On December 31, 2012, the Consumer Financial Protection Bureau (“Bureau”) published in the Federal Register revisions (“Proposal”) to rules on international remittance transfers that the agency published in February 2012 and amended and expanded in August 2012 (“2012 Rules”). (Previous paymentlawadvisor articles on the 2012 Rules can be found here and here.) Certain provisions of the 2012 Rules provoked significant concerns from financial institutions tasked with implementing them, and the Proposal is intended to address those concerns. In addition to the revisions described below, the Proposal would delay the effective date of the 2012 Rules from February 7, 2013 to the date that is ninety days after the revisions in the Proposal are finalized.
The Proposal invites comments. Comments on the substantive provisions of the Proposal are due January 30. Comments on the delayed effective date are due January 15.
The Proposal would amend the 2012 Rules as follows:
Disclosure of taxes and third-party fees. Under the 2012 Rules, a provider is obligated to disclose to the sender – both before the transfer and as confirmation afterward – certain information regarding the remittance transfer, including any foreign taxes on the transfer amount, any fees assessed by the financial institution receiving the transfer, and the total amount to be received by the designated recipient (taking into account any such taxes and fees).
Providers expressed concern about this provision. Establishing the amounts of such taxes and fees could require information from the sender that the sender may not have (e.g., fees could depend on variables unknown to the sender and provider at the time of the transfer).
The Proposal would amend the 2012 Rules to give providers “additional flexibility” with respect to required disclosures. If a provider does not have specific knowledge regarding variables that affect the amount of foreign taxes imposed on the transfer, the provider would be permitted to rely on a sender’s representations regarding these variables. The Proposal would separately permit providers to estimate such taxes by disclosing the highest possible foreign tax that could be imposed with respect to any unknown variable. Additionally, if a provider does not have specific knowledge regarding variables that affect the amount of fees imposed by a recipient’s institution, the provider would be permitted to rely on a sender’s representations regarding those variables. The Proposal would also permit the provider to estimate such fees by disclosing the highest possible recipient institution fees that could be imposed on the transfer, as determined based on either fee schedules made available by the recipient institution or information ascertained from prior transfers to the same recipient institution. If the provider cannot obtain such fee schedules or information from prior transfers, it would be permitted to rely on other reasonable sources of information.
Disclosure of regional and local taxes assessed in foreign countries. With respect to the pre- and post-transfer tax disclosures described in the bullet above, the Proposal would also amend the 2012 Rules so that the obligation to disclose foreign taxes imposed on remittance transfers would be limited to taxes imposed at the national level – i.e., by the country’s “central government” – and would not encompass taxes that could be imposed by foreign, sub-national jurisdictions.
Sender provides an incorrect account number to a remittance transfer provider. Under the 2012 Rules, in the event that the sender of a remittance transfer provides an incorrect account number to the remittance transfer provider, and, as a result, the transferred funds are deposited into the wrong account, the provider must either refund the funds provided by the sender or resend the transfer at no cost to the sender. If the transfer is resent, the provider must again provide required disclosures.
Providers expressed concern about this provision. In some cases, funds deposited in the wrong account as a result of sender error cannot be recovered despite reasonable efforts by the provider. This would force providers to bear the cost of the sender’s error. Additionally, providers expressed concerns about the risks of fraud by senders – e.g., a sender could provide information with respect to an account to which the sender has access and then claim that the funds were deposited in the wrong account, obligating the provider to send a second remittance to another account accessible by the sender.
The Proposal would amend the 2012 Rules so that, where the provider can demonstrate that the sender provided the incorrect account number and that the sender had notice that the sender could lose the transfer amount, the provider would be required to attempt to recover the sent funds but would not be liable for the funds if those efforts are unsuccessful. Additionally, when a sender provides incorrect or insufficient information other than an incorrect account number, and the provider resends the remittance transfer, the provider would be permitted to provide, oral, streamlined disclosures.
The proposed changes, including delay of the effective date, would make the 2012 rules more favorable to financial institutions. However, certain aspects of the Proposal are problematic. For example, with respect to disclosure of national taxes, there is some ambiguity as to what constitutes the “central government” of a country. The Bureau could also better explain what it means for a variable to be “unknown” – i.e., if a variable is truly “unknown,” disclosing information with respect to that variable may be impossible. Additionally, while the error resolution proposal is welcome, it arguably does not go far enough – e.g., an error could result from an incorrect routing number instead of an incorrect account number. We encourage financial institutions to comment on the proposed changes and to take this opportunity to comment on any other aspects of the 2012 Rules that are problematic (even though it is unlikely that the Bureau will revise the rules again). Please refer to paymentlawadvisor for any further updates.