Examining the CFPB's New Revision to the International Money Transfer Rule
October 15, 2014
In April of this year, the Consumer Financial Protection Bureau (CFPB) proposed changes to its rules governing international money transfers. The Bureau structured the revisions to maintain the rule's new safeguards for consumers while also allowing federally insured entities, such as credit unions and banks, extra time to give exact disclosures in some circumstances. The director of the CFPB, Richard Cordray, said of the revisions, "[April's] proposal would allow banks and credit unions to have more time to resolve certain implementation challenges while maintaining these important, new consumer protections."
On August 22, the CFPB finalized its revisions to the remittance rule after allowing 60 days for public comment. The new rule affords consumers the same protections but also extends for five years (until July 21, 2020) its temporary exception for federally insured institutions to approximate fees and exchange rates in some international transfer situations. The CFPB also provides a number corrections and clarifications in the new rule in addition to an updated compliance guide. A history and summary of the new rule follow.
Background on the Remittance Rule
According to the CFPB, American consumers transfer tens of billions of dollars annually to foreign countries. The original rule established protections for consumers transferring money internationally. These protections included a requirement that transfer providers divulge some third-party fees as well as the rate of exchange that will apply to the transaction. The rule also affords consumers with cancellation and mistake resolution protections.
Legislative Basis for the Exception
The exception adopted in the CFPB's remittance rule is contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Before Dodd-Frank, federal consumer protection regulations did not cover international remittance transfers, leaving consumers exposed to tremendous risk in sending money abroad. In addition to adding consumer protections, the Dodd-Frank legislation permits federally insured financial institutions, mostly banks and credit unions, to estimate fees and exchange rates when handling remittances for clients for which they can't calculate precise amounts for reasons outside of their control. The exception in the original rule was slated to expire on July 21, 2015.
The Necessity of the Exception
If the CFPB had not extended the exception for five more years, as permitted by the Dodd-Frank Act, today's market conditions would have prevented federally insured institutions from determining the exact exchange rates and fees for some remittance transfers. Without the rule's exception, many financial institutions would have had to stop sending certain international transfers to some areas of the world that they had previously served.
The CFPB points out that the exemption does not undermine the rule's consumer protections, as it is a narrow exception that does not apply to most remittances provided by insured financial entities. The inability to calculate exact exchange rates and fees is largely endemic to insured entities performing open-network transfers, such as wire transfers. Because of the open network, the financial institution usually does not have control over all the parties to the international transfer. The absence of control over participants can make determining the exchange rate and all the prospective fees difficult.
On the other hand, with closed-network transfers, transfers pass through agents to get to recipients, so providers have a say in the terms of the remittance and know them ahead of time. This enables institutions to provide customers with exact figures. In most cases, closed-network institutions are not banks; rather, like Ria, they specialize in international remittance transfers and other services, such as check cashing and money orders.
New Clarifications and Corrections
The new rule also includes several technical corrections and clarifications regarding error resolution processes, allowable disclosure delivery methods, the handling of non-consumer accounts, and the application of the rule to foreign installations of the U.S. military. The details of these modifications are summarized below.
- Foreign U.S. military installations are to be treated as located in a state in applying the new rule.
- When remittances come from an account, the main purpose of the account's creation is the determining factor in deciding whether the rule applies to a transfer from that account. The rule only applies when a consumer initiates a transfer for mostly personal, household, or family purposes.
- The rule's requirement that disclosures be provided in writing is satisfied by faxed disclosures.
- The error resolution mechanisms were clarified to define what constitutes an error. The new rule defines an error as failing to make a transfer available to the recipient by the availability date stipulated in the agreement provided to the sender unless the failure results from a list of exempting reasons (e.g., a delay caused by fraud prevention procedures).
- The new rule requires transfer providers to return their fee to senders when the recipient does not receive the funds by the specified availability date because the sender gave inaccurate or incomplete information.
The Dodd-Frank Act prohibits the CFPB from extending the exemption beyond its new 2020 expiration date. However, the CFPB is confident that the temporary extension will give insured financial entities sufficient time to come up with feasible methods of providing account holders with exact exchange rate and fee amounts for all transfer disclosures. Since the rule was finalized in August, the CFPB now plans to collaborate with insured providers to develop a sustainable remedy to this issue before the extension expires.
The finalized rule will take effect 60 days after it is published in the Federal Register. In a related matter, the CFPB has yet to finalize a rule proposed in January of this year that would empower it to oversee non-bank international remittance transfer providers that meet the definition of "larger participants" in the international remittance transfer market. If this rule is finalized, further protections may be extended to consumers relying on alternative providers for international transfers.
The finalized revisions to the CFPB's rule on international remittances bring good news to providers and consumers alike. Consumers are still afforded the same valuable protections included in the original rule, and federally insured providers can continue to count on the extension of an important exemption while they figure out a more workable way to comply with disclosure requirements.