Monica Jackson
Office of the Executive Secretary
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552
RE: Docket No. CFPB-2012-0050 and RIN 3170-AA33; Proposed Changes to Remittance Transfer Rules
Dear Ms. Jackson:On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I am writing to you regarding the Consumer Financial Protection Bureau’s (CFPB) proposed rule and request for comment on amendments to Regulation E with respect to remittance transfers. See 77 Fed. Reg. 77188 (December 31, 2012). The proposed rule revises the CFPB’s final rules, released on February 7, 2012 and August 20, 2012 (together, the Final Rule), implementing section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
This comment letter is in response to the CFPB’s proposed substantive changes to, and 90-day delayed implementation of, the Final Rule. While NAFCU appreciates the CFPB’s efforts to provide a measure of regulatory relief, NAFCU does not believe the proposed changes will constructively or completely solve the problems associated with the remittance transfer rules. NAFCU continues to engage in conversations with its members’ CEOs and the overwhelming majority maintain that, even under the proposed changes, they will still be forced to stop offering remittance transfer services due to the high regulatory burden of the Final Rule. For the reasons stated below, NAFCU believes the proposed rule will create additional consumer confusion and the potential for consumer abuse, while significantly adding to the heavy compliance burden credit unions already face. This will lead to remittance transfer providers exiting the market, limiting consumers’ access to, and driving up costs for, remittance transfer services.
Before addressing the individual provisions of the proposed changes, NAFCU would like to reiterate its belief that the CFPB should exempt federally regulated credit unions, or, alternatively, small entities consistent with the Small Business Regulatory Enforcement Fairness Act, from the purview of the Final Rule. The CFPB relied on an institution size-based threshold, rather than a transaction size-based threshold, in its recently released mortgage rules. NAFCU urges the CFPB to adopt a similar approach for differentiating between remittance transfer providers.
The regulatory burden that the Final Rule places on credit unions will lead to a significant reduction in consumers’ access to remittance transfer services. Many credit unions already facing an enormous compliance burden have discontinued, or will be forced to discontinue, their remittance programs. Those that continue to offer remittances will be forced to significantly increase their members’ fees. The latest NAFCU Economic & CU Monitor survey indicated that half of its respondents would not be protected by the CFPB’s exemption from the Final Rule. This demonstrates that the 100-remittance transfers allowance threshold is too low. Further, 26.9 percent of survey respondents, including one credit union that averages 25,000 remittances per year, said they would drop their remittance program as a result of the new rule. NAFCU members have also indicated that the compliance costs associated with the remittance transfer rule will have an impact on their ability to offer other services to their members. As further discussed below, the proposed rule would do little to prevent this exit from the industry.
- Introduction
The Dodd-Frank Act amended the Electronic Fund Transfer Act (EFTA) to establish new laws and regulations regarding international remittance transfers. The CFPB issued the Final Rule to implement these amendments, while continuing to consider revisions in response to industry concern. Accordingly, the proposed rule seeks to amend the Final Rule by: (i) adding flexibility and guidance in reference to disclosing foreign taxes and recipient institution fees; (ii) eliminating the requirement to disclose foreign taxes at the regional, state, provincial, or local level; and (iii) revising the error resolution provisions that are triggered when a sender provides incorrect or insufficient information to a provider in connection with a remittance transfer. The proposed rule also seeks to delay implementation of the Final Rule until 90 days after changes are finalized. While NAFCU appreciates the CFPB’s flexibility and receptiveness thus far, NAFCU does not believe that this proposed rule will afford credit unions the relief that the CFPB intended, and will serve to confuse and disadvantage the consumer further. As such, the Final Rule, even if modified as proposed, will impose significant burdens on credit unions and bring little to no utility to the consumer.
