The CFPB has issued a final rule that will allow it to supervise nonbank international money transfer providers that qualify as “larger participants” in the international money transfer market.  Consistent with the proposed rule, the final rule defines larger participants as those providers that engage annually in 1 million or more international money transfers.  The final rule takes effect on December 1, 2014.

The rule is based on the CFPB’s Dodd-Frank authority to supervise nonbank entities considered to be “a larger participant of a market for other consumer financial products or services.”  The rule represents the CFPB’s fourth “larger participant” rule.  It has previously finalized such rules for consumer reporting, consumer debt collection, and student loan servicing.

The rule means CFPB examiners will be able to examine nonbank international money transfer providers that qualify as larger participants for compliance with all relevant federal consumer financial laws, most notably the Electronic Fund Transfer Act and Regulation E (which includes the CFPB’s Remittance Transfer Rule which became effective on October 28, 2013) and “unfair, deceptive or abusive” standards.  For more on the rule, see our legal alert.

On July 3rd, the CFPB released a Report on the Use of Remittance Histories in Credit Scoring (the “Report”). Section 1073(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB Director to study the feasibility of and impediments to using remittance transfer information (i.e., information regarding electronic fund transfers made by U.S. consumers to recipients abroad) in credit scoring, ostensibly with the intention of determining the utility of such information as a way to enhance such consumer credit scores, and/or increase the numbers of persons for whom such scores could be assigned. The CFPB issued a report in fulfillment of that requirement in July, 2011.

In that report the CFPB stated it would conduct additional research to better explore the potential for remittance information to enhance credit scores, either by: (i) improving the ability of the credit scores to more accurately predict credit risk, or (ii) raising the scores of those consumers who send remittance transfers. This new Report discusses the CFPB’s empirical research efforts and results to date specific to these topics.

Regarding the first topic, the CFPB’s analysis suggests that remittance history information would provide insufficient additional benefit to the predictiveness of a credit scoring model to permit scores to be generated for consumers whose credit file alone would otherwise be unscorable.

With respect to the second topic, the Report concludes that it is unlikely that including remittance transfer information in a credit scoring process will increase the credit scores of consumers who send remittance transfers. In fact, the inclusion of such information was seen to have, if anything, the opposite effect, though the reasons for such results were seen as having less to do with the remittance information itself as potentially other selection effects.

In the course of its analysis of the second topic, the CFPB found that the observed credit predictive value of remittance transfer information varied according to the locations to which the remittances were actually sent. This finding led the CFPB to warn of a potential fair lending danger in using such geographic destination information for credit scoring models or otherwise in making credit decisions, in that such use may have a disproportionately negative impact on certain racial or national origin groups, and that a lender’s consideration of the geographic destination of an applicant’s remittances could itself constitute discrimination based on national origin.

The CFPB has extended the comment period on its proposal to extend for five years the temporary exception in its remittance transfer rule that allows insured depository institutions to estimate fees and exchange rates in certain circumstances and to make several other changes and technical corrections to the rule.  Absent the five year extension, the temporary exception would expire on July 21, 2015. 

In a notice published in today’s Federal Register, the CFPB announced that the comment period will close on June 6, 2014 instead of on May 27, 2014.  According to the notice, the CFPB received a number of requests from industry trade groups asking for additional time “to more thoroughly evaluate and respond to the specific issues raised in the proposal.”

The CFPB has issued a proposal to extend for five years the temporary exception in its remittance transfer rule that allows insured depository institutions to estimate fees and exchange rates in certain circumstances.  The proposal also includes “several clarificatory amendments and technical corrections” to the rule and commentary. 

The CFPB’s remittance transfer rule implements Section 1073 of Dodd-Frank, which amended the Electronic Fund Transfer Act to establish new requirements for remittance transfer providers.  Section 1073 includes a provision that temporarily excepts 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 July 21, 2015, such institutions are allowed to 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 allows the CFPB to extend the temporary exception until ten years after Dodd-Frank’s enactment (i.e., July 21, 2020) if it finds that the exception’s sunset would negatively affect the ability of insured institutions to send remittances to locations in foreign countries.  In explaining its decision to propose a five-year extension of the exception until July 21, 2020, the CFPB indicates that an extension is needed to give such institutions additional time to develop reasonable ways to provide consumers with exact fees and exchange rates for all remittance transfers.  According to the CFPB, some insured institutions reported that current market conditions would make it impossible to know the exact fees and exchange rates associated with certain of their remittance transfers and that, without the exception, they would be unable to continue sending some transfers to certain parts of the world that they currently serve.  Accordingly, the CFPB states that it has “preliminarily determined” that such institutions’ ability to send remittance transfers would be negatively impacted without an extension. 

