On May 23, 2011, the Board of Governors of the Federal Reserve (the Board) published proposed rules to regulate foreign remittances.1 The rules implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act2 (the Dodd-Frank Act) and mandate various disclosures and other consumer protections for remittances as a matter of federal law for the first time. The new requirements may improve transparency for senders of remittances, but their complexity and prescriptive nature seem likely to increase costs for providers.

Cash remittances from the United States to foreign households were estimated at some $12 billion in 2008, the last year for which totals are available. Such transfers have traditionally been regulated at the state level under state money transmitter statutes and Article 4A of the Uniform Commercial Code. The Dodd-Frank Act changed this balance by amending the Electronic Fund Transfer Act (EFTA)3 to create new Section 919, which mandates the issuance of implementing rules under Regulation E. The proposed rules would apply to both financial and non-financial institutions and broadly define remittance transfers to include transactions that traditionally have not been governed by EFTA (such as consumer wire transfers). As discussed in more detail below, the rules require providers to deliver pre- and post-payment rate and fee disclosures (in both English and the sender’s foreign language), investigate and correct errors, and provide cancellation rights and refunds at no additional cost to the sender.

The proposed rules are open for public comment until July 22, 2011.

Scope of proposed rules

“Remittance transfers” under the proposed rules involve a request by a “sender” to make an electronic transfer of funds to a “designated recipient” (who must receive the funds at a location in a foreign country) using a “remittance transfer provider.” Thus, there are three basic elements to a “remittance transfer.” First, the transfer must be by electronic means; simply mailing funds to a foreign location does not constitute a remittance transfer. Second, there must be a specific request for a funds transfer. Third, the sender must designate a recipient who will receive the funds. While the sender must be an individual “consumer,” the recipient may be either an individual or a business. Accordingly, the proposed rules would not apply to business-to-business or business-to-consumer transactions. In addition, the proposed rules exempt transfers of $15 or less, which are similarly exempt from the Regulation E receipt requirements.