Adjustable Interest Rate (LIBOR) Act of 2021

To deem certain references to LIBOR as referring to a replacement benchmark rate upon the occurrence of certain events affecting LIBOR, and for other purposes. 1. Short title This Act may be cited as the Adjustable Interest Rate (LIBOR) Act of 2021 2. Findings and purpose (a) Findings The Congress finds that— (1) LIBOR is used as a benchmark rate in more than $200 trillion of contracts worldwide; (2) a significant number of existing contracts that reference LIBOR do not provide for the use of a clearly defined or practicable replacement benchmark rate when LIBOR is discontinued; and (3) the cessation or non-representativeness of LIBOR could result in disruptive litigation related to existing contracts that do not provide for the use of a clearly defined or practicable replacement benchmark rate. (b) Purpose It is the purpose of this Act— (1) to establish a clear and uniform process, on a nationwide basis, for replacing LIBOR in existing contracts the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate, without affecting the ability of parties to use any appropriate benchmark rate in new contracts; (2) to preclude litigation related to existing contracts the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate; and (3) to allow existing contracts that reference LIBOR but provide for the use of a clearly defined fallback and practicable replacement rate, to operate according to their terms. (c) Rule of construction Nothing in this Act shall be construed to disfavor the use of any benchmark rate on a prospective basis. 3. Definitions As used in this Act, the following terms shall have the following meanings: (1) Benchmark (2) Benchmark Administrator (3) Benchmark Replacement (4) Benchmark Replacement Conforming Changes (A) the Board establishes for the purpose of facilitating the implementation, administration, and calculation of the Board-Selected Benchmark Replacement; or (B) in the reasonable judgment of a Calculating Person, are otherwise necessary or appropriate to permit the implementation, administration, and calculation of the Board-Selected Benchmark Replacement under or in respect of a LIBOR Contract after giving due consideration to any Benchmark Replacement Conforming Changes under subparagraph (A). (5) Board (6) (A) Board-Selected Benchmark Replacement (B) The Board shall adjust the Board-Selected Benchmark Replacement for each category of LIBOR Contract that the Board may identify to— (i) apply to each LIBOR tenor; and (ii) incorporate the relevant Tenor Spread Adjustment. (C) For Consumer Loans, the Board-Selected Benchmark Replacement shall initially reflect the spread between the Board-Selected Benchmark Replacement and LIBOR immediately before the LIBOR Replacement Date and shall incorporate the relevant Tenor Spread Adjustment over a one-year transition period. (7) Calculating Person (8) Consumer Loan consumer credit 15 U.S.C. 1602 (9) Determining Person (10) Fallback Provisions (11) LIBOR (12) LIBOR Contract (13) LIBOR Replacement Date (14) Security 15 U.S.C. 77b(a) (15) SOFR (16) Tenor Spread Adjustment (A) 0.00644 percent for overnight LIBOR; (B) 0.11448 percent for 1-month LIBOR; (C) 0.26161 percent for 3-month LIBOR; (D) 0.42826 percent for 6-month LIBOR; and (E) 0.71513 percent for 12-month LIBOR. 4. LIBOR contracts (a) On the LIBOR Replacement Date, the Board-Selected Benchmark Replacement shall, by operation of law, be the Benchmark Replacement for any LIBOR Contract that, after giving any effect to subsection (b)— (1) contains no Fallback Provisions; or (2) contains Fallback Provisions that identify neither— (A) a specific Benchmark Replacement; nor (B) a Determining Person. (b) On the LIBOR Replacement Date, any references in the Fallback Provisions of a LIBOR Contract to— (1) a Benchmark Replacement that is based in any way on any LIBOR value, except to account for the difference between LIBOR and the Benchmark Replacement, or (2) a requirement that a person (other than a Benchmark Administrator) conduct a poll, survey, or inquiries for quotes or information concerning interbank lending or deposit rates, shall be disregarded as if not included in the Fallback Provisions of such LIBOR Contract and shall be deemed null and void and without any force or effect. (c) Subject to subsection (g)(2), a Determining Person shall have authority under this Act, but shall not be required, to select the Board-Selected