Friday, September 5, 2014
In the area of international remittances (money transfers), the Consumer Financial Protection Bureau issued final revisions to its controversial rules that govern the business practices of remittance transfer providers (RTPs). But in issuing the final rules, the CFPB granted a kind of reprieve to RTPs, such as banks and credit unions, by pushing back the compliance deadline for certain types of transactions to July 2020.
The remittance rules, which went into effect in October 2013, require RTPs to disclose exchange rates, fees and taxes to consumers before consumers initiate international money transfers at the POS. The rules also allow consumers a 30-minute window after transactions are made to cancel them and be reimbursed for transaction costs. RTPs must also provide disclosure and program information in the languages of the consumer groups that the remittance services are marketed to.
But in April 2014, the CFPB responded to RTP concerns that remittance fees are not necessarily known at the time transactions are made; for example, foreign entities to which remittances are sent can impose fees on consumers that RTPs can't control. Therefore, the CFPB initially granted a temporary rule exemption that expired July 21, 2015, for those transactions. Now, in the CFPB's revised rules, the deadline stands at July 21, 2020, for when RTPs must be able to ascertain the fees for problematic remittances.
"If the temporary exception expired in July 2015, current market conditions would make it impossible for insured institutions to know the exact fees and exchange rates associated with a minority of their remittance transfers," the CFPB said. "Without the exemption, these insured institutions reported that they would have been unable to send some transfers to certain parts of the world that they currently serve. The Bureau believes that this exception is limited and is not used for most remittances by insured institutions."
The CFPB added that the July 21, 2020, deadline is final and cannot be extended. The agency believes the extension to 2020 will provide RTPs enough time to "develop reasonable ways to provide consumers with exact fees and exchange rates for all remittance disclosures."
One aspect of the rule that has not been revised is the 100 remittances-per-year threshold imposed by the CFPB. RTPs that provide fewer than 100 international money transfers per year will not have to comply with the rules. RTPs and the associations representing them argued that the threshold is too low, with 1,000 and 6,000 being floated as more reasonable cut-off points.
The National Association of Federal Credit Unions welcomed the CFPB's extension, but decried the overarching direction of the rules. NAFCU Director of Regulatory Affairs Michael Coleman said NAFCU and its members "remain concerned about the overall rule and the incredible burden it places on any credit union facilitating more than 100 remittances yearly for its members. As it stands, this rule is pushing credit unions out of the market."
In a July 30, 2012, letter addressed to Congress, several FI associations, including the American Bankers Association and the Credit Union National Association, said the international remittance rules "impose arbitrary and unworkable requirements on consumer-initiated international transfers of all sizes and purposes that will drastically curtail the availability of international transfers to consumers."
At the time, CUNA advised the CFPB that the threshold should be 1,000 transactions per year. Pat Keefe, Vice President, Communications & Media Outreach at CUNA, said most of CUNA's members would fall under that 1,000 threshold and would therefore not be subject to the rules, and some CUNA members that didn't fall under that threshold might eliminate their international remittance services due to the costs of complying with the rules.
International remittances offered through banks and credit unions are processed primarily over the "open" automated clearing house (ACH) network. The associations' letter stated, "While these [open] networks enable consumers to send funds account-to-account to almost anywhere in the world, they do not enable a financial institution in the U.S. to access the exact exchange rate, third-party fees and foreign taxes required by the final rule."
In contrast, "closed" network-operating RTPs, such as The Western Union Co. and Moneygram Inc., are seen as having an easier time complying with the CFPB's rules because they oversee the operations of their overseas agents that handle remittances on the receiving end.
In accordance with the Dodd-Frank Act of 2010, a new section was added to the Electronic Fund Transfer Act (EFTA) that requires the CFPB, an agency created by Dodd-Frank, to regulate RTPs. The CFPB's international remittance rules were added to Regulation E of the EFTA requiring disclosure requirements of RTPs, as well as make RTPs liable for money transfer errors, even if customers provide inaccurate account numbers or routing information.
In connection with its August 2014 rule revisions, the CFPB published version 3.0 of its small entity compliance guide. The guide said the rules cover cash-to-cash, cash-to-account, international wire and international ACH transfers, as well as certain prepaid card transactions. Mailed checks would not be subject to the rules because they are not transactions conducted electronically, the guidance said.
Additionally, the rules cover the transfers initiated by individual senders for "personal, family, or household purposes," and not remittances made by businesses. The CFPB also treats U.S. military bases in foreign lands as "states" so that transfers made by senders in the United States to military personnel stationed overseas do not fall under the rules. However, transfers made from military bases to foreign countries are considered international remittance transfers and are covered by the rules.
NAFCU said its members were "happy to see the Bureau explicitly specify that U.S. military installations located abroad are states for the purposes of the remittance rule.”
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