The LIBOR rate (London Interbank Offered Rate) is a reference rate used in the international financial market and in Costa Rica, to set interest rates on a variety of financial products, such as loans and financial operations, including mortgages, personal loans and loans commercial. However, it is important to note that due to the planned discontinuation of the Libor Rate in June 2023, many financial institutions are encouraging their clients to change their operations to an alternative reference rate before it is discontinued.
“Although some financial entities may recommend or encourage clients to change their operations to other reference rates, they cannot force them to do so. Clients have the right to choose the reference rate they wish to use for their financial operations. The change in the reference rate will apply to credits in dollars and banking institutions must communicate with customers to inform them of the new conditions, but the debtor is the one who authorizes the change, because otherwise the entities would have to seek a contractual resolution in the courts”, said Stephanie Portuguez, legal adviser for the Debtor Support Ombudsman (DEFADE).
It is important to mention that there is an ongoing transition from the use of LIBOR to other reference rates due to uncertainty about its continuity in the future. However, it is important to note that the Libor Rate is gradually being displaced by other reference rates, such as the SOFR index in the United States. Clients should be aware of these changes and work with their financial institutions to ensure that their trades are based on appropriate reference rates.
“Financial entities cannot force clients to change operations with the Libor Rate to others. Debtors could stop paying their credits and allege an “Exception of breached contract”; since, the entity is not complying in applying the rate that they agreed and authorizes not to comply with the payment. As indicated by the Civil Code in article 692 and indicates: in bilateral contracts the resolutive condition for lack of compliance is always implicit. In this case, the party that has complied can demand compliance with the agreement or request that it be resolved with damages and losses”, Portuguez stated.
In short, financial institutions cannot force their clients to change operations with the Libor Rate, but they can propose the change to other reference rates. Clients have the right to decide whether to accept or reject the proposal and must be adequately informed about the implications of any change in the conditions of their financial operations.