Benchmark Replacement as the Benchmark Replacement. (d) Any selection by a Determining Person of the Board-Selected Benchmark Replacement pursuant to subsection (c) shall be— (1) irrevocable; (2) made by the earlier of the LIBOR Replacement Date and the latest date for selecting a Benchmark Replacement according to the terms of such LIBOR Contract; and (3) used in any determinations of the Benchmark under or in respect of such LIBOR Contract occurring on and after the LIBOR Replacement Date. (e) If a Determining Person has authority to select the Board-Selected Benchmark Replacement under subsection (c) but does not select a Benchmark Replacement by the date specified in subsection (d)(2), then, on the LIBOR Replacement Date, the Board-Selected Benchmark Replacement shall, by operation of law, be the Benchmark Replacement for the LIBOR Contract. (f) If the Board-Selected Benchmark Replacement becomes the Benchmark Replacement for a LIBOR Contract pursuant to subsection (a), (c), or (e) then all Benchmark Replacement Conforming Changes shall become an integral part of such LIBOR Contract by operation of law. For the avoidance of doubt, a Calculating Person shall not be required to obtain consent from any other person prior to the adoption of Benchmark Replacement Conforming Changes. (g) The provisions of this Act shall not alter or impair— (1) any written agreement specifying that a LIBOR Contract shall not be subject to this Act; (2) any LIBOR Contract that contains Fallback Provisions that identify a Benchmark Replacement that is not based in any way on any LIBOR value (including, but not limited to, the prime rate or the Effective Federal Funds Rate), except that such LIBOR Contract shall be subject to subsection (b); (3) any LIBOR Contract subject to subsection (c) as to which a Determining Person does not elect to use a Board-Selected Benchmark Replacement pursuant to subsection (c), except to the extent that such LIBOR Contract is subject to subsection (b) or (e); (4) the application to a Board-Selected Benchmark Replacement of any cap, floor, modifier, or spread adjustment to which LIBOR had been subject pursuant to the terms of a LIBOR Contract; or (5) any provisions of Federal consumer financial law that requires creditors to notify borrowers regarding a change-in-terms. (h) Except as provided in section 5(c), the provisions of this Act shall not alter or impair the rights or obligations of any person, or the authorities of any agency, under Federal consumer financial law (as defined in section 1002(14) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( 12 U.S.C. 5481(14) 5. Continuity of contract and safe harbor (a) A Board-Selected Benchmark Replacement and the selection or use of a Board-Selected Benchmark Replacement as a Benchmark Replacement under or in respect of a LIBOR Contract, as well as any Benchmark Replacement Conforming Changes, by operation of section 4 shall constitute— (1) a commercially reasonable replacement for and a commercially substantial equivalent to LIBOR; (2) a reasonable, comparable, or analogous rate, index, or term for LIBOR; (3) a replacement that is based on a methodology or information that is similar or comparable to LIBOR; (4) substantial performance by any person of any right or obligation relating to or based on LIBOR; and (5) a replacement that has historical fluctuations that are substantially similar to those of LIBOR for purposes of the Truth in Lending Act and its implementing regulations. (b) Neither of (1) the selection or use of a Board-Selected Benchmark Replacement as a Benchmark Replacement or (2) the determination, implementation, or performance of Benchmark Replacement Conforming Changes, in each case by operation of section 4, shall (A) be deemed to impair or affect the right of any person to receive a payment, or to affect the amount or timing of such payment, under any LIBOR Contract or (B) have the effect of (i) discharging or excusing performance under any LIBOR Contract for any reason, claim, or defense (including, but not limited to, any force majeure or other provision in any LIBOR Contract), (ii) giving any person the right to unilaterally terminate or suspend performance under any LIBOR Contract, (iii) constituting a breach of any LIBOR Contract, or (iv) voiding or nullifying any LIBOR Contract. (c) No person shall be subject to any claim or cause of action in law or equity or request for equitable relief, or have