- Open and Closed-Loop Payment Systems
As an initial matter, the Final Rule should acknowledge the functional differences between “closed-loop” and “open-loop” payment systems and recognize that a singular rule cannot effectively cover both types of payments. In a closed loop system, the international remittance service provider is responsible not only for sending the remittance, but for disbursing the funds as well and is the controlling agent for the collection of all fees and taxes prior to disbursement of funds. Additionally, the service provider in a closed-loop system is uniquely situated to resolve errors because it controls all aspects of the remittance. Conversely, in an open-loop payments system, such as bank wires, the service provider only has effective control of the remittance up to the point the funds are passed to the next participant in the transfer, whether a correspondent bank or the beneficiary bank. Once that transfer has occurred, the service provider is not in a position to determine how the funds are handled, nor is there a legal or regulatory framework in place to force cooperation from the beneficiary bank in resolving errors. Further, the beneficiary bank in such situations is in a far better position to determine the levels of foreign taxes and institution fees applicable to the transfer.
- Disclosure of Foreign Taxes and Recipient Institution Fees
Under the Final Rule, credit unions would need to disclose to the sender foreign taxes and recipient institution fees prior to the transfer, and would need to take such fees and taxes into account when calculating the disclosure of the amount to be received by the recipient. The proposed rule provides a limited amount of flexibility in cases where a credit union does not have specific knowledge regarding variables that affect the amount of foreign taxes or recipient institution fees.
- Foreign Taxes and Institution Fees
NAFCU strongly supports the CFPB’s proposal to remove the requirement to research and disclose subnational taxes. This aspect of the proposal will help reduce the overall expenses associated with remittance transfers. If the requirement under the Final Rule is left unchanged, the burden to determine the various levels of subnational tax information will lead to a large number of credit unions exiting the remittance transfers market. NAFCU also encourages requiring the use of the term “Estimated” on the disclosure forms if disclosure of foreign taxes at the regional, state, provincial or local level is not required. Disclosing that this amount is an estimate provides the consumer with knowledge that the final amount may vary and makes the paper disclosure less cumbersome for the sender to read, both of which improve the overall efficiency and accuracy of the remittance transfer process.
NAFCU does not believe that service providers should be responsible for disclosing fees and taxes, especially those levied on “open-loop” remittances after they have left their effective control. Any such disclosures should be limited to estimates for informational purposes only. For the reasons discussed below, doing so would result in more accurate disclosures and disclosures that are of better use to consumers, as well as ensuring that the market for remittance transfers remains competitive.
It is very difficult for credit unions to ascertain real time, reliable data regarding foreign taxes imposed by a country’s central government. Some credit union providers handle remittance transfers to a vast number of countries. Gathering accurate information to comply with these rules, even with the minor relief afforded by the proposed changes, will still prove prohibitively expensive. Similarly, a number of variables may affect recipient institution fees imposed on a remittance transfer that are not easily knowable by the sender. Recipient institution fees are not readily available to providers even upon request, and may be governed by a private contract between the recipient institution and the recipient. Although the CFPB describes the costs to ascertain the disclosure requirements under the proposed as “modest,” they are not modest by any means. This is especially true for credit unions that fall just over the 100-remittance transfer exemption that do not conduct nearly enough transactions to justify the costs of compiling and verifying these data. Further, the delays and costs associated with gathering this information will be passed on to the consumer.
While the proposed change to permit credit unions to disclose an estimate of foreign taxes and fees is a welcomed relief, credit unions would still have difficulty in assessing even an estimate of these taxes and fees. Further, affording providers the allowance to estimate the foreign taxes or fees by disclosing the highest possible foreign taxes or fees that could be imposed with respect to any unknown variable does not afford any functional relief to credit unions. Credit unions in such situation are left with a choice between trying to determine an exact amount or disclosing the highest possible amount they can estimate, effectively removing them from the competitive market. Credit unions providing estimates could find themselves legally liable, or, at the very least, facing significant member dissatisfaction if estimates are not realized. For example, estimating the highest possible taxes and fees may result in larger than necessary remittance transfers being sent.
There would also be little benefit to the consumer because providing the highest possible taxes and fees that could be imposed will not disclose anything meaningful. Additionally, having two sets of routes for disclosure, either by estimating the highest possible taxes and fees or the actual taxes and fees, will not allow for the consumer to conduct useful comparison shopping, as the final rule intended. In the end, a credit union is still left with the high burden of determining these amounts or exiting the market for remittance transfers. Consumers are either left with higher fees imposed by their credit union to cover determining this information, or with a meaningless estimate that may result in them sending more or less money than they intended. In short, the possible repercussions of this disclosure severely outweigh its benefits.
