Rules for International Money Transfers

Rules for International Money Transfers

December 9, 2013

October 28, 2013, was the effective date of the Consumer Financial Protection Bureau’s (CFPB) final rules amending its Regulation E to include new consumer protection requirements regarding remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries (hereafter, the “Rule”). These requirements were included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA), which expanded the Electronic Fund Transfer Act (EFTA) in response to concerns regarding inadequate consumer protections for remittance transfers. Historically, many consumers sending wires abroad reported being overcharged, misinformed and, in some cases, unsuccessful in transferring the funds to the intended recipient. The Rule provides a variety of protections to consumers, including new disclosures and comprehensive error resolution rights, all intended to improve the transparency and reliability of foreign remittance transfers. This Flash Report summarizes the technical requirements of the Rule and provides perspective on effective implementation of these requirements.

Covered Entities and Transactions

A remittance transfer is an electronic transfer of funds requested by a consumer in the United States (the “sender”) and sent by a remittance transfer provider (the “provider”) to a recipient in a foreign country, which can be any natural person or business entity specified to receive the transfer (the “designated recipient”). A remittance transfer provider is any entity (including a depository institution, credit union or money transmitter) that provided more than 100 remittance transfers in the current and previous calendar years. The following table summarizes the types of remittance transfers covered by the Rule:

Remittance transfers are subject to the Rule even if the sender does not have an account with the remittance transfer provider, and regardless of whether the transaction is also an electronic funds transfer (EFT).

Consumer Disclosures

One of the primary components of the Rule is that remittance transfer providers are required to provide clear and conspicuous disclosures to senders that reflect the details of the specific transaction. The disclosures must be provided both prior to and after the sender makes the payment; however, combined disclosures are also permitted. The information required to be included in the disclosures is described below:

  • Pre-payment disclosures: Senders must be provided certain disclosures when the sender requests a remittance transfer, but before a remittance transfer is paid. These disclosures must include: o Transfer amount. The amount that will be transferred to the designated recipient.
    • Transfer fees and transfer taxes. Any fees imposed and any taxes collected on the remittance transfer by the provider. o Total amount. The total amount of the transaction, which is the sum of the transfer amount and any transfer fees and transfer taxes.
    • Exchange rate. The exchange rate used by the provider.
    • Transfer amount (in foreign currency). The amount that will be transferred, as described in the first bullet point above, in the currency in which the funds will be received, but only if covered third-party fees are imposed (explained in the following bullet point).
    • Other fees. Any fees imposed on the remittance transfer by a person other than the remittance transfer provider if the person charging the fee is an agent of the remittance transfer provider or an intermediary institution in connection with a wire transfer (“covered third-party fees”).
    • Total to recipient. The amount that will be received by the designated recipient in the currency in which the funds will be received.
    • Statement on non-covered third party fees and taxes. A statement that certain foreign taxes and third-party fees may be collected by someone other than the provider and that the recipient therefore may receive less than disclosed (disclosure of these actual fees and taxes is optional, if the amounts can even be determined).

Providers may also choose to indicate that, in the event the sender provides an incorrect account number or recipient institution identifier, the sender could lose the transfer amount. Finally, certain pre-payment disclosure estimates are not guaranteed until payment is made by the sender. For example, if exchange rates change after the pre-payment disclosure is provided and prior to the payment being made, the provider may offer a new pre-payment disclosure to reflect the change in rates. However, if rates change after payment is made, the provider must honor the rate provided on the pre-payment disclosure.

  • Receipt disclosures: Consumers must also be provided certain disclosures when payment is made for the remittance transfer, which can be either by cash or customer authorization. These disclosures must contain the same information provided in the pre-payment disclosures, as well as the following:
    • Availability date. The date in the foreign country on which funds will be available to the designated recipient.
    • Recipient information. The name, and if provided by the sender, telephone number and/or address of the designated recipient.
    • Error resolution and cancellation rights. A statement summarizing the sender’s rights regarding the resolution of errors and cancellation. o Remittance transfer provider information. The name, address and website of the remittance transfer provider.
    • Contact information. A statement that the sender can contact the state agency that licenses or charters the remittance transfer provider with respect to the remittance transfer and the CFPB for questions or complaints about the remittance transfer provider (and the contact information of these agencies and the CFPB).

