CFPB extends remittance transfer rule depository institutions exception and finalizes other revisions

by Ballard Spahr LLP
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The CFPB has issued a final rule that extends for five years (until July 21, 2020) the temporary exception in its remittance transfer rule that allows insured depository institutions to estimate fees and exchange rates in certain circumstances. The rule also includes “several clarifications and technical corrections” to the rule and commentary. Additionally, the CFPB released a revised version of its compliance guide for industry to reflect the finalized changes.

The CFPB’s remittance transfer rule implemented Section 1073 of Dodd-Frank, which amended the Electronic Fund Transfer Act to establish new requirements for remittance transfer providers. Section 1073 included a provision that until July 21, 2015 temporarily excepted insured depository institutions from the general requirement for a provider to disclose the actual exchange rate and actual remitted amount prior to and at the time of payment. Until the exception expires, such institutions can estimate the exchange rate, the total amounts to be transferred and received, and covered third-party fees when providing remittance transfers to their accountholders for which they cannot determine exact amounts for reasons beyond their control. The exception is implemented through Section 1005.32(a) of the remittance rule.

Dodd-Frank allowed the CFPB to extend the temporary exception for an additional five years if it found that the exception’s sunset would negatively affect the ability of insured institutions to send remittances to locations in foreign countries. The CFPB proposed the extension because it found that such institutions needed additional time to develop reasonable ways to provide consumers with exact fees and exchange rates for all remittance transfers, and had preliminarily determined that, without an exception, their ability to send remittance transfers to certain parts of the world would be negatively impacted. The final rule reflects the CFPB’s “final determination” that the exception’s expiration would have such a negative impact.

Other clarifications and technical corrections made by the final rule include:

  • The commentary is revised to clarify that U.S. military installations abroad are considered to be located in a state for purposes of the remittance rule.
  • The commentary is revised to clarify that when transfers are made from an account, the primary purpose for which the account was established determines whether a transfer from the account is covered by the rule. The rule applies only when a transfer is requested by a consumer primarily for personal, family or household purposes. The clarification also provides that if a consumer indicates that the transfer is requested for other purposes, such as business or commercial purposes, the provider can deem the consumer not to be a “sender” for purposes of the rule even if the consumer is requesting the transfer from an account that is used primarily for personal, family or household purposes.
  • The commentary is revised to provide that disclosures made by fax are treated as a writing for purposes of the rule’s general requirement for disclosures to be provided in writing. For purposes of the rule’s provision that allows pre-payment disclosures to be made orally when a “transaction is conducted orally and entirely by telephone” and certain other requirements are met, the commentary is revised to also allow oral disclosures for transfers that senders first initiate by fax, mail or e-mail. The revision allows a provider to treat a written or electronic communication as an inquiry rather than a request when the provider believes that treating the communication as a request would be impractical.
  • The rule’s error resolution procedures are revised with regard to what qualifies as an error. Under the rule, an error includes a failure to make funds available to a designated recipient by the availability date stated in the disclosure provided to the sender unless the failure occurs for certain listed reasons. Such reasons include a delay related to a provider’s fraud screening procedures or the Bank Secrecy Act (BSA), OFAC requirements or similar laws or requirements. The rule is revised to state that only delays related to an individualized investigation or other special action by the provider or a third-party as required by the provider’s or other entity’s fraud screening procedures in accordance with the BSA, OFAC requirements or similar laws or requirements would be covered. The change is clarified by a commentary revision that adds the condition that the provider did not and could not have reasonably foreseen the delay so as to enable the provider to timely disclose an accurate date of availability when providing the sender with a receipt or combined disclosure.
  • Other error resolution-related revisions include a revision to the rule clarifying that a provider must refund its own fee when funds were not made available by the disclosed availability date because the sender provided incorrect or insufficient information.

The final rule will be effective 60 days after its publication in the Federal Register. The CFPB has not yet finalized its January 2014 proposed rule that would allow it to supervise nonbank international money transfer providers that qualify as “larger participants” in the international money transfer market.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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