporary rate would have
                expired prior to the date on which the rate decrease is required to
                take effect, the card issuer may, at its option, reduce the rate to
                10% for any portion of the period from July 1, 2013, to August 1,
                2013, or may continue to impose the 15% rate for that entire period.
                The card issuer is not required to conduct further reviews of the
                15% rate on purchases.
                 C. Same facts as above except that on September 1, 2012 the card
                issuer increases the rate applicable to new purchases to the penalty
                rate on the consumer's account, which is 25%. The card issuer
                conducts reviews of the increased rate in accordance with Sec.
                1026.59 on January 1, 2013 and July 1, 2013. Based on those reviews,
                the rate applicable to purchases remains at 25%. The card issuer's
                obligation to review the rate increase continues to apply after
                August 1, 2013, because the 25% penalty rate exceeds the 15% rate
                that would have applied if the temporary rate expired in accordance
                with its previously disclosed terms. The card issuer's obligation to
                review the rate terminates if and when the annual percentage rate
                applicable to purchases is reduced to the 15% rate.
                 2. Example--relationship to Sec. 1026.59(a). Assume that on
                January 1, 2011, a consumer opens a new credit card account under an
                open-end (not home-secured) consumer credit plan. The annual
                percentage rate applicable to purchases is 15%. Upon providing 45
                days' advance notice and to the extent permitted under Sec.
                1026.55, the card issuer increases the rate applicable to new
                purchases to 18%, effective on September 1, 2012. The card issuer
                conducts reviews of the increased rate in accordance with Sec.
                1026.59 on January 1, 2013 and July 1, 2013, based on the factors
                described in Sec. 1026.59(d)(1)(ii). Based on the January 1, 2013
                review, the rate applicable to purchases remains at 18%. In the
                review conducted on July 1, 2013, the card issuer determines that,
                based on the relevant factors, the rate it would offer on a
                comparable new account would be 14%. Consistent with Sec.
                1026.59(f), Sec. 1026.59(a) requires that the card issuer reduce
                the rate on the existing account to the 15% rate that was in effect
                prior to the September 1, 2012 rate increase.
                 3. Transition from LIBOR. i. General. Effective March 15, 2021,
                in the case where the rate applicable immediately prior to the
                increase was a variable rate with a formula based on a LIBOR index,
                a card issuer may terminate the obligation to review if the card
                issuer reduces the annual percentage rate to a rate determined by a
                replacement formula that is derived from a replacement index value
                on December 31, 2020, plus replacement margin that is equal to the
                annual percentage rate of the LIBOR index value on December 31,
                2020, plus the margin used to calculate the rate immediately prior
                to the increase (previous formula).
                 ii. Examples. A. Assume that on March 15, 2021, the previous
                formula is a LIBOR index plus a margin of 10% equal to a 12% annual
                percentage rate. In this case, the LIBOR index value is 2%. The card
                issuer selects a prime index as the replacement index. The
                replacement formula used to derive the rate at which the card issuer
                may terminate its obligation to review factors must be set at a
                replacement index plus replacement margin that equals 12%. If the
                prime index is 4% on December 31, 2020, the replacement margin must
                be 8% in the replacement formula. The replacement formula for
                purposes of determining when the card issuer can terminate the
                obligation to review factors is the prime index plus 8%.
                 B. Assume that on March 15, 2021, the account was not subject to
                Sec. 1026.59 and the annual percentage rate was a LIBOR index plus
                a margin of 10% equal to 12%. On April 1, 2021, the card issuer
                raises the annual percentage rate to a LIBOR index plus a margin of
                12% equal to 14%. On May 1, 2021, the card issuer transitions the
                account from a LIBOR index in accordance with Sec. 1026.55(b)(7)(i)
                or (b)(7)(ii). The card issuer selects a prime index as the
                replacement index with a value on December 31, 2020, of 4%. The
                replacement formula used to derive the rate at which the card issuer
                may terminate its obligation to review factors must be set at the
                value of a replacement index on December 31, 2020, plus replacement
                margin that equals 12%. In this example, the replacement formula is
                the prime index plus 8%.
                 4. Selecting a replacement index. In selecting a replacement
                index for purposes of Sec. 1026.59(f)(3), the card issuer must meet
                the conditions for selecting a replacement index that are described
                in Sec. 1026.55(b)(7)(ii) and comment 55(b)(7)(ii)-1. For example,
                a card issuer may select a replacement index that is not newly
                established for purposes of Sec. 1026.59(f)(3), so long as the
                replacement index has historical fluctuations that are substantially
                similar to those of the LIBOR index used in the previous formula,
                considering the historical fluctuations up through December 31,
                2020, or up through the date indicated in a Bureau determination
                that the replacement index and the LIBOR index have historical
                fluctuations that are substantially similar, whichever is earlier.
                The Bureau has determined that effective [applicable date] the prime
                rate published in the Wall Street Journal has historical
                fluctuations that are substantially similar to those of the 1-month
                and 3-month U.S. Dollar LIBOR indices. The Bureau also has
                determined that effective [applicable date] the spread-adjusted
                indices based on SOFR recommended by the Alternative Reference Rates
                Committee to replace the 1-month, 3-month, 6-month, and 1-year U.S.
                Dollar LIBOR indices have historical fluctuations that are
                substantially similar to those of the 1-month, 3-month, 6-month, and
                1-year U.S. Dollar LIBOR indices respectively. See comment
                55(b)(7)(ii)-1. Also, for purposes of Sec. 1026.59(f)(3), a card
                issuer may select a replacement index that is newly established as
                described in Sec. 1026.55(b)(7)(ii).
                * * * * *
                59(h) Exceptions
                 1. Transition from LIBOR. The exception to the requirements of
                this section does not apply to rate increases already subject to
                Sec. 1026.59 prior to the transition from the use of a LIBOR index
                as the index in setting a variable rate to the use of a different
                index in setting a variable rate where the change from the use of a
                LIBOR index to a different index occurred in accordance with Sec.
                1026.55(b)(7)(i) or (b)(7)(ii).
                 Dated: June 2, 2020.
                Laura Galban,
                Federal Register Liaison, Bureau of Consumer Financial Protection.
                [FR Doc. 2020-12239 Filed 6-17-20; 8:45 am]
                BILLING CODE 4810-AM-P
                

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