For any remittance transfer scheduled by the sender at least three business days before the date of the transfer, or for the first transfer in a series of preauthorized remittance transfers, the receipt disclosure must also contain the date the remittance transfer provider will make or made the remittance transfer.

  • Long-form error resolution and cancellation notice. Upon a sender’s request, a remittance transfer provider must promptly provide a detailed (“long-form”) notice of the sender’s error resolution and cancellation rights. For transfers scheduled by the sender at least three business days in advance, the description of these rights must reflect the cancellation requirements for remittance transfers scheduled in advance.

Often, the transfer request and payment occur closely together in time; as such, a disclosure that combines the content requirements of the pre-payment disclosure and receipt disclosure can be provided in a single disclosure to the sender prior to payment of the remittance transfer. However, if a combined disclosure is used, the sender must also be provided with a proof of payment (or confirmation that the transfer has been scheduled, when the payment is not processed by the provider at the time it is scheduled) that is clear and conspicuous, in writing and in a retainable form.

There are certain unique disclosure requirements that apply to transfers scheduled in advance of the actual transfer date:

  • For a one-time transfer scheduled five or more business days in advance of the date of transfer or for the first in a series of preauthorized remittance transfers, both the pre-payment disclosure and receipt disclosure must be provided to the sender in the same manner described above. However, if any of the disclosures contains estimates, the provider must also mail or deliver to the sender an additional receipt disclosure within one business day after the date of the transfer. (In cases where the transfer is initiated from the sender's account held by the provider, this additional disclosure may be provided with the sender’s next periodic statement, or within 30 days after the date of the transfer if a periodic statement is not provided.)
  • For each subsequent preauthorized remittance transfer:
  • If any of the non-estimated information on the most recent pre-payment and receipt disclosures provided becomes inaccurate, then the provider must provide to the sender, within a reasonable time prior to the scheduled date of the next preauthorized remittance transfer, an updated receipt disclosure that clearly and conspicuously indicates that it contains updated information. o
  • Unless the most recent receipt disclosure provided contained no estimates, the provider must send a receipt disclosure no later than one business day after the date of the transfer. (In cases where the transfer is initiated from the sender's account held by the provider, this additional disclosure may be provided with the sender’s next periodic statement, or within 30 days after the date of the transfer if a periodic statement is not provided.)
  • The provider must disclose to the sender no more than 12 months, and no less than five business days, prior to the date of any subsequent transfer: 1) the date the provider will make the subsequent transfer; 2) a statement about the rights of the sender regarding cancellation; and 3) the name, telephone number(s), and website of the remittance transfer provider. For any subsequent preauthorized remittance transfer for which the date of transfer is four or fewer business days after the date payment is made for that transfer, this information must be provided on or with the receipt disclosure for the initial transfer in that series.

In general, the disclosures above must be provided in writing but may be provided electronically as long as the disclosures are made in a retainable form. Notably, the CFPB addressed the provision of such disclosures for transactions initiated by telephone, mobile application and/or text message as follows:

  • If a transaction is conducted orally entirely by telephone, the provider may provide the prepayment disclosure orally, and must also include the rights of the sender regarding cancellation. For preauthorized transfers, the provider must also disclose orally the date the remittance transfer provider will make or made the remittance transfer and, for any subsequent transfer in a series of preauthorized remittance transfers, the date the provider will make the subsequent transfer. 
  • If a transaction is conducted entirely by telephone via a mobile application or text message, the provider may provide the pre-payment disclosure orally or via mobile application or text message.
  • In either case, the receipt disclosure may be mailed and delivered to the consumer within one business day after the date on which payment is made for the remittance transfer; however, if the transaction is performed from the sender’s account with the provider, the receipt can be provided on or with the sender’s next regularly scheduled periodic statement for that account (or within 30 days after payment is made for the remittance transfer if a periodic statement is not provided).

