By Crystal Sides
We live in an increasingly connected world, whether for business or because our personal lives transcend national boundaries. Accordingly, the ability to offer international wire transfers is important to many community banks. But new changes contemplated by the Consumer Financial Protection Bureau (CFPB) have many bankers concerned that this important product may become too difficult to offer.
As the leading provider of services to banks throughout the Northeast, Bankers’ Bank Northeast (BBN) has been working diligently on this issue, both with the banking community and with the CFPB. Because bankers are seeking guidance on the proposed changes to the Electronic Fund Transfer Act (Regulation E), BBN has created a brief update and summary regarding this regulation.
Although some details of the proposal may seem onerous, this rule is still somewhat in flux. It is important for banks to realize that, with patience and training they will be able to continue processing international remittances, so they can continue to retain valuable fee income and customer relationships as well as remain in compliance.
As a correspondent and core provider of international transactions, BBN has been actively following this new regulation. In July, 2011 we submitted a comment letter opposing the proposed changes to Regulation E. Furthermore, in response to our original comment letter, the CFPB reached out to Bankers’ Bank Northeast to obtain additional information. They recognized that as an aggregator of community institution international activity, we would be able to provide them with statistical data regarding foreign exchange activity in order to assist them with their final ruling. We hope, for example, that the transactional volume data we provided to the CFPB will help further amend the threshold of 25 remittances over a 12-month period. In addition, industry data support groups have both individually, and jointly, submitted comments regarding the proposed rule. Meanwhile, here is a quick primer on the regulation.
Summary Guide to Reg E Remittance Changes
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has issued a final rule amending Regulation E, effective Feb. 7, 2013. This new rule requires specific transaction disclosures, error resolution dispute rights and transaction cancellation rights for consumers who send money electronically to foreign countries, otherwise known as remittance transfers.
Institutions that are Covered
The Final Rule defines remittance transfer provider (RTP), to mean any person that provides remittance transfers for a consumer in the normal course of its business, regardless of whether the consumer holds an account with such person. The term “any person” includes banks and credit unions, as well as money transmitters.
transactions that are covered
A remittance transfer includes all electronic transfers of funds (such as wires and ACH) initiated by a consumer for personal, family, or household purposes to a designated recipient (which can be a person or a business) in a foreign country. Excluded from these transactions are small value transactions and securities and commodities transfers.
The rule requires that an RTP provide a prepayment disclosure prior to payment and a receipt disclosure at the time of payment to the sender. The two disclosures can be combined into one disclosure prior to payment, but a separate proof of payment must also be provided to the sender. Disclosures must be clear and conspicuous and in written retainable form. Disclosures must be accurate, unless an estimate is permitted. In some instances, disclosures must be provided in a foreign language.
The prepayment disclosure contents include:
The amount (in the currency in which the remittance transfer is funded) that will be transferred to the designated recipient using the term “transfer amount” or a substantially similar term.
Any fees or taxes that are imposed by the remittance transfer provider using the term “transfer fees and taxes,” or a substantially similar term.
The total amount of the transaction, which is a sum of the transfer amount and any fees or taxes, using the term “total,” or a substantially similar term.
The exchange rate used, using the term “exchange rate,” or a substantially similar term.
The transfer amount in the currency in which the funds will be received by the designated recipient to demonstrate to the sender how third party fees or taxes are imposed.
Any third party fees and taxes imposed on the remittance transfer by persons other than the remittance transfer provider, in the currency to be received by the designated recipient.
Amount to be received by the designated recipient, in the currency in which the funds will be received.
The receipt disclosure must be provided to the sender once payment is made, and must include the same information on the prepayment disclosure, as well as the following information:
The date in the foreign country when funds will be available. Estimates are not permitted nor expressing the date as a range. May disclose a conservative date and state that funds “may be available sooner.”
The recipient’s contact information (name, and, if provided, telephone number and address).
Statement of sender’s error resolution and cancellation rights.
The name, telephone number(s) and website of the remittance transfer provider.
A statement that the sender can contact regulatory agencies and CFPB for questions or complaints.
The contact information for the remittance transfer provider regulatory agencies (including state regulator) and the CFPB.
A combined disclosure can be used, providing both the prepayment and receipt disclosure information, as long as it is disclosed prior to receiving payment for the transfer, and a proof of payment must be provided.
RTPs are allowed to provide estimates until July 21, 2015, in lieu of exact disclosures for exchange rates, taxes and fees, as well as, the amount transferred in foreign currency, if the provider cannot determine exact amounts for reasons beyond its control. If, however, the RTP cannot determine the exact amounts at the time the disclosure is required due to laws or other circumstances within a recipient country, the use of estimates is allowed on a permanent exception basis. (Note: A list of countries that fall into the permanent exception basis will be published by the CFPB.)
If an RTP receives an oral or written dispute from a sender within 180 days of the disclosed date of funds availability, the RTP must conduct an investigation. An RTP has 90 days to investigate and determine if an error has occurred, and the resolution must be provided within three business days of the RTP concluding its investigation. The types of errors are:
An incorrect amount paid by the sender.
Computational or bookkeeping error made by the RTP relating to the transfer.
Incorrect amount received by the designated recipient.
Failure to make funds available to a designated recipient on the disclosed availability date.
Sender’s request for documentation or additional information or clarification concerning the transfer.
If it is determined that an error has occurred, the RTP must remedy the error within one business day of receiving the sender’s choice of remedy. The remedies available to the sender are:
If the error was an incorrect amount received, either:
refund the sender the amount appropriate to resolve the error, or
send the amount appropriate to resolve the error to the recipient at no additional cost to the sender.
If the error was based on the failure to make funds availability by the date stated on the disclosure, either:
refund to the sender the amount appropriate to resolve the error, or
send the amount appropriate to resolve the error to the recipient at no additional cost to the sender unless the sender provided incorrect or insufficient information. In addition, the RTP must refund any fees and taxes charged, including any third party fees and taxes, assessed on the remittance transfer.
A sender may cancel a remittance transfer up to 30 minutes after the sender makes payment. The RTP must refund within three business days, at no additional cost to the sender, the total amount of funds paid by the sender, including any applicable taxes and fees.
The CFPB has issued a concurrent proposal with this new rule soliciting additional comments. Comments were due by April 9, 2012. The two areas where additional comments were requested are:
Defining further the definition of a RTP or when a provider offers remittances in the normal course of business and must comply with the rules. Under the rule, normal course of business is determined using a test of past historical transactions but does not indicate the number of transactions. CPFB is proposing to adopt a threshold based on 25 annual remittances.
Soliciting additional input on how to refine the requirements for certain recurring transfers scheduled in advance.
Bankers’ Bank Northeast will continue to work with the financial services industry to educate policy makers of the impact of this rule on ACH and wire transfer systems and to seek further clarifications on the proposed rule.