On May 11, 2020, the Consumer Financial Protection Bureau (“CFPB”) announced that it will impose stricter reporting requirements on entities that process international money and remittance transfers for consumers. This final rule will take effect on July 21, 2020, replacing a temporary rule that has been in place since 2013. The new rule requires that international money transfer and remittance providers disclose the following information to consumers: exact exchange rates; the total value of transaction fees; and the amount of money expected to be received by the transfer or remittance recipient. For banks and credit unions that process large numbers of transfers, compliance costs and associated oversight policies will remain burdensome.
The new rule, however, augments the safe harbor protections afforded to certain banks and credit unions when reporting the costs of transfers and remittances to consumers. Under the temporary version of Regulation E, which was adopted in 2013, banks and credit unions that provide fewer than 500 remittances or transfers per year were permitted to estimate the costs of remittance transfers to consumers rather than providing exact transaction fees and exchange rates. Preceding the effective date of the temporary regulation, this safe harbor provision only applied to those banks and credit unions that processed fewer than 100 transfers per year. The final rule increases the transfer threshold to 500 transfers per year, making the temporary exemption permanent. In addition, the Bureau adopted a new, permanent exemption for insured institutions to “estimate the exchange rate for a remittance transfer to a particular country if, among other things, the designated recipient will receive funds in the country’s local currency and the insured institution made 1,000 or fewer remittance transfers in the prior calendar year” and the recipients received funds in the country’s local currency.
At a time when credit unions are asking for regulatory relief in light of COVID-19 and the subsequent sharp economic downturn, not all remittance transfer providers are content with the new expanded provisions. While the CFPB increased the threshold for disclosing exact consumer metrics, larger banks and credit unions believe that the safe harbor provisions should have been increased well in excess of 500 transfers or remittances per year. Whereas consumer groups lobbied for lowering the reporting threshold, “banks and credit unions [sic] lobbied for an even higher threshold of 1,000 or 1,200 transfers,” citing a lack of quality control over the information they receive from their international counterparts concerning exchange rates and transaction costs. As a result, larger credit unions feel as though they have been excluded from providing their transfers and remittances services to customers due to increased compliance costs. A quick look at the numbers, however, shows why the CFPB has provided more particularized safe harbor provisions for banks as opposed to credit unions. While banks and credit unions “account for only 45% of the dollar volume of all remittance transfers sent for consumers in the United States,” 43% of the 45% is attributed to banks and the remaining 2% is attributed to credit unions.
In light of COVID-19, the CFPB has instituted a grace period for institutions to become compliant with these new provisions. On April 10, 2020, the CFPB released a statement that it does not intend “to cite in an examination or initiate an enforcement action in connection with the disclosure of exact third-party fees and exchange rates against any insured institution” that will be required to disclose the exact amounts of these fees and rates when the temporary regulation expires on July 21, 2020. This grace period applies to remittance transfers sent from July 21, 2020 to January 1, 2021. Overall, the final rule will decrease the regulatory and oversight burden on more than 400 banks and nearly 250 credit unions that, when combined, account for less than 1% of all remittance transfers.
As the CFPB gains a deeper understanding of the impact of its new final rule, it may offer further information and supervisory guidance related to safe harbor provisions for remittance activities. Entities may choose to consult with the Bureau when determining how their financial services products might impact consumers and the broader consumer financial services market. We at BCLP have extensive experience helping consumer financial services providers manage the risks associated with CFPB compliance. We will continue to monitor developments in this area and would be happy to address your questions and concerns.