The CFPB has issued a proposal to extend for five years the temporary exception in its remittance transfer rule that allows insured depository institutions to estimate fees and exchange rates in certain circumstances. The proposal also includes “several clarificatory amendments and technical corrections” to the rule and commentary.
The CFPB’s remittance transfer rule implements Section 1073 of Dodd-Frank, which amended the Electronic Fund Transfer Act to establish new requirements for remittance transfer providers. Section 1073 includes a provision that temporarily excepts insured depository institutions from the general requirement for a provider to disclose the actual exchange rate and actual remitted amount prior to and at the time of payment. Until July 21, 2015, such institutions are allowed to estimate the exchange rate, the total amounts to be transferred and received, and covered third-party fees when providing remittance transfers to their accountholders for which they cannot determine exact amounts for reasons beyond their control. The exception is implemented through Section 1005.32(a) of the remittance rule.
Dodd-Frank allows the CFPB to extend the temporary exception until ten years after Dodd-Frank’s enactment (i.e., July 21, 2020) if it finds that the exception’s sunset would negatively affect the ability of insured institutions to send remittances to locations in foreign countries. In explaining its decision to propose a five-year extension of the exception until July 21, 2020, the CFPB indicates that an extension is needed to give such institutions additional time to develop reasonable ways to provide consumers with exact fees and exchange rates for all remittance transfers. According to the CFPB, some insured institutions reported that current market conditions would make it impossible to know the exact fees and exchange rates associated with certain of their remittance transfers and that, without the exception, they would be unable to continue sending some transfers to certain parts of the world that they currently serve. Accordingly, the CFPB states that it has “preliminarily determined” that such institutions’ ability to send remittance transfers would be negatively impacted without an extension.
In the proposal, the CFPB seeks comment on whether (and if so, how) it should clarify the treatment of U.S military installations abroad for purposes of the rule. Specifically, the CFPB seeks comment on whether or not it is appropriate or advisable to treat locations on such installations as being located within a State or a foreign country.
The rule applies when a sender located in a “State” sends funds to a designated recipient at a location in a “foreign country.” Whether money is received in a foreign country depends on whether the funds are received at a location physically outside of any State and, in the case of transfers to or from an account, the rule looks to the location of the account rather than the account owner’s physical location at the time of transfer.
The CFPB notes that because the rule currently does not expressly address fund transfers to and from U.S. military installations, there is the potential for confusion about how these concepts in the rule apply to such transfers. For example, the CFPB observes that there could be confusion as to whether the rule applies when a consumer in the United States sends a cash transfer to be picked up by a recipient at a financial institution on a foreign military base, with the result depending on whether the institution is deemed to be located in a “foreign country” or a “State.” Similarly, depending on whether a foreign military installation is deemed to be in a “State,” there could be confusion as to whether the rule applies to a cash transfer from a consumer on the installation to a recipient in a surrounding country.
Proposed revisions to the remittance rule include the following:
- The rule’s commentary would be revised to provide that when transfers are made from an account, the primary purpose for which the account was established determines whether a transfer from the account is covered by the rule. The rule applies only when a transfer is requested by a consumer primarily for personal, family or household purposes.
- The rule’s commentary would be revised to provide that disclosures made by fax are treated as a writing for purposes of the rule’s general requirement for disclosures to be provided in writing. For purposes of the rule’s provision that allows pre-payment disclosures to be made orally when a “transaction is conducted orally and entirely by telephone” and certain other requirements are met, the commentary would be revised to also allow oral disclosures for transfers that senders first initiate by fax, mail or e-mail. The revision would allow a provider to treat a written or electronic communication as an inquiry rather than a request when the provider believes that treating the communication as a request would be impractical. The provider could then call the customer by telephone and consider the transaction as conducted orally and entirely by telephone.
- The rule’s error resolution procedures would be revised with regard to what qualifies as an error. Under the rule, an error includes a failure to make funds available to a designated recipient by the availability date stated in the disclosure provided to the sender unless the failure occurs for certain listed reasons. Such reasons include a delay related to a provider’s fraud screening procedures or the Bank Secrecy Act (BSA), OFAC requirements or similar laws or requirements. The rule would be revised to state that only delays related to an individualized investigation or other special action by the provider or a third-party as required by the provider’s or other entity’s fraud screening procedures in accordance with the BSA, OFAC requirements or similar laws or requirements would be covered. The change would be further clarified by commentary revisions.
- Other error resolution-related proposed revisions to the rule and commentary would clarify that a provider (1) must refund its own fee when funds were not made available by the disclosed availability date because the sender provided incorrect or insufficient information, and (2) is not required to refund the amount delivered to the designated recipient or apply funds to a new transfer if the transfer is delivered late but before the remedy is determined (and would only be required to refund appropriate fees and taxes paid by the sender).
Comments on the proposal will be due on or before 30 days after its publication in the Federal Register. The CFPB proposes that the revisions take effect thirty days after a final rule is published in the Federal Register and also seeks comments on whether a later effective date would be more appropriate.
In January 2014, the CFPB issued a proposed rule that would allow it to supervise nonbank international money transfer providers that qualify as “larger participants” in the international money transfer market. The comment period on the proposal ended on April 1.