In the proposal, the CFPB seeks comment on whether (and if so, how) it should clarify the treatment of U.S military installations abroad for purposes of the rule.  Specifically, the CFPB seeks comment on whether or not it is appropriate or advisable to treat locations on such installations as being located within a State or a foreign country.  

The rule applies when a sender located in a “State” sends funds to a designated recipient at a location in a “foreign country.”  Whether money is received in a foreign country depends on whether the funds are received at a location physically outside of any State and, in the case of transfers to or from an account, the rule looks to the location of the account rather than the account owner’s physical location at the time of transfer. 

The CFPB notes that because the rule currently does not expressly address fund transfers to and from U.S. military installations, there is the potential for confusion about how these concepts in the rule apply to such transfers.  For example, the CFPB observes that there could be confusion as to whether the rule applies when a consumer in the United States sends a cash transfer to be picked up by a recipient at a financial institution on a foreign military base, with the result depending on whether the institution is deemed to be located in a “foreign country” or a “State.”  Similarly, depending on whether a foreign military installation is deemed to be in a “State,” there could be confusion as to whether the rule applies to a cash transfer from a consumer on the installation to a recipient in a surrounding country. 

Proposed revisions to the remittance rule include the following:               

  • The rule’s commentary would be revised to provide 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 rule’s commentary would be 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 would be revised to also allow oral disclosures for transfers that senders first initiate by fax, mail or e-mail.  The revision would allow 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 provider could then call the customer by telephone and consider the transaction as conducted orally and entirely by telephone.
  • The rule’s error resolution procedures would be 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 would be 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 would be further clarified by commentary revisions.
  • Other error resolution-related proposed revisions to the rule and commentary would clarify that a provider (1) must refund its own fee when funds were not made available by the disclosed availability date because the sender provided incorrect or insufficient information, and (2) is not required to refund the amount delivered to the designated recipient or apply funds to a new transfer if the transfer is delivered late but before the remedy is determined (and would only be required to refund appropriate fees and taxes paid by the sender). 

Comments on the proposal will be due on or before 30 days after its publication in the Federal Register.  The CFPB proposes that the revisions take effect thirty days after a final rule is published in the Federal Register and also seeks comments on whether a later effective date would be more appropriate. 

In January 2014, the CFPB issued a proposed rule that would allow it to supervise nonbank international money transfer providers that qualify as “larger participants” in the international money transfer market.  The comment period on the proposal ended on April 1.

Industry should not expect to see any material changes to the CFPB’s remittance transfer rule, at least not between now and 2018 when the CFPB is required to review the rule. That’s the view of Isaac Boltansky of Compasspoint, who reached that conclusion based in part on a review of the CFPB’s consumer complaint database.  Money remittances are one of the products or services about which consumers can submit complaints using the CFPB’s complaint system.  

According to Mr. Boltansky, Compasspoint’s review indicated that the majority of money remittance complaints were resolved in a way that suggests industry has successfully implemented the remittance transfer rule, thus making it unlikely industry or the CFPB will push for change.  (The rule became effective on October 28, 2013.)  Compasspoint found that 74% of the complaints were “closed with explanation” and only 21% were “closed with monetary relief.”  Mr. Boltansky considers “closed with explanation” to be one of the best potential outcomes for CFPB complaints because it suggests the company involved was in compliance with applicable rules.  In contrast, he considers “closed with monetary relief” to be the worst potential outcome because it suggests that an error was made. 

Remarks by Director Cordray earlier this week to the U.S. Conference of Mayors provide support for Mr. Boltansky’s use of complaint data to assess the likelihood of regulatory change.  As he has on previous occasions, Mr. Cordray discussed the role of complaints in “informing our work and helping us identify and prioritize problems.”  He further stated that “[w]e know that if we begin to see a disturbing trend, we should consider allocating some of our limited resources to combat that particular problem.”  Assuming the CFPB draws the same conclusions about industry compliance as Mr. Boltansky from the complaints it has received about remittance transfers, making changes to the remittance transfer rule is not likely to be a CFPB priority anytime soon. 

We note, however, that the CFPB will soon have additional data to assess industry compliance.  As we reported, the CFPB proposed a rule yesterday that would allow it to supervise nonbank international money transfer providers who qualify as “larger participants.”  Once the rule is adopted, CFPB examiners will be able to examine qualifying nonbanks for compliance with all relevant federal consumer financial laws, including the remittance transfer rule.

