One of the first moves by the newly minted Consumer Financial Protection Bureau (CFPB) was to issue a rule implementing new protections for money sent to loved ones abroad, known as remittances. Americans wire billions of dollars annually. Much of this business is done by immigrants, who are prey for hidden fees that drain hard-earned cash from those who can afford it least. Consequently, one goal of the new rule is to spur new technology and infrastructure that will make remittances safer and cheaper to send. Change is never easy, so I was not surprised when the new rule was met with deep opposition by some industry players. Still, no one wants to see promising and responsible providers leave the market.
As we approach the deadline for implementation (currently set for February 2013), it has become clear that modest refinements could make it easier for responsible companies to comply with the rule and compete in the market without sacrificing critical protections for the consumer. CFPB announced yesterday that it will issue draft adjustments for public comment next month. Richard Cordray, Director of the CFPB, deserves credit for standing firm on safeguarding remittances while also ensuring a workable and responsible marketplace.
Before this provision became law in the Dodd-Frank Act, it was nearly impossible to compare costs between remittance providers. The new law requires providers to disclose the exchange rate, fees, and the amount of funds that recipients can expect in their home currencies. It's this last figure that is the critical innovation. Let me give you an example: If you attempt to send $100 to Mexico, one provider may state that your family will receive $1,200 pesos while another may state that your family will receive $1,100 pesos. For once, your choice has become obvious. It may be difficult to evaluate the tradeoffs between fees and exchange rates, but knowing the final amount that your loved ones will receive allows for classic comparison shopping.
Other anticipated adjustments include:
• Financial institutions, or senders, will not be held liable if a consumer provides a wrong account number. Senders can only match numbers, not names, and therefore have no way to verify the identity of receivers. They will still have to demonstrate that it is consumer error and will retain responsibility for investigating and recovering funds.
• Senders will be responsible for published fees, and when such fees are unknowable, they will have to overestimate so that the consumer has the advantage.
• Senders will have to account for the country federal tax, but not city or county taxes. There are very few local taxes, and those that exist are extremely modest.
NCLR firmly stands behind the CFPB's original proposed regulations as well as recent amendments that will encourage greater openness and accountability in the remittance market. These rules will ensure that banks and other senders can continue to offer this very important product to Latinos.