Tester, Tillis, Brown, Toomey Introduce Bipartisan Legislation to Protect Consumers, Provide Certainty for Financial Institutions

Legislation will protect Montanans from uncertainty on mortgages, student loans, and retirement accounts

As a critical but little-known financial tool that determines global interest rates for more than $200 trillion in contracts in the United States and across the world is set to end in June 2023, U.S. Senators Jon Tester (D-Mont.), Thom Tillis (R-N.C.), and Senate Banking Committee Chairman Sherrod Brown (D-Ohio) and Ranking Member Pat Toomey (R-Penn.) today introduced their bipartisan Economic Continuity and Stability Act that would provide certainty for American consumers and businesses.

“Businesses and consumers need certainty to thrive, and if we don’t act quickly to provide that certainty, it’s going to hurt Montanans through rates on their mortgages, student loans, and credit cards and their retirement investments,” said Senator Tester. “We need to address this issue preemptively to make sure Montanans are protected from rising costs and legal expenses. That’s why I’m proud to have introduced this bipartisan legislation, and it’s why we need to get this bill passed in the Senate immediately.”

“The LIBOR rate underpins roughly $200 trillion worth of contracts worldwide. With the phase-out of new LIBOR contracts beginning this year and the overall termination of the rate scheduled for 2023, it is critically important that Congress acts to provide a smooth transition away from LIBOR for financial institutions and consumers alike,” said Senator Tillis. “I am pleased that my work with Senators Tester, Toomey, and Brown on the Economic Continuity and Stability Act will provide an orderly transition away from LIBOR, while still ensuring financial institutions can determine the rate best suited for them in future contracts.”

“As our financial system transitions away from LIBOR, our students, homeowners, and consumers are at risk. It’s crucial we protect Americans with legacy loans from surprises,” said Senator Brown, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “I support my colleagues’ bipartisan bill to address the changes to loans that could harm borrowers or lead to unnecessary and costly litigation. Their work, along with the efforts of the banking regulators, industry, and consumer groups, will help ensure a smooth transition from LIBOR.”

“As LIBOR is phased out, Congress must provide much-needed clarity to banks, borrowers, consumers, and investors regarding the interest rate on certain existing contracts that reference LIBOR,” said Senator Toomey, Ranking Member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs . “Our narrowly-tailored legislation achieves this objective by amending so-called ‘tough legacy contracts’ while ensuring that banks have the flexibility they need to choose interest rates on new contracts. I urge my colleagues to pass this sensible bill.”

The Economic Continuity and Stability Act would provide clear guidance and a consistent federal standard for contracts with interest rates based on the London-Inter-Bank Offered Rate (LIBOR) benchmark, which is set to expire in mid-2023. It would direct the Federal Reserve to determine replacement rates that can be used for contracts lacking fallback language, by providing a safe harbor should the contract not specify a non-LIBOR replacement rate following the end of LIBOR.

A group of 23 financial trade associations endorsed the Senators’ legislation in a letter to Senate Leadership and urged its swift passage:

“We thank Senator Tester, Senator Tillis, Chairman Brown, Ranking Member Toomey and the Senate Banking Committee for providing a bipartisan solution that offers fair, equitable and consistent treatment for all tough legacy contracts in support of the LIBOR transition,” they wrote. “We wholeheartedly support the Economic Continuity and Stability Act and ask that you, and all U.S. Senators, vote in favor of this critical legislation.”

LIBOR is a series of benchmark rates that still underpin $200 trillion in financial contracts globally, including $2 trillion in small business loans, $1.3 trillion in residential mortgage loans, and $100 billion in other consumer loans in the United States alone. LIBOR rates are used as the foundation for many business loans, mortgages, student loans, and credit cards, and for products invested in by pensions and 401k accounts.

In 2017, the United Kingdom’s Financial Conuct Authority (FCA) – which regulates LIBOR – announced that the rates will cease to be available, throwing financial and consumer contracts based on LIBOR rates into jeopardy. For the most commonly used U.S. dollar (USD) LIBOR rate this will occur in in mid-2023. Financial regulators have signaled that continued reliance on LIBOR could present systemic risk to the global economy. The Economic Continuity and Stability Act will provide continued certainty for these legacy contracts and continuity for regulators so that consumers will be protected.

Full text of the Economic Continuity and Stability Act can be found HERE.