The CFPB Proposes to Supervise Nonbanks that Perform One Million or More International Money Transfers Per Year

by Eversheds Sutherland (US) LLP

On January 23, 2014, the Consumer Financial Protection Bureau (CFPB) proposed a rule whereby the definition of “larger participants” will be expanded to include nonbanks that perform one million or more international money transfers per year. The CFPB is accepting comments to the proposed rule through March 24, 2014.

What is the proposed rule and what does it mean?

  • The proposed rule will allow the CFPB to supervise nonbanks that are “larger participants” in the international money transfer market. These larger participants will be subject to CFPB examinations. The CFPB examinations will focus on the participants’ compliance with the new Remittance Rule, UDAAP (unfair, deceptive or abusive acts and practices), and other federal consumer financial laws that the CFPB enforces.
  • Under the proposed rule, larger participants are nonbanks and their affiliates that perform at least one million international money transfers per year in the aggregate. In calculating the aggregate number, international money transfers made by affiliates are included with the overall nonbank total.

What are international money transfers under the proposed rule?

  • International money transfers are electronic transfers of funds sent by nonbanks from consumers in the United States or Puerto Rico to persons or entities abroad. In order to count towards the one million transfer threshold, the international money transfer must be sent by a consumer in the United States to a person abroad primarily for personal, family, or household purposes.

Do the international money transfers have to be a minimum dollar amount in order to count towards the one million transfer threshold?

  • No.  Although the Remittance Rule does not apply to international money transfers below $15.00 USD, every international money transfer counts towards the one million transfer number used in determining whether a nonbank is a larger participant. 

How will the CFPB determine the number of international transfers?

  • The CFPB will determine whether a nonbank is a larger participant by dividing the total number of international money transfers provided by the nonbank over the last three completed calendar years by three. If the derived number is one million or more, the nonbank is a larger participant.  If the nonbank has been in business for less than three completed calendar years, the number will be prorated. As stated above, the CFPB will aggregate the derived number for affiliated companies.

What are examples of international money transfers that count towards the one million transfer threshold?

  • Money sent by cash, credit cards, debit cards, or bank account debits are examples of international money transfers.  The money can be sent through websites, agent locations, stand-alone kiosks, telephone lines, email, and mobile phones.  Abroad, money transmitters and their partners may allow funds to be collected as cash, be deposited into recipients’ bank accounts, be distributed directly onto prepaid cards, or be credited to mobile phone accounts.

If a nonbank is classified as a larger participant, how long will the nonbank have the status as a larger participant?

  • Any nonbank that qualifies as a larger participant will maintain that status until two years after the first day of the tax year in which the entity last met the applicable test.

Can a nonbank dispute the CFPB’s determination that it is a larger participant?

  • Yes.  After the CFPB notifies a nonbank that it intends to undertake supervisory activity, the nonbank will have an opportunity to submit documentary evidence and written arguments in support of its claim that it is not a larger participant.

Additional Information

The CFPB estimates (based upon state licensing information) that approximately 25 international money transfer providers will meet the proposed threshold of one million international money transfers.  These nonbanks are responsible for approximately 90 percent of transfers in the nonbank market for international money transfers.  In determining the foregoing numbers, the CFPB reviewed state licensing information from all 50 states, with a particular emphasis on California, New York and Ohio.

Other Considerations and Alternatives

Instead of determining whether an entity is a larger participant based upon the aggregate number of transactions, the CFPB is also considering annual receipts and annual transmitted dollar volume. The CFPB invites comments on these alternatives as well as suggestions for other criteria that commenters believe might be superior.

The CFPB is also considering a lower or higher larger participant threshold. The CFPB estimates that a lower aggregate annual international money transfer threshold of 500,000 will allow the CFPB to supervise about three additional entities that together account for about 1.5% of transfers in the market. Alternatively, the CFPB estimates that an aggregate annual international money transfer threshold of three million will likely allow the CFPB to supervise the 10 largest participants of the proposed market, which collectively provide approximately 75% of the transfers in this 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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