CFPB Sends in New Rules for Sending Money Abroad
Jun 14, 2013
On April 30, 2013, the Consumer Financial Protection Bureau (CFPB) issued a series of amendments to its Regulation E rule, which is intended to protect consumers who send money electronically to foreign countries. This rule implemented provisions required by the Dodd-Frank Act regarding remittance transfers and is set to go into effect this fall. The general requirements of this rule are that financial institutions originating money transfers from the United States to foreign countries must:
- Provide the consumer with a written pre-payment receipt that identifies the exchange rate, applicable fees and taxes, the amount to be received by the designated recipient, and a disclosure that additional fees may apply if other intermediate parties are involved in the transaction;
- Allow consumers a post-transaction period of 30 minutes where the transaction can be cancelled and the amount sent refunded; and
- Notify consumers of their error resolution rights, and in instances where the consumer provided incorrect information, make an effort to recover the money.
The CFPB rule is a broad-ranging piece of regulation that presents a challenge in terms of monitoring compliance. Certain outcomes of the regulatory mandate, such as whether a pre-payment receipt with the appropriate disclosures was produced, may be more easily observable. Others, such as error resolution processes, are likely to be less so. The rule is also likely to have direct effects (such as additional transparency in pricing, for example) as well as indirect ones (such as potential price hikes in response to the additional regulatory burden).
As with any regulatory analysis, it is important to define the important goals this regulation is meant to address. It is also necessary to determine what information can be obtained to make the assessment of whether the relevant parties are, in fact, in compliance. No single regulation can achieve all goals desired by all parties involved, particularly as those goals are likely to evolve over time. As a result, before determining whether the CFPB rule has been successful, “success” must first be defined. For example, if remittance providers have to incur additional costs to provide the required disclosures and pass those costs to the consumers, increased disclosure may come at a cost of higher prices. Alternatively, if some of the smaller providers find it too burdensome to comply with the required error-resolution standards, they may choose to discontinue provision of remittance services, which will reduce consumers’ options for selecting among providers.
In order to make a determination of what effects, if any, the rule is having on the remittance industry and consumers, a mechanism should be established by which the CFPB is able to obtain information about market participants and use that information to assess compliance with the rule. If CFPB can simply request data on providers’ operations and financial performance, and if the providers comply, the data-gathering process may be relatively straight-forward. If this is not the case, it may be necessary to devise data-gathering programs (like surveying and primary research) that will substitute for the ability to obtain information directly from the providers of remittance services.
Access to adequate information will be essential to evaluating this rule’s effectiveness.