Hoping to make it easier for financial institutions to comply with new consumer protections for international funds transfers, the Consumer Financial Protection Bureau (CFPB) on Friday (Aug. 22) released final revisions to the remittance rule it approved in April. The revised rule provides banks and credit unions additional time to meet certain disclosure requirements.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains an exception that explicitly allows such federally insured financial institutions to estimate third-party fees and exchange rates when providing remittance transfers to their accountholders for which they cannot determine exact amounts. The institutions can only use the exception when they cannot determine the exact amounts for reasons beyond their control.
The exception was set to expire on July 21, 2015. The CFPB’s final rule extends the temporary exception by five years, to July 21, 2020. The bureau also released a guide on how small entities can comply with the new rule.
"It is critical that consumers can send money abroad safely,” bureau Director Richard Cordray said in the announcement of the final rule. “Today’s final rule will help ensure these changes are implemented smoothly and that consumers will be well-protected during that process."
Current market conditions would make it impossible for the institutions to know the exact fees and exchange rates associated with a minority of their remittance transfers, according to the bureau, explaining the necessity for the extension. The bureau contends the extension provides the affected institutions additional time to develop reasonable ways to provide consumers with exact fees and exchange rates for all remittance disclosures.
The inability to know the exact fees and exchange rates essentially is specific to institutions sending open-network transfers, such as wire transfers. In an open network, the provider typically does not have control over, or a relationship with, all of the participants in the remittance transfer.
"This lack of control can make it difficult to learn all of the potential fees and, in some cases, the exchange rate,” the bureau said. “By contrast, closed-network providers send cash to recipients through agents, so they are typically able to control or know the transfer terms in advance. This allows them to disclose exact amounts to their customers. Closed-network providers are mostly nonbanks.
Each year, consumers transfer tens of billions of dollars from the U.S. to foreign countries. The CFPB’s remittance rule creates a comprehensive consumer protection regime for such transfers. Under the rule, remittance transfer providers are required to disclose certain third-party fees, as well as any exchange rate that may apply. The rule also provides consumers with error-resolution and cancellation rights.
Before Dodd-Frank Act, existing federal consumer-protection regulations did not generally cover international funds transfers. The final rule implementing the legislation, which took effect in October 2013, expanded the scope of the Electronic Fund Transfer Act to provide protections for remittance transfer senders.