liability for damages, arising solely out of the selection or use of a Board-Selected Benchmark Replacement or the determination, implementation, or performance of Benchmark Replacement Conforming Changes, in each case by operation of section 4; provided, however, that any person (including a Calculating Person) shall remain subject to any existing legal, regulatory, or contractual obligations to correct servicing or other ministerial errors under or in respect of a LIBOR Contract. (d) The selection or use of a Board-Selected Benchmark Replacement or the determination, implementation, or performance of Benchmark Replacement Conforming Changes, in each case by operation of section 4, shall not be deemed to— (1) be an amendment or modification of any LIBOR Contract; or (2) prejudice, impair, or affect any person’s rights, interests, or obligations under or in respect of any LIBOR Contract. (e) Except as provided in either subsections (a), (b), or (c) of section 4, the provisions of this Act shall not be interpreted as creating any negative inference or negative presumption regarding the validity or enforceability of— (1) any Benchmark Replacement (including any method for calculating, determining, or implementing an adjustment to the Benchmark Replacement to account for any historical differences between LIBOR and the Benchmark Replacement) that is not a Board-Selected Benchmark Replacement; or (2) any changes, alterations, or modifications to or in respect of a LIBOR Contract that are not Benchmark Replacement Conforming Changes. 6. Preemption (a) This Act and the regulations hereunder shall supersede any and all laws, statutes, rules, regulations, or standards of any State, the District of Columbia, or any territory or possession of the United States, insofar as they provide for the selection or use of a Benchmark Replacement or related conforming changes. (b) No provision of State or local law that expressly limits the manner of calculating interest, including the compounding of interest, shall apply to the selection or use of a Board-Selected Benchmark Replacement or Benchmark Replacement Conforming Changes. 7. Trust indenture act of 1939 Section 316 of the Trust Indenture Act of 1939 ( 15 U.S.C. 77ppp (1) by striking and of subsection (a), (2) by inserting , and except that the right of any holder of any indenture security to receive payment of the principal of and interest on such indenture security shall not be deemed to be impaired or affected by any change occurring by the application of section 4 of the Adjustable Interest Rate (LIBOR) Act of 2021 to any indenture security subject to such lien 8. Rulemaking Not later than 180 days after the date of enactment of this Act, the Board shall issue such regulations as may be necessary or appropriate to enable it to administer and carry out the purposes of this Act. 9. Interbank offered rate transition rule of construction None of— (1) the selection or use of a Board-Selected Benchmark Replacement as a Benchmark Replacement, (2) the determination, implementation, or performance of Benchmark Replacement Conforming Changes; or (3) the application to any LIBOR Contract of, or the agreement by parties thereto to terms consistent with, section 4, shall be treated as a transfer, disposition, or conversion of property. December 7, 2021 Reported from the Committee on Financial Services December 7, 2021 Committees on Ways and Means Education and Labor

Summary: Adjustable Interest Rate (LIBOR) Act of 2021 This bill provides for the transition of certain financial contracts away from the London Interbank Offered Rate (LIBOR), a reference interest rate based upon the lending terms certain banks offer to each other for various lengths of time. LIBOR is set to be retired in 2023. Various financial contracts reference LIBOR as a benchmark for prevailing interest rates and use LIBOR in calculating certain payments or obligations. In the event a contract referencing LIBOR does not have a fallback or replacement rate provision in effect when LIBOR is retired, or a replacement rate is not selected by a determining person as defined by the bill, the bill provides for a transition to a replacement rate selected by the Board of Governors of the Federal Reserve System. The bill also provides for conforming changes to these contracts, the continuity and enforceability of these contracts, and protections against liability as a result of such a transition.