According to their congressional mandate, the Consumer Financial Protection Bureau's (CFPB) primary focus is to advocate for consumers when dealing with financial companies. Champions of the CFPB see them as part of the "checks and balances" regulatory environment of all things financial. One of the CFPB's primary activities since being created in mid-2010 has been to work to create disclosures to assist consumers in better understanding their costs, rights, and responsibilities when entering into various financial transactions or agreements. The Dodd-Frank Act, which created the CFPB, also added a new section to the Electronic Funds Transfer Act (EFTA) implemented through Regulation E. The addition requires the CFPB to develop disclosure and error resolution requirements for remittances being sent outside the United States.
In February 2012, the CFPB published rule 1073 dealing with the prepayment disclosure of the total costs of consumer-originated remittances. The rule also imposed liability for errors on the remittance transfer provider (RTP) even if the consumer was the one that provided an incorrect account number or routing information. The rule was originally scheduled to become effective February 7, 2013. More details about the rule can be found in previous Portals and Rails blogs. (Under Categories on the right side of this post, select remittances to get a full listing.)
Responding to input from financial institutions, other governmental regulatory agencies, and the remittance industry groups, the CFPB announced on November 27, 2012, that it plans to issue a proposal to refine specific provisions of the rule and will propose an extension of the effective date until 90 days after the bureau finalizes the proposal. Following are the proposed key changes:
- One of the key requirements of the rule is that the RTP must disclose the exchange rate and all fees and taxes charged for the remittance so the sender can see the net amount received by the recipient. The CFPB received a number of comments indicating that it would be extremely difficult for RTPs to create and maintain an accurate database of national and local taxes as well as other fees imposed by the disbursement facility. In response, the CFPB's proposal will provide additional flexibility by permitting RTPs to base disclosures on published bank fee schedules and only for taxes levied at the national level.
- Originally, the rule placed the liability on the RTP for transmittal errors resulting in nondelivery or late delivery resulting from incorrect account numbers. However, the CFPB plans to release the RTP from this responsibility if the RTP can demonstrate that the consumer provided incorrect information. The RTP must still make a good faith effort to recover the funds.
The CFPB will be publishing its proposed modifications in December and will be seeking public comment before issuing a final rule sometime in the spring. While these modifications are termed "limited" by the CFPB, remittance providers must be breathing a measured sigh of relief, especially regarding the shift in liability from consumer-created errors. It will be interesting to monitor the impact of these regulations to determine if there has been any constriction in the number of countries served due to the additional requirements.
By David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed