Consumer Compliance Outlook: Fourth Quarter 2013

Compliance Spotlight

Amendment to the Regulation E Foreign Remittance Transfer Rule

Congress added new consumer protections for foreign remittance transfers in Section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and directed the Consumer Financial Protection Bureau (CFPB) to issue an implementing regulation. In response, the CFPB published final rules under Regulation E in 2012.1

In response to industry concerns about certain aspects of the regulation, the CFPB amended the final rule on May 22, 2013.2 The amendment includes the following changes:

  • making it optional for the remittance transfer provider (provider) to disclose fees imposed by a designated recipient’s institution or foreign taxes collected by a person other than the provider. When a transfer could include such taxes or fees, a disclaimer must appear on the prepayment disclosure and receipt (or the combined disclosure if it is utilized in lieu of the prepayment disclosure and receipt) stating the recipient could receive less than the amount disclosed because of fees charged by the recipient’s bank or foreign taxes
  • establishing that a provider is not liable to the consumer when funds are mistakenly deposited in the account of someone other than the designated recipient because the sender provided an incorrect account number or recipient institution identifier, and
  • delaying the original effective date from February 17, 2013, until October 28, 2013.

This Compliance Spotlight provides an overview of the amendment.

New Definitions

To provide greater clarity about which fees must be disclosed, the amendment added two new definitions to the regulation concerning third-party fees:3

  • covered third-party fees — fees imposed on the remittance transfer by a person other than the provider, except for noncovered third-party fees
  • noncovered third-party fees — fees imposed by the designated recipient’s institution for receiving a remittance transfer into an account unless the institution acts as an agent of the remittance transfer provider

Changes to Disclosure Requirements for Fees and Foreign Taxes

The industry expressed concern to the CFPB that the original rule’s requirement that providers must disclose all foreign taxes and fees imposed by persons other than the provider would be difficult to implement in an open network because typically no single provider has relationships with all of the participants collecting or disbursing funds.4 Thus, fees or taxes could be imposed in an open-network transaction over which the provider has no knowledge or control. To address this concern, providers do not have to disclose noncovered third-party fees and foreign taxes collected by a person other than the provider. The CFPB stated in the rulemaking that it believes the majority of remittance transfers are conducted through closed networks, to which these exemptions would generally not apply.

Although providers are not required to disclose noncovered third-party fees and taxes collected by a person other than the provider, the final rule permits providers to disclose this information when it is available using the actual information or estimates, as long as the estimates are derived from reasonable sources of information.5 The Official Staff Commentary (Commentary) for Regulation E provides examples of reasonable sources of information for estimates:

  • information obtained from recent transfers to the same institution or the same country or region
  • fee schedules from the recipient institution
  • fee schedules from the recipient institution’s competitors
  • surveys of recipient institution fees in the same country or region as the recipient institution
  • information provided or surveys of recipient institutions’ regulators or taxing authorities
  • commercially or publicly available databases, services or sources, and
  • information or resources developed by international nongovernmental organizations or intergovernmental organizations.6

Changes to Prepayment Disclosure

When a transfer includes, or could include, noncovered third-party fees or taxes collected by a person other than the provider, the provider must include a disclaimer on the prepayment disclosure and receipt (or the combined disclosure if it is utilized) stating that the recipient may receive less than the amount disclosed because of fees charged by the recipient’s bank or foreign taxes.7 The final rule includes revised model forms for the prepayment disclosure, receipt, and combined disclosure with the disclaimer.8

Error Resolution

The rule revises the error resolution requirements in 12 C.F.R. §1005.33(a)(1)(iii)(C), consistent with the changes to the disclosure requirements previously discussed. When a discrepancy occurs between the amounts disclosed on the receipt or prepayment disclosure and the amount the recipient received because of noncovered third-party fees or foreign taxes, and the provider made the disclaimer under 12 C.F.R. §1005.31(b)(1)(viii) that the recipient may receive less than the amount disclosed because of fees charged by the recipient’s bank or foreign taxes, an error has not occurred.

In addition, if the sender gives the provider an incorrect account number or recipient institution identifier, the failure to make the funds available to a designated recipient by the date stated in the disclosure is not an error.9 This exception only applies if:

  • The sender provided an incorrect account number or recipient institution identifier.
  • For any instance in which the sender provided an incorrect recipient identifier, the provider used reasonably available means to verify that the recipient institution identifier submitted by the sender corresponded with the recipient institution name provided by the sender.
  • The provider notified the sender before the sender paid for the remittance transfer that if the sender provided incorrect information, the sender could lose the transfer amount.
  • The incorrect information provided by the sender resulted in the deposit of the remittance transfer into a customer’s account that is not the designated recipient’s account, and
  • The provider promptly used reasonable efforts to recover the amount that was meant to be received by the designated recipient.10

The Commentary clarifies that the exception does not apply when the failure to make funds available occurred because of a provider’s error, a third-party error, or if it resulted from incorrect or insufficient information provided by the sender other than an incorrect account number or recipient institution identifier.11 The Commentary also elaborates on what constitutes reasonable efforts to recover the amount that was transferred to someone other than the designated recipient, stating that whether a provider used reasonable efforts does not depend on the ultimate success of those efforts. The Commentary describes, as an example of reasonable efforts, a remittance transfer provider promptly contacting the institution that received the transfer either directly, indirectly, or through a messaging service, to request that the funds be returned.12

Further, if a provider determines that an error occurred, the final rule permits the provider to deduct from the amount refunded, or applied to a new transfer, any fees imposed by persons other than the provider or taxes deducted from the first unsuccessful remittance transfer attempt. But this exception does not apply if the provider will receive a refund of the taxes or fees. The Commentary includes examples to facilitate compliance.13

Specific issues and questions should be raised with your primary regulator or with the CFPB, which has a regulations assistance line at (202) 453-7700 and an e-mail address for regulation questions at CFPB_reginquiries@cfpb.gov. E-Mail