Money transfers sent abroad from inside the U.S., known as remittances, total in the tens of billions of dollars each year, according to the Consumer Financial Protection Bureau ("CFPB"). Beginning in January 2013, the CFPB, as directed by Section 1073 of the Dodd-Frank Act, will implement new rules aimed at protecting remittance senders by enhancing disclosure requirements for remittance transfer providers and establishing a procedural regime for error resolution when mistakes are alleged by the remittance sender. The regulations will also enhance liability exposure of remittance transfer providers for the acts of their agents (e.g., sending agents and/or paying agents).
It is important for remittance transfer providers to be aware of the new rules and their potential impacts as they will go into effect early next year.
Summary of the New Regulations
Section 1073 of the Dodd-Frank Act amends the Electronic Fund Transfer Act (the "Act") by adding a new section 919 and redesignating Sections 919-922. Remittance transfer providers are defined as persons or financial institutions that provide remittance transfers for consumers in the normal course of business. Under Section 919 of the Act and the new rules prescribed by CFPB, remittance transfer providers must generally provide the sender with a pre-payment notice disclosing the applicable exchange rate to be used, any fees related to the remittance and the amount of money that will be received abroad. A written receipt is then generally required when payment occurs, which should disclose the information above and, additionally, the recipient's contact information, the promised date of delivery of funds and information about the error resolution procedure and the sender's cancellation rights. Cancellation rights will generally allow the consumer up to 30 minutes after making payment to cancel the transaction.
The rules allow the service provider to furnish a single written notice prior to payment that includes all the information on the receipt as long as the remittance provider also provides proof of payment, such as a stamp, on the initial notice. Additionally, the new rules include a language requirement whereby disclosures must be made both in English and in the principal non-English language used by the remittance transfer provider in its marketing and other materials at the office providing the service.
Error Resolution Regime
Under the Dodd-Frank error resolution regime, the remittance sender has 180 days from the date of promised delivery (as set forth on the receipt) to provide notice of an error to the remittance transfer provider. Within 90 days of receipt of such notice, the transfer provider must either respond with specificity to the customer's complaint stating that there was no error or remedy the error by either refunding the sender, providing correct funding to the intended recipient (at no additional cost to any party), or by providing another form of appropriate remedy as the CFPB may prescribe.
Exceptions to New Requirements
The two general exceptions to the new requirements are that (i) until July 2015, remittance transfer providers that are insured institutions (as such term is explained in the rules) have the lesser standard of providing an estimate of the amount to be received abroad when, for reasons beyond its control, it is unable to know the exact amount, and (ii) all remittance transfer providers have the lesser standard of providing an estimate of the amount to be received abroad if the recipient country's (a) laws or (b) method by which transactions are made render the service provider unable to know the exact amount. A list of the countries included in the second exception will be published and periodically updated by the CFPB.
Transfer Providers Liable for Acts of Agents
Furthermore, remittance transfer providers will be held liable for the acts and errors of their designated agents. Such liability exposure may require remittance transfer providers to refine their policies and procedures for monitoring agent compliance. Transfer providers may also wish to revise or enter into new contracts with agents with the goal of reallocating new risk exposure, such as negotiating specific agent conduct and indemnification provisions.
It is important for remittance transfer providers to review and, where needed, improve their general procedures that will be affected by the new rules, including the capacity to ensure timely disclosures of the applicable exchange rate and amount to be received by the remittance recipient and the capacity to respond efficiently to the new error resolution and transaction cancellation procedures.
The rules, of course, are complex and this alert is intended as a general overview.
Serge V. Pavluk is a partner in the Corporate and Securities Group at Bilzin Sumberg. Mr. Pavluk focuses his practice in the areas of corporate and securities transactions representing both public and private companies. He may be contacted at 305.350.7237 or firstname.lastname@example.org.
Andrew Pompa is an associate in Bilzin Sumberg’s Corporate & Securities Group, where he focuses his practice in the areas of capital markets, finance and corporate restructuring. He may be contacted at 305.350.7342 or email@example.com.