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- If your credit card's variable interest rate was tied to LIBOR, you should have gotten notice from your issuer that your card will transition to a new index.
- There are rules related to the transition from LIBOR that require your card's new interest rate, based on your replacement index, to be substantially similar to the interest rate based on LIBOR.
- In case you are concerned about any terms relating to the transition, you should follow up with your issuer and take recourse to government protections if necessary.
If your credit card’s variable rate was tied to the London Interbank Offered Rate index (LIBOR), you should have gotten notice from your issuer about changes to your card account, as LIBOR is longer available.
If your credit card was tied to the LIBOR index, your card issuer would determine your interest rate by adding a margin to that index. Going forward, your issuer will base your card’s interest rate on a different index than the LIBOR.
This change comes about since the LIBOR index will not be available after June 30. That index has been in the process of being phased out for several years after concerns surfaced that the index was being manipulated by financial institutions and was not reliable. The financial markets have been preparing for this change, and, in general, it should not be a cause for concern.
So, how might the changes impact your credit card account?
LIBOR transition rules
You may wonder whether your issuer is choosing an index that might result in a higher interest rate to you. And what if the bank is adding a margin that’s higher than it was previously?
To address such concerns, the Consumer Financial Protection Bureau (CFPB) has come out with a LIBOR transition regulation concerning how various consumer lenders, including credit card lenders, should deal with the transition to a new index.
For one, the new index and the margin added to it to determine your interest rate should result in an interest rate that is “substantially similar” to the rate you would have paid using the LIBOR index. To make sure this is the case, the transition rule also says that the chosen index should have fluctuated in tandem with the LIBOR index in the past. That means when the LIBOR went up or down in the past, the replacement index should have also gone up or down.
Also, if your new interest rate goes up as a result of the index replacement (this could happen since the replacement index and the margin added to it may not result in the exact rate as your LIBOR-based rate), the card issuer doesn’t need to reevaluate your new rate. Typically, under the Truth in Lending Act, if your issuer sends you a notice about changes to your account and your interest rate goes up, it would have to reevaluate this increase periodically and reduce it when the revaluation warrants the decrease.
For credit card accounts, issuers are typically turning to the prime rate as their replacement index (most variable card accounts that were not LIBOR-based are tied to the prime rate). The prime rate has been recognized by the CFPB as a suitable replacement index that will provide an interest rate similar to one that was based on LIBOR.
What to do if you have LIBOR transition issues
According to a banking industry trade group, the transition for the small portion of the credit card market that was indexed to LIBOR has been going smoothly. The transition has been occurring over the last year, which means it has been completed before the June 30 transition deadline for a lot of card accounts.
If your issuer has notified you that your card account will be impacted by the LIBOR transition, you should keep an eye on your monthly statement for any big changes to your interest rate when your next rate adjustment is scheduled to happen.
Andrew Pizor, a senior attorney for the National Consumer Law Center, a consumer advocacy organization, advises, “Some change in the interest rate is normal (because of the new index). But consumers should be alert for big changes. I can’t say what qualifies as “too big” because it will depend on the card, the consumer’s credit, and other things. But if the consumer is concerned, they should call the customer service number for their card.”
In case your issuer is not able to resolve the matter, you can follow up by submitting a complaint with the CFPB or looking into Fair Credit Billing Act protections. If you are not on board with the new terms, you also have the option to close your credit card account when your issuer notifies you of the changes.
The bottom line
The LIBOR index, to which some credit card accounts’ variable interest rates were tied, has been discontinued as of the end of June 2023. If your account’s interest rate was tied to LIBOR, you should have gotten notice from your card issuer that your interest will be tied to a different index (typically the prime rate) going forward. There are specific rules about how your issuer can choose a new index and the margin added to it. The change shouldn’t result in an interest rate that is materially different from the interest rate you would have paid using the LIBOR index.
In case you have any concerns about your new interest rate or other transition-related matters, you should follow up with your issuer. In case the matter is not resolved to your satisfaction, you can also file a complaint with the CFPB or look into Fair Credit Billing Act protections.