The Remittance Transfer Rule (“Remittance Rule”), Subpart B of Regulation E, 12 C.F.R. §§ 1005.30 to 1005.36, requires transfer providers to provide prepayment disclosures to consumers prior to paying for a remittance transfer. U.S. Senators Elizabeth Warren (D-Mass.),Dianne Feinstein (D-Calif.), Brian Schatz (D-Hawaii), Jack Reed (D-R.I.), and Alex Padilla (D-Calif.) sent a letter to CFPB Director Rohit Chopra to request that the Remittance Rule be modified to require transfer providers to disclose the true cost of remittance payments so consumers can comparison shop.
The Senators compare hidden remittance payment fees to junk fees that the CFPB is seeking to curtail. The Senators allege that transfer providers are hiding costs in inflated exchange rates or third party estimates while advertising zero or low fees and taking advantage of the CFPB’s permanent exception for the “optional disclosure on non-covered third-party fees” set forth in 12 C.F.R. § 1005.32(b)(3). This exception allows transfer providers to use reasonable sources of information to estimate the foreign financial institution’s fees for receipt of the wire.
The Official Commentary states: “Reasonable sources of information may include, for example: information obtained from recent transfers to the same institution or the same country or region; fee schedules from the recipient institution; fee schedules from the recipient institution’s competitors; surveys of recipient institution fees in the same country or region as the recipient institution; information provided or surveys of recipient institutions’ regulators or taxing authorities; commercially or publicly available databases, services or sources; and information or resources developed by international nongovernmental organizations or intergovernmental organizations.” Citing to 15 U.S.C § 1693o-1(c), the Senators claim that the permanent exception for providing estimates “fails to meet the requirements of remittance fee estimates prescribed by Congress in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was explicit in allowing such estimates for a maximum of ten years following passage of the law” and allows transfer providers to technically comply with the Remittance Rule while not sharing cost transparency. The Senators urge the CFPB to require transfer providers to disclose the total cost of the remittance transfer and rescind the permanent exemption for estimates of third party fees.
Unfortunately, the Senators do not offer a practical solution for providing these exact third party fees and instead “encourage the adoption of new technology that would provide transparent, pre-transfer cost information.” To comply with this suggested change, transfer providers would have to invest in new technology to exchange information with every receiving bank around the world and require the customer to wait for a response. While some financial institutions use SWIFT to exchange messages, the responses to messages are by no means instantaneous. Consumers use remittance transfers to deliver funds quickly. However, if SWIFT messaging is used, the transfer could be delayed for hours or days while the consumer waits to learn that the receiving bank charges a $10 fee to the recipient of the wire.
The investment in the technology and resources to determine these third party fees is no small task or expense. Eliminating estimates will likely cause many transfer providers to exit the business, resulting in fewer opportunities for consumers to comparison shop. Moreover, this change is not likely to benefit consumers who engage in comparison shopping because these disclosed third party fees are set by the bank receiving the wire and would be the same amount regardless of which transfer provider a consumer uses to send funds to that bank. Thus, the real deciding factor for the consumer is the first party fees charged by the transfer provider.