Banking and Finance Law Daily CFPB issues final rule with remittance rule changes
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Tuesday, May 12, 2020

CFPB issues final rule with remittance rule changes

By Colleen M. Svelnis, J.D.

The CFPB has issued a final rule including changes to the Remittance Rule, providing tailored exceptions and increasing the safe harbor threshold.

The Consumer Financial Protection Bureau has issued its final rule including changes to remittance transfers under the Electronic Fund Transfer Act (EFTA), known as the Remittance Rule. The Remittance Rule implements section 1073 of the Dodd-Frank Act (codified at section 919 of the EFTA), and imposes requirements on companies which send international money transfers, or remittance transfers, on behalf of consumers. The changes to the Remittance Rule are intended to mitigate the effects of the expiration of the statutory exception that allows insured institutions to disclose estimates instead of exact amounts to consumers and is set to expire on July 21, 2020. The final rule amends Regulation E and the official interpretations of Regulation E to provide tailored exceptions to address compliance challenges that insured institutions may face in certain circumstances upon the expiration of the statutory exception. The rule also increases a safe harbor threshold related to whether a person makes remittance transfers in the normal course of its business.

Remittance rule. The rule generally requires companies that provide remittance transfers in the normal course of business to disclose to consumers certain fees and the exchange rates that apply to transfers. Currently, the rule also includes an exception that allows certain banks and credit unions to estimate certain fees and exchange rate information instead of disclosing exact amounts in certain circumstances, but this exception expires by statute in July 2020. The Bureau issued its Notice of Proposed Rulemaking in December 2019, requesting input on proposed changes to the Bureau’s Remittance Rule. The Bureau asked for input on the safe harbor threshold within the rule that allows those that provide 100 or fewer remittance transfers in the previous and current calendar years to remain outside of the rule’s coverage. The Bureau asked for input about the number of remittance transfers a provider must make to provide them in the normal course of business, and information on incorporating a small financial institution exception into the rule. Additionally, the Bureau requested information about the expiration of the temporary exception. The statutory provision authorizing the temporary exception expressly limits its length and does not provide the Bureau the authority to extend the exception beyond July 21, 2020.

In its proposed rule, the Bureau proposed allowing certain banks and credit unions to continue to provide estimates under certain conditions where it could be economically infeasible for these institutions to provide exact disclosures. In addition, the Bureau proposed increasing the safe harbor threshold that determines whether a company makes remittance transfers in the normal course of its business and is subject to the Remittance Rule. The proposed rule would keep companies making 500 or fewer transfers annually in the current and prior calendar years from being subject to the rule, up from 100.

Final rule. The final rule increases the threshold that determines whether an entity makes remittance transfers in the normal course of its business and is subject to the Rule. Under both EFTA and the final rule, the term "remittance transfer provider" is defined, in part, to mean any person that provides remittance transfers for a consumer in the normal course of its business. The final rule includes amendments that increase the normal course of business safe harbor threshold from 100 transfers annually to 500 transfers annually. According to the Bureau, this change is intended to reduce the burden on more than 400 banks and almost 250 credit unions that send a relatively small number of remittances—less than. 06 percent of all remittances.

The final rule allows certain banks and credit unions to continue to provide estimates of the exchange rate and certain fees under certain conditions. The Bureau is adopting tailored exceptions to the Remittance Rule to address compliance challenges insured institutions may face in certain circumstances upon the expiration of the temporary exception. The final rule includes a new, permanent exception that permits 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 to that country when the designated recipients received funds in the country’s local currency. With respect to covered third-party fees, the Bureau is adopting a new, permanent exception that will permit insured institutions to estimate covered third-party fees for a remittance transfer to a designated recipient’s institution if, among other things, the insured institution made 500 or fewer remittance transfers to that designated recipient’s institution in the prior calendar year.

The rule includes a transition period that will allow insured institutions that exceed the 1,000-transfer or 500-transfer thresholds in a certain year to continue to provide estimates for a reasonable period of time while they come into compliance with the requirement to provide exact amounts.

Additionally, the Bureau announced some regulatory flexibility in April due to the coronavirus pandemic. The Bureau does not intend to cite in an examination or initiative enforcement actions in connection with the disclosure of exact third-party fees and exchange rates for remittance transfers that occur on or after July 21, 2020, and before Jan. 1, 2021, by any insured institution that will be outside of the exception and newly required to disclose exact third-party fees and exchange rates after the temporary exception expires.

Comments on proposal. The Bureau received approximately 100 comments and three ex parte communications from a trade association representing large bank remittance providers, and a trade association representing credit unions. According to the Bureau, industry commenters were generally supportive of the Bureau’s proposed changes to increase the normal course of business safe harbor threshold from 100 transfers annually to 500 transfers annually. The Bureau noted that some industry commenters who were generally supportive of the proposal addressed the impact of the expiration of the temporary exception and thought the proposed amendments did not go far enough to preserve the use of the temporary exception. Consumer groups, however, were opposed to the proposed changes. There were approximately 60 comment letters submitted by individuals, which were primarily from credit union members. These comment letters expressed support for the 2019 proposal.

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