January 8, 2013
Authored by: Bryan Cave
The CFPB released its proposal to make several amendments to its remittance transfer rules and to briefly extend the effective date of the rule. The bureau’s proposal is “narrow in focus and intended to preserve the new consumer protections while facilitating compliance with the rule.” The proposed changes address:
—-Effective date. The rules are currently slated to become effective on February 7, 2013. The bureau is proposing to temporarily delay the effective date of the rules until it finalizes changes made as a result of the proposal. The new effective date would be 90 days after the bureau finalizes the proposal.
According to the bureau, the extension should be sufficient for remittance transfer providers to implement necessary systems changes. The bureau also indicates that the extension “might also enable providers (and their vendors) to build solutions that cost less than those that might otherwise have been possible.” In addition, the bureau believes that remittance transfer providers “should be working toward implementing those portions of the Final Rule unaffected by this proposal during the interim period, for instance by continuing to research foreign central governments’ taxes.”
On the flip side, the bureau notes that the proposed changes “impose costs on [consumers who are] senders [of remittances] by delaying the time when they would receive the benefits of the Final Rule,” although senders will benefit to the extent the proposal’s changes eliminate disruptions in providing remittance transfer services.
—Errors resulting from incorrect account information provided by consumers sending remittance transfers. One important improvement made in the proposal is the change to the error resolution procedures and liability that apply when a remittance transfer is not delivered to a designated recipient because the sender provided an incorrect account number to the remittance transfer provider, resulting in funds deposited into the wrong account. When a remittance transfer provider can demonstrate that a consumer provided an incorrect account number and the consumer had notice that the transfer amount could be lost if he/she provided an incorrect account number, the provider would be required to promptly use reasonable efforts to recover those misdirected funds but would not be liable for funds it is unable to recover. Although this change requires prior notice to the consumer, that can be provided at the time of the transaction, offering a helpful safeguard to remittance providers.
The proposal also revises existing remedy procedures for situations where the sender provides incorrect or insufficient information other than an incorrect account number, providing remittance transfer providers additional flexibility when resending funds at a new exchange rate. Providers would be able to give oral, streamlined disclosures and would not need to treat the resent transfer as an entirely new transfer.
—Disclosure of certain third-party fees and foreign taxes. Another positive aspect of the proposal involves third party fees. The proposal provides increased flexibility and guidance for disclosure of taxes imposed by a foreign country’s central government as well as for disclosure of fees imposed by a recipient’s financial institution for receiving a remittance transfer in an account.
If the remittance transfer provider does not have specific knowledge of variables that could impact the amount of foreign taxes and/or fees imposed by the recipient’s institution, the proposal continues to permit the provider to rely on the sender’s representations regarding those variables. The proposal also allows providers to estimate those amounts by disclosing the highest possible foreign tax and/or fees that could be imposed with respect to any unknown variables. Estimates of recipient institution fees are be based on (1) fee schedules made available by the recipient institution or (2) information ascertained from prior transfers to the same recipient institution. If neither (1) nor (2) can be obtained, the provider may rely on other reasonable sources of information.
—Disclosure of sub-national foreign taxes. Finally, the proposal quite reasonably limits a remittance companies obligations to know ALL foreign taxes. The proposal requires disclosure of taxes that are imposed by a foreign country’s central government but eliminates the requirement to disclose taxes imposed by foreign regional, provincial, state, municipal or other local governments.
Comments on the bureau’s proposal to temporarily delay the effective date of the remittance transfer rules, by issuing a temporary extension before February 7, are due by January 15, 2013. Comments on all other aspects of the proposal, including the bureau’s proposed effective date for the rules of 90 days from the date this proposal is finalized, are due by January 30, 2013.