Millions of Americans send money abroad every year—an estimated $51 billion in 2012 alone. However, until recently, international monetary transfers handled by financial institutions were not covered by federal consumer protection regulations.
New financial regulations aiming to protect the consumers who send estimated billions to family, friends, and businesses abroad have recently taken effect. Beginning this month, financial companies must disclose fee costs before processing an international transaction and must also provide methods to handle potential errors and disputes.
The sheer complexity of the provisions and growing developments in the finance regulation sector appear to be a concern for some financial institutions. To help banks and other financial institutions comply with the new regulations, the Consumer Financial Protection Bureau (CFPB) recently published the procedures the agency will use to evaluate financial institution compliance with international money transfer regulations.
Until last year, consumers sending money abroad had few protections if they felt they were paying exorbitant additional fees. However, in 2012 the CFPB adopted a rule describing how financial institutions, such as credit unions and commercial banks, providing remittance transfers, or international monetary transfers, should treat customers. Mainly, the rule helps consumers by requiring institutions to ensure awareness of all transfer costs, provide proof of transfer payment, and allow for cancellation and other dispute resolution procedures.
Although, the rule primarily benefits consumers, it significantly affects all sectors of the financial services industry, from banks to private equity funds. The rule applies to all transfers regardless of their purpose, including wire transfers, online bill payments, mobile transfers, and added funds to prepaid cards. However, financial companies with fewer than 100 annual transfers and remittance providers handling money transactions worth less than fifteen dollars are exempted from compliance.
Generally, consumers are sending money abroad far in excess of the fifteen dollar minimum–often times money is sent in hundreds or thousands. Before the rule, consumers did not know how much money would be received on the other end of a transfer because of extra fees or exchange rates converting dollars into foreign currency. “Consumers need and deserve to have greater transparency and basic consumer protections when transferring money internationally,” said CFPB Director Richard Cordray. “Today’s examination procedures will help ensure that they are getting just that from their remittance providers.”
The CFPB’s recently released examining procedures are intended to help evaluate compliance with the rule’s requirements. Specifically, the published procedures provide a seemingly comprehensive 67-page checklist examiners will use to verify proper documentation and to ensure that financial institutions have established internal procedures to resolve errors.
CFPB compliance examiners will review remittance transfers for signs of other risks and unfair or deceptive practices. Working with the rest of the agency’s enforcement staff, they will help ensure that the agency will respond to potential violations.
The agency appears to have taken several other efforts to provide transparency by developing an overview of the new regulation and clarifying how it will be implemented. For example, CFPB released a video explaining many of the rule’s recent changes. It also released an updated online guide summarizing many challenges and issues that businesses, particularly small businesses, should consider in implementing the new requirements. Additionally, the agency has created and released a web-based online tool, “eRegulations,” aimed at making all of its regulations easier to find and understand. The CFPB created and implemented it in the hope of improving general regulation compliance, accessibility, and oversight.
The CFPB has also engaged in inter-agency collaboration with other financial regulatory agencies to develop a shared understanding of CFPB’s new rules. The published examination procedures are based on policies the agency created with the Federal Financial Institution Examination Council—an inter-agency coalition that promotes oversight of financial regulations like those involving remittance providers.
Financial institutions have been long aware of the impending compliance deadlines after the remittance transfers rules passed as part of a law in 2010. Yet, with the new requirements, some financial institutions appear undecided on whether they will continue to allow customers to send money abroad from the U.S. If rule compliance is considered too “burdensome,” some institutions may opt for lower cost alternatives instead of allowing consumers to make remittance transfers.
A potential decrease in institutions offering remittance transfer services might be an obvious consequence of the rule. However, several sources have attempted to evaluate other potential implications of the remittance rule. For example, one study suggests that although the CFPB rule aims to protect consumers by requiring institutions to have fee disclosures and cancellation procedures, it is accompanied by harsh penalties and heavy compliance burdens that may have an adverse impact on U.S. foreign aid. These commenters have suggested the rule will impede remittances to post-conflict states because the rule’s disclosure requirements mandate third-party fee disclosure at the time of the actual transfer, unless the transfer recipient’s bank or financial institution is the one imposing additional fees. They argue future transfers to recipients in countries where bank accounts are uncommon will be difficult—especially when other forms of transfer used in such places, like mobile transfers, are not excluded under the rule.
However, the rule’s supporters view it as a “win” for consumers—particularly, for migrant workers and U.S. immigrants needing to send money abroad. Reportedly, the World Bank estimated migrants made $325 billion in worldwide transfers in 2010.