The Federal Cost of Funds Index, or the FHLB’s 7th District Quarterly Index, may be the best replacements for the regional index you were using. When the OTS stopped publishing its cost of funds indices (due to its elimination under the Dodd-Frank Act), it issued a notice explaining that it would no longer be publishing any Cost of Funds indices. 76 Fed. Reg. 39474 (July 6, 2011). The notice states that the OTS Director was to designate an acceptable substitute index when it discontinued the publication of its indices. It then designates the Federal Cost of Funds index as the substitute index for the OTS’s MMCOF, QCOF, and SCOF indices. We were also told by the Chicago FHLB that some banks have replaced the 7th District Monthly Cost of Funds index with the 7th District Quarterly Cost of Funds Index.

As to the notice requirements, the OTS simply stated that “[t]he holder of any adjustable rate mortgage instrument . . . shall provide notice as soon as possible after publication of this termination notice to each affected borrower of the termination of such index” and that holders of MMCOF [Monthly Median Cost of Funds] instruments should begin using the Federal Cost of Funds index “beginning after December 31, 2011.” (While you would have to provide notice of a rate change under Regulation Z, you would not be required to provide full disclosures, as if the transaction was a refinancing. 12 CFR 1026.20(c)Comment 3(ii)(B), Official Staff Commentary, 12 CFR 1026.20(a) (“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”).)

You should calculate any restitution to borrowers based on whether the interest rates you charged were out of the required tolerances in Regulation Z. Generally, the disclosure is considered “accurate” if does not differ from the actual annual percentage rate by more than 1/8 of 1 percent. 12 CFR 1026.22(a)(2). The OCC’s APRWIN program should be helpful in calculating reimbursements.