Under the proposed rule, if a provider does not have specific knowledge regarding variables that affect the amount of taxes or fees imposed by a recipient’s institution, the provider would be permitted to rely on a sender’s representations regarding these variables.
NAFCU believes that once the transfer leaves the credit union, the recipient and the recipient institution are in the best position to know what fees and taxes they or their country charge. NAFCU members have indicated their uneasiness towards relying on sender representations or providing estimates, as it exposes them to potential liability and complaints from their members. Disclosing the highest possible amount misleads consumers and does not allow them to conduct meaningful comparison shopping for these services, as the disclosure requirements intended.
While NAFCU appreciates the CFPB’s efforts to add flexibility in determining foreign taxes and recipient institution fees, NAFCU is concerned about the potential for increased errors and liability on the part of the credit union in relying on sender representations regarding unknown variables that affect the amount of foreign taxes and fees imposed by a recipient institution. Further, credit unions would need to develop a recording system and questionnaire, and train their employees on how to effectively use both, to ascertain this information from the sender and keep it on record. Credit unions would also require the sender’s binding acknowledgement that they made these representations, or institute similar provisions, to ensure they are insulated from potential member disputes or lawsuits stemming from disclosure errors.
These are extremely costly measures to try to ascertain information that the sender, in all likelihood, will not have to begin with. In many cases, it is unlikely that credit union members will: understand the relevant pricing variables; have a contact at the receiving international institution; or speak the foreign language to enable them to confirm these taxes and fees. Further, allocating the burden onto the sender will push senders away from small institutions, such as credit unions, to larger ones that have the resources to ascertain this information without the sender’s help. Again, an anticompetitive market is inevitable. As such, NAFCU maintains that the recipient institution is in the best position to know what fees it may impose and to what taxes the transfer may be subject, and the transfer provider should not be responsible for disclosing these taxes and fees.
- Alternative Solution
NAFCU proposes an alternative solution that would both provide meaningful cost information for taxes and fees to the consumer and mitigate the compliance burden on the credit union. Specifically, NAFCU believes the CFPB should maintain an up-to-date database of taxes and fees information on which credit unions and other providers could rely in making disclosures to the consumer. The CFPB should also provide a safe harbor for any providers who rely on this information in making their disclosures. Providing one standardized database on which the whole industry may rely will reduce consumer confusion by making disclosures, and their basis, simpler to understand and afford the consumer a more accurate depiction of the remittance transfers services market.
The reduction in regulatory burden that such a database would provide will not only ensure that the increased costs from compliance are not passed on to the consumer, but will also likely reduce the number of credit unions that exit the remittance transfer services market. For example, one NAFCU member has stated that they can currently process an international wire transaction for approximately one dollar per transaction. However, the service provider it employs charges forty-five dollars per transaction, plus a one hundred dollar per month account maintenance fee—a typical pricing structure. The credit union cannot absorb this fee and has no choice but to pass it on to the consumer or cease remittance transfer services. A standardized and centralized resource would greatly lessen the number of unknown components and the expenses associated with the remittance transfer process.
- Errors Resulting from Incorrect or Insufficient Information Provided by Sender
Under the proposed rule, when a sender provides an incorrect account number, and the remittance transfer is not delivered to a designated recipient as a result, the provider will not be held responsible for the funds. However, the provider would be required to attempt to recover the funds. NAFCU has continuously urged the CFPB to create a provision in the Final Rule for situations where there is an error due to the sender’s incorrect or insufficient information to protect credit unions from liability in such cases. As such, NAFCU is very supportive of this proposed rule change. Many of our members have indicated that it is already their practice to attempt to recover their member’s funds in such cases and the additional guarantee that they will not be liable for the amount not recovered provides much-needed assurance. While we support the proposed change, NAFCU requests that the CFPB provide additional guidance on the requirement that a provider “attempt to recover funds.” Namely, further explanation with regard to: overall time frames, number of attempts required per failed remittance, response time for recipient to respond to request, timeframe for closing the dispute, and any other relevant terms. This guidance is necessary given the arduous process for recovering funds from a foreign recipient institution with which it may be difficult to communicate and that may be unwilling to help.
