Financial Institutions and Others Beware: New Rules Governing the Electronic Transfer of Money by Consumers to Foreign Countries

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[author: Richard Q. Lafferty]

Does your institution offer services to consumers that involve the electronic transfer of funds to parties (either consumers or businesses) who are located, or whose accounts are located, in foreign countries? If so, you may be subject to burdensome new disclosure requirements and other rules governing these “remittance transfers” which go into effect February 7, 2013. The rules implement certain provisions of the Dodd-Frank Act and are part of the Consumer Financial Protection Bureau’s (CFPB’s) Regulation E. Despite pleas from the financial industry and even members of Congress that the new rules are unworkable, require further study, will result in enormous compliance burdens and costs, and will lead to fewer entities offering such services and higher fees to consumers, the CFPB has indicated it has no plans to delay the effective date and that compliance is expected from Day One.

Entities subject to the new rules include banks, credit unions, broker-dealers, money transmitters and others. Generally, any entity that handles more than 100 covered transactions per year is a “remittance transfer provider” and is subject to the rules. Covered transactions include transfers of funds out of a consumer’s account with the institution as well as transfers initiated by cash or other forms of payment “over the counter.” Multiple methods of transmitting funds are also covered, including wire transfers, some international ACH transactions, most online bill payments to foreign payees (if permitted by your institution), and certain prepaid cards. Entities contemplating whether to stay in or exit the remittance transfer business should be asking themselves whether they are providing some of these services because valued customers need them and might take their business elsewhere if the provider exits the business, or whether these are services the provider can cease offering with limited impact.

Among the types of transactions not covered by the new rules are: (1) the use of a debit, credit or prepaid card to purchase goods or services directly from a foreign merchant; (2) a consumer’s providing U.S. account information to a foreign merchant who then initiates an ACH debit against the account; (3) transfers initiated by businesses or other organizations or by individuals for other than personal, family or household purposes; (4) most transfers made by paper check or other non-electronic form; (5) transfers of $15 or less; (6) domestic transfers within the U.S.; (7) transfers made from foreign countries to the U.S.; and (8) most transfers related to securities or commodities sales.

Detailed disclosure requirements apply at the time a consumer requests a remittance transfer, and again when payment is actually made. The most problematic of these disclosures are the currency exchange rate (when that rate is set by others outside of the provider’s control) and fees and taxes which may be imposed by others such as intermediaries, receiving institutions or foreign governments. Institutions should contact their providers who are involved in international fund transfers, such as correspondents, payment networks, FX providers and technology vendors, and discuss with them how all of the information required to be disclosed can be obtained after February 7. The new rules do include provisions for estimating certain amounts, but only in specified circumstances.

The rules also generally give consumers the right to cancel a transfer within 30 minutes after paying for it and receive a full refund, as long as the funds have not yet been deposited into the receiving account or picked up by the recipient. Finally, institutions familiar with the longstanding Regulation E provisions governing the resolution of errors in connection with other types of electronic fund transfers will find in the new rules similar (though somewhat different) requirements for addressing alleged remittance transfer errors..aspx