In what is likely to be a regular occurrence over the months and years ahead, the Consumer Financial Protection Bureau, or CFPB, recently weighed in through an agency rulemaking on acceptable practices and consumer protection standards for a consumer financial product or service. The specific product in this instance is international money transfers, and the CFPB unveiled a final rule focused on addressing concerns about the type of information provided by money transmitters to U.S. consumers who send money to foreign recipients.
In the CFPB's first "final" rulemaking, the agency rolled out a relatively straightforward series of requirements intended to promote a comprehensive system of consumer protections for international money transfers. Noting that money transfers by U.S. consumers to foreign recipients account for billions of dollars annually and make the U.S. the largest source of any country for remitting currency internationally, the CFPB focused its initiative on addressing the most common areas of potential abuse.
First, the CFPB's rule imposes various disclosure requirements on companies and depository institutions that provide international money transmission services to U.S. customers. In particular, the rule specifies that a money transfer provider must disclose to a U.S. consumer the applicable exchange rate, fees and taxes for a transfer, and the amount of money to be delivered to a foreign recipient. In addition, the rule specifies certain documentation requirements a provider must provide to a customer in connection with an international money transfer. These include a receipt listing the relevant disclosure information (exchange rate, fees, etc.) that also indicates the date when transferred money will be available to a foreign recipient. The rule also establishes certain consumer protections to address money transmission errors and handle consumer disputes. Finally, the rule allows a consumer to cancel a transaction and obtain a full refund, provided the cancellation is made within a timeframe designated by the rule.
The rule provides a one-year transition period to enable money transmitters to establish the necessary program to comply with the requirements of the rule. Beginning January 20, 2013, the CFPB rule will apply to money transfers greater than $15, originated by a U.S. consumer, and sent to a recipient in a foreign country. The rule will apply to various types of transfers, including wire transfers, ACH transactions, and account-to-account, account-to-cash and cash-to-account products offered by banks and other financial firms.
While the CFPB rule is designed to implement a statutory directive to provide U.S. consumers with adequate information regarding international money transfers, the requirement poses some problems. For one, the rule is hamstrung by a statutory requirement that customers be advised of the amount to be delivered to a foreign recipient. This imposes a disclosure obligation that some money transmitters may find difficult, if not impossible, to satisfy. This result also potentially undermines one of the primary objectives of the rule to encourage the provision and use of low-cost remittance transfers to U.S. consumers. Highlighting the problem is a statutory exception that allows banks and other insured depository institutions to provide a "reasonably accurate estimate" of the amount to be received where the institution is unable to know the actual amount. The exception is available until July 21, 2015, but may be extended for an additional five years. Similarly, the rule allows for the use of "reasonably accurate estimates" by nonbank providers for countries where providers are unable accurately to know the amount of currency to be received due to foreign laws or methods used to effectuate a transfer. While the rule provides considerable commentary and guidance on what constitutes a "reasonably accurate estimate," it also highlights the potential issues for a money transmitter attempting to meet a standard listed in the final rule. Regardless of the methodology, the guiding principal remains to avoid increasing the overall cost to consumers, a standard referenced in the agency discussion on the rule but that may be difficult to maintain.
Accompanying the CFPB's final money transfer rule is a concurrent regulatory proposal that focuses on various unfinished issues that relate to the final rule. While the details in the proposed rule are important to the CFPB's efforts to implement a viable and cost-effective international money transfer regulatory regime, the overriding objective appears to be identifying ways both to reduce compliance burdens for providers and to increase the benefits to consumers. Ultimately, this remains the most significant challenge for the CFPB in implementing an effective and comprehensive system of consumer protections for remittance transfers, as well as many other financial products and services.
At the most basic level, the issue remains how to implement increased consumer protections without increasing the costs that are passed onto consumers to provide such benefits. Certainly, there are significant issues and challenges that must be addressed to find the best solutions, whether the subject is international money transfers or some other consumer financial product or service. The CFPB's international money transfer rule provides a good preview of the interests that will have to be continually balanced, assessed and rebalanced by the CFPB as it pursues the regulatory portion of its mission to improve consumer financial protections for U.S. consumers.