Finally, disclosures must be given to the sender in English and, if applicable, either in:

  • Each of the foreign languages principally used by the provider to advertise, solicit, or market remittance transfer services, either orally, in writing, or electronically, at the office in which the sender conducts the transaction or asserts an error; or
  • The foreign language primarily used by the sender with the provider to conduct the transaction (or assert an error), provided that such foreign language is principally used by the provider to advertise, solicit, or market remittance transfer.

For disclosures provided orally for transactions conducted orally and entirely by telephone, or orally or via mobile application or text message for transactions conducted via mobile application or text message, the provider must give the disclosures in the language primarily used by the sender with the provider to conduct the transaction, regardless of which language was used to solicit, market or advertise the remittance transfer services.

Estimates

Generally, the amounts required to be disclosed in the pre-payment and receipt disclosures must be exact; however, there are exceptions that permit a provider to disclose estimates for reasons that are beyond the provider’s control or because exact amounts cannot be determined due to country-specific laws. The Rule provides four such exceptions:

  • Temporary exceptions: Insured depository institutions and credit unions that are unable to determine the exact amounts required to be disclosed for reasons beyond their control may estimate the disclosure of the exchange rate, the transfer amount (in the foreign currency) and covered third-party fees (in the foreign currency), only if the remittance transfer is initiated from the sender’s account with the institution. This might happen, for instance, where the institution does not have a correspondent relationship with the institution where the funds are deposited into the recipient's account and where that institution sets the exchange rate. Estimates utilized must conform to (or be more beneficial to the consumer than) the methods prescribed by the CFPB in the Rule. This temporary exception expires July 21, 2015.
  • Permanent exceptions for transfers to certain countries: Permanent exceptions apply for transfers to certain recipient countries where the laws or the methods by which transactions are made in these countries do not permit exact determinations to be made. The CFPB published a “safe harbor” listing of such countries that providers can rely upon to help determine whether estimates are available. This listing currently includes Aruba, Brazil, China, Ethiopia and Libya. Estimates utilized must conform to (or be more beneficial to the consumer than) the methods prescribed by the CFPB in the Rule.
  • Permanent exceptions for transfers scheduled in advance: For transfers scheduled by a sender five or more business days before the date of the transfer, the provider is permitted to estimate certain figures (e.g., exchange rate, the amount of funds to be received by the recipient, covered third-party fees, etc.) required to be disclosed in the pre-payment and receipt disclosures. Covered third-party fees may be estimated only if the exchange rate is also estimated and the estimated exchange rate affects the amount of such fees. Fees and taxes may be estimated only if the amount that will be transferred in the currency in which it is funded is also estimated, and the estimated amount affects the amount of such fees and taxes. Estimates must be based on the exchange rate (or the estimated exchange rate, if applicable) that the provider would have used or did use that day in providing disclosures to a sender requesting such a remittance transfer to be made on the same day
  • Permanent exception for optional disclosure of non-covered third-party fees and taxes: Estimates may be provided for applicable non-covered third-party fees and taxes collected on the remittance transfer by a person other than the provider (such as the institution that receives the remittance transfer on behalf of the designated recipient), only if such estimates are based on reasonable sources of information.

Procedures for Cancellation and Refund of Remittance Transfers

Under the Rule, senders may cancel a remittance transfer within 30 minutes of making a payment in connection with a remittance transfer if:

  • The sender does so in a manner that enables the provider to identify the sender's name and address or telephone number and the particular transfer to be cancelled; and
  • The funds have not already been picked up by, or deposited into an account of, the designated recipient.

A provider must provide the 30-minute cancellation right regardless of the provider's normal business hours. Senders are not required to cancel their transactions at the same location, or even in the same manner, in which they funded the transaction.