However, in the case where a sender provides incorrect or insufficient information other than an account number, NAFCU’s members would like additional assurances that they will not be held liable for any lost or misplaced funds. The service provider should only be responsible for disclosing when funds will be made available to the beneficiary bank for deposit to the recipient’s account, not necessarily when they will be deposited into the beneficiary account. Certain conditions may affect the availability of funds to the receiver at a beneficiary bank that a service provider can neither know nor control, and holding the service provider responsible for such “errors” only invites member dissatisfaction and, possibly, unnecessary legal action. A service provider will not know the funds availability policies of the beneficiary bank or how they might affect the sender’s remittance. Holding a service provider responsible for an error when a beneficiary bank does not deposit funds on the day they are received and requiring that the service provider reimburse the sender for any fees or taxes because the funds are not timely, or possibly making remuneration for losses associated with the delayed deposit, is an undue burden on the service provider, especially since the service provider will not have legal recourse to recover the funds.
Further, NAFCU believes that any “errors” for which a service provider is held responsible, as defined by the new rule, should only include circumstances in which the service provider is responsible for the actual error. If any information a sender provides in their request to remit funds is responsible for the non-receipt or erroneous disbursement or deposit of funds, the service provider should not be held responsible. For instance, if a sender provides the wrong beneficiary bank information and this results in funds being deposited into the wrong account, the service provider should not be responsible to refund any fees or taxes regardless of whether the funds are recoverable or not. Likewise, if inaccurate information supplied by the sender is responsible for the funds being returned by the beneficiary bank, the service provider should not be held responsible for any decrease in the amount of the remittance due to fees lifted during any stage of the remittance transfer or any loss of funds due to differences in exchange rates between the initial transfer and the return of funds.
- Delayed Implementation Date
While NAFCU appreciates the delayed implementation date of the remittance transfer rule, we request that the CFPB further extend the delay of the effective date beyond 90 days so as to allow credit unions sufficient time to comply with the proposed rule and to make the required disclosures of fees, taxes, and exchange rates required under both the Final Rule and the proposed rule as they currently stand.
Many credit unions rely on third-party processors and vendors to transact remittance transfers. The overwhelming response from these third parties is that they do not yet have the procedures, systems, or fee schedules available to implement these changes and that they expect it to take considerable time before they do. A major focus of credit unions is quality member service and the remittance transfer process is easily susceptible to delay and error without these modifications. Accordingly, NAFCU suggests the implementation date be delayed at least an additional six months following the finalization of the rule changes to give adequate time for system changes, disclosure developments, and training for credit union associates. Most important is allowing sufficient time to notify credit union member of the new procedures and possible higher fees, and 90 days is simply not enough within which to do that.
- Conclusion
NAFCU has engaged with the CFPB throughout the remittance transfer rulemaking process and continues to ask for the CFPB to provide regulatory relief for credit unions with respect to this matter. NAFCU would like to reiterate the necessity for the CFPB to respond to credit union concerns during the rulemaking process, rather than implementing remedial measures after the fact. Although NAFCU appreciates the CFPB’s responsiveness to reconsider the remittance rule, proactive efforts by the CFPB to address potential problems and reduce the future compliance costs and regulatory difficulties faced by credit unions would be far more effective when conducted prior to and during the rulemaking process.
NAFCU appreciates the opportunity to share its thoughts on remittance transfer requirements and would like to discuss this matter further. Should you have any questions or concerns, please feel free to contact me at fbecker@nafcu.org or (703) 842-2215 or Angela Meyster, NAFCU’s Regulatory Affairs Counsel at ameyster@nafcu.org or (703) 842-2272.
Sincerely,
Fred Becker, Jr.
President and CEO