CFPB's "Remittance Transfer Providers" Rule Published on August 20, 2012

By: Laura Pringle

August 20, 2012

Introduction

There has been much discussion and debate concerning the implementing rulemakings for Section 1073 of the Dodd-Frank Act, which amended the Electronic Fund Transfer Act and impacts Regulation E (now within the jurisdiction of the Consumer Financial Protection Bureau (“CFPB”) and found in 12 CFR 1005).  The final rule published by the CFPB on February 7, 2012, requires new disclosures, error resolution procedures, and cancellation rights which must be given to consumers who send remittance transfers to other consumers or businesses in a foreign country by February 7, 2012.  The scope of coverage of the new requirements as they apply to financial institutions which offer these services has now been addressed in a separate final rule released by the CFPB on August 7, 2012, which defines “remittance transfer providers” and also requires compliances by February 7, 2013.  This final rule was published on August 20, 2012.

Explanation of the Issuance of this Most Recent Final Rule

On May 23, 2011, pursuant to the Dodd-Frank Act, the Federal Reserve published proposed changes to amend Regulation E to create new protections for consumers who sent remittance transfers to recipients located in a foreign country.  Comments were accepted until July 22, 2012, and all comment letters were transferred to the Consumer Financial Protection Bureau.  Then, on February 7, 2012, the CFPB published a final rule implementing provisions or Section 1073 of the Dodd-Frank Act, which is to be effective February 7, 2013.  In the publication “remittance transfer provider” was defined to mean “any person that provides remittance transfers for a consumer in the normal course of its business, regardless of whether the consumer holds an account with such person.”

On February 7, 2012, the CFPB also published a proposed rule for which the CFPB asked for comment on or before April 9, 2012.  In this proposed rule the CFPB stated that a bright-line safe harbor may minimize compliance burden and proposed to revise the commentary regarding the definition of a “remittance transfer provider” to provide the following:

If a person provided no more than 25 remittance transfers in the previous calendar year, the person does not provide remittance transfers in the normal course of business for the current calendar year.  If that person, however, makes a 26th remittance transfer in the current calendar year, the person would be evaluated under the facts and circumstances test to determine whether the person is a remittance transfer provider for the transfer and any other transfer provided through the rest of the year.

Now, the CFPB has finalized this rule in its release on August 7, 2012, effective February 7, 2013.  In issuing this final rule, the CFPB considered comments and decided to continue with its plan to provide a definition tied to the number of transactions, but the CFPB increased that number from 25 to 100.

Revision of Definition for Coverage and Other Revisions to the New Rule

The CFPB’s final rule adopts a safe harbor with respect to the phrase “normal course of business” in the definition of “remittance transfer provider,” which determines whether a person is covered by the rule.  The final rule states that if a person provided 100 or fewer remittance transfers in the previous calendar year, and provides 100 or fewer remittance transfers in the current calendar year, then the person is deemed not to be providing remittance transfers for a consumer in the normal course of its business.  Importantly, the CFPB’s final rule provides that if a person that crosses the 100-transfer threshold, and is then providing remittance transfers for a consumer in the normal course of its business, the final rule permits a reasonable time period, not to exceed six months, to begin complying with subpart B of Regulation E.

The CFPB explains in its release that the final rule also modifies several aspects of the February 7, 2012 Final Rule regarding remittance transfers that are scheduled before the date of transfer, including reauthorized remittance transfers.  One of those modifications provides that when a sender schedules a one-time transfer or the first in a series of preauthorized remittance transfers five or more business days before the date of transfer, the final rule permits remittance transfer providers to estimate certain information in the pre-payment disclosure and the receipt provided when payment is made; if estimates are provided under t his exception, the provider generally must give the sender an additional receipt with accurate figures after the transfer is made.  Also, with respect to subsequent preauthorized remittance transfers, the final rule generally eliminates the requirements, which had previously been provided by the CFPB, that a remittance transfer provider mail or deliver a pre-payment disclosure for each subsequent transfer, unless certain specified information has changed; instead, the final rule generally requires a remittance transfer provider to provide accurate receipts after subsequent transfers are made.

In addition, the CFPB explains that the final rule modifies several respects with regard to the disclosure requirements for remittance transfers scheduled at least three business days before the date of transfer and for preauthorized remittance transfers.  That is, the final rule generally requires disclosure of the date of transfer on the initial receipt and on any subsequent receipts provided with respect to a particular transfer.  For subsequent preauthorized remittance transfers, the final rule also requires the remittance transfer provider to disclose the future date or dates the remittance transfer provider with execute subsequent transfers in the series.  If your financial institution will be covered by this new rule, you should also be aware the while the final rule offers come flexibility in how such disclosures can be made the specifics of that flexibility should be reviewed for application to these transactions.  In addition, you should be aware that the CFPB stated that it expects to release a small business compliance guide and a list of countries that providers may rely on for purposes of determining whether estimates may be provided under certain circumstances.

Conclusion

While the CFPB intends to provide further guidance for full compliance by financial institutions which meet the definition of “remittance transfer providers” at this time, determining the impact and preparing for compliance is important.  The final rules and model forms can be found at https://www.gpo.gov/fdsys/pkg/FR-2012-02-07/pdf/2012-1728.pdf and this final rule addressing coverage and other revisions can be found at https://www.gpo.gov/fdsys/pkg/FR-2012-08-20/pdf/2012-19702.pdf.  Additionally, as further guidance is issued by the CFPB, the use of the model forms and specific requirements for new disclosures, error resolution procedures, and cancellation rights should be carefully reviewed by those financial institutions which meet this revised definition and plan to continue to offer foreign remittance transfer services.

©PRINGLE® 2012

The Article was also published at Wolters Kluwer’s Compliance Headquarters™ website: www.complianceheadquarters.com.