We had been expecting the CFPB’s next “larger participant” proposal to be a rule for the auto finance market.  Instead, the CFPB issued a proposed rule yesterday that would allow it to supervise nonbank international money transfer providers that qualify as “larger participants” in the international money transfer market.  The proposal is based on the CFPB’s Dodd-Frank authority to supervise nonbank entities considered to be “a larger participant of a market for other consumer financial products or services.”  If adopted, the rule would represent the CFPB’s fourth “larger participant” rule.  Comments are due on or before 60 days after the proposal is published in the Federal Register.

The proposal defines as “larger participants” nonbank providers that have at least one million aggregate annual international money transfers.  To determine a nonbank’s “aggregate” transfers, the rule would combine the nonbank’s annual international money transfers with the annual transfers of its affiliated companies.  A nonbank’s transfers would include transfers in which an agent acts on the nonbank’s behalf.  The CFPB estimates that the one million transfer threshold would make approximately 25 international money transfer providers subject to the CFPB’s supervisory authority and that these providers are responsible for approximately 90% of transfers in the international money transfer market.    

The proposal would allow CFPB examiners to examine nonbanks that qualify as larger participants for compliance with all relevant federal consumer financial laws, most notably the Electronic Fund Transfer Act and Regulation E (which includes the CFPB’s Remittance Transfer Rule which became effective on October 28, 2013) and “unfair, deceptive or abusive” standards. 

Unlike the Remittance Transfer Rule which contains an exclusion for transfers of $15 or less, the proposal would count all transfers regardless of dollar amount for purposes of determining the number of transfers made by a nonbank.  The CFPB states in the proposal that it is considering alternatives to the one million transfer threshold, such as a threshold based on annual receipts from international money transfers and annual transmitted dollar volume, a substantially higher threshold of aggregate annual transfers (with 3 million given as an example), or different thresholds for different destination regions. 

As the CFPB notes in the proposal, because Dodd-Frank allows it to supervise, regardless of size, service providers to nonbanks it supervises, the CFPB will be able to supervise all service providers to “larger participant” international money transfer providers, including agents acting as service providers.  In addition, as the CFPB notes in its press release on the proposal, nonbank international money transfer providers that do not qualify as larger participants may still be subject to the CFPB’s supervisory authority if the CFPB has reasonable cause to determine that they pose risks to consumers.

The CFPB has announced that it will be conducting a webinar on the remittance transfer rule on Thursday, November 14, 2013  from 2:30 to 3:30 p.m. ET.  Instructions for joining the webinar can be obtained by contacting the CFPB at financialeducation@cfpb.gov

On November 22, 2013, Ballard Spahr will be conducting a webinar entitled “Getting Wired for Consumer Wire Transfers: Complying with the CFPB’s Remittance Transfer Rule.”  More information and a link to register is available here.

The CFPB’ s new remittance transfer rule became effective on October 28 and to mark the occasion, the CFPB announced the launch of a nationwide multimedia campaign directed at consumers. 

The campaign includes the CFPB’s provision of posters and other printed materials to community groups, immigrant organizations, consulates, and other government agencies.  Those materials include a consumer factsheet and a stakeholder factsheet.  Financial services companies will be able to order or download the materials.  The stakeholder factsheet is available in English and Spanish and the other printed materials are available in English, Spanish, Chinese, Tagalog and French-Creole. 

The CFPB also added several new questions and answer about the rule to “Ask CFPB” and plans to “engage consumers online, including through social media to discuss the rule, and encourage other key stakeholders to do the same.” 

On November 22, Ballard Spahr will be conducting a webinar entitled “Getting Wired for Consumer Wire Transfers: Complying with the CFPB’s Remittance Transfer Rule.”  More information and a link to register is available here.

The CFPB has updated its small business guide on the remittance transfer rule to reflect the changes to the rule that were made this past May dealing with the scope of the error resolution procedures, disclosure of recipient institution fees and disclosure of foreign taxes or other third-party taxes.  (For a summary of the changes, see our legal alert.)  The CFPB has also updated its video on the rule.  The remittance rule becomes effective on October 28, 2013. 

In addition to updating the guide and video, the CFPB made what it calls a “clarificatory” amendment as well as a technical correction to the final rule.  In the amendment, the CFPB clarifies a provider’s duty to make a refund or, at the consumer’s request, reapply funds to a new transfer when an error occurred because the sender provided incorrect or insufficient information.  The technical correction fixes a numbering error and restores an inadvertently deleted comment.

 

Despite the urging of many industry commenters that it eliminate altogether the requirement for remittance transfer providers to disclose recipient institution fees, the CFPB chose not to go that far in the revisions to its remittance transfers rule that it finalized last week.  However, the revised final rule does recognize some business realities and restricts the scope of the disclosure requirement and makes other favorable changes.  The final rule will take effect
on October 28, 2013. 

We have prepared a legal alert that discusses the three areas addressed by the revisions.