For any remittance transfer scheduled by the sender at least three business days before the date of the transfer, the provider must comply with any oral or written request from the sender to cancel the remittance transfer when the request is received by the provider at least three business days before the scheduled date of the remittance transfer.

The total amount, including all fees and taxes, must be refunded by the provider to the sender – at no additional cost to the sender – within three business days of receiving the cancellation request. The refund can be made in cash or the same form of payment used to fund the transfer; however, if the transfer was funded by cash, a refund check may be provided.

Institutions choosing to delay sending a remittance transfer until after the 30 minutes have passed must continue to honor the exchange rate disclosed to the sender, even if rates have subsequently changed

Procedures for Resolving Errors The Rule provides senders with new rights regarding error resolution, and institutions should note that these requirements differ substantially from the existing provisions applicable to EFTs. A remittance transfer provider must develop written policies and procedures designed to ensure compliance with these new error resolution requirements. The following table summarizes the types of errors covered by the Rule1 :

1Certain errors related to EFTs or credit accounts in relation to remittance transfers, such as unauthorized EFTs from a deposit account or draws on an existing line of credit, or incorrect transfers where the account-holding institution is not also the remittance transfer provider, may be subject alternatively or in addition to existing error resolution requirements under Regulation E and/or the CFPB’s Regulation Z. Institutions should coordinate implementation of the remittance transfer error resolution requirements carefully with existing error resolution processes and procedures.

To resolve an error, senders must contact the provider orally or in writing within 180 days of the disclosed date of availability of the remittance transfer; provide information sufficient for the provider to identify the sender, the recipient, and the specific remittance transfer; and indicate why the sender believes an error exists, including, to the extent possible, the type, date, and amount of the error. Longer periods may apply if a notice of error is based upon documentation, additional information, or clarification that the sender previously requested of the provider.

Providers must complete an investigation of the error within 90 days of receiving notice from the sender and notify the sender of the results of the investigation within three business days after the investigation is completed. The following steps must be taken by the provider:

  • If the error is confirmed: The provider may notify the sender that the error has been confirmed either orally or in writing. The provider must correct the error within one business day (or whenever reasonably practical) after receiving the sender’s instructions regarding the appropriate remedy. Senders should be provided with a reasonable amount of time to indicate the remedy of the error that they prefer; in the absence of direction within a reasonable period, the provider may apply a default remedy. Remedies may include refunding to the sender the amount paid for the remittance transfer or redelivering to the designated recipient the amount appropriate to resolve the error. Refunds may be in the same form in which the remittance transfer was paid by the sender, or by check, at the provider’s discretion. Note that regardless of whether the amount is refunded or redelivered, the provider must also refund any covered fees and taxes imposed on the initial transfer (whether by the provider or a third party). Remedies do not include any consequential damages. Exceptions apply for situations in which the sender originally provided incorrect or insufficient information when requesting the remittance transfer, in which case covered third-party fees and taxes imposed on the original transfer may not be required to be refunded as well.
  • If the error is not confirmed: If it is determined that no error exists, the provider must notify the sender in writing explaining the results of the investigation and the sender’s right to request copies of the documents on which the provider relied in making its determination.
  • If a different error is confirmed: If it is determined that an error occurred in a manner or amount different from that asserted by the sender, the provider must notify the sender orally or in writing of the determination and of the available remedies to correct the error. The provider must also notify the sender in writing of the results of the investigation and the sender’s right to request relevant documents related to the investigation.

The provider cannot assess any fees related to conducting an investigation or to any aspect of the error resolution process. A remittance transfer provider may correct an error without investigation, but if it does so it must comply with all timing, notification, and remedy requirements under the Rule.

Perspectives on Compliance

For institutions that worked to meet the changing compliance deadlines and requirements of this Rule since its first proposal in May 2011, it has been a long and circuitous path. The requirements are complex, and further changes and additional regulatory guidance and clarification are possible. Financial institutions seeking to manage compliance with these requirements effectively should consider the following:

  • Policies, procedures and training. The Rule establishes a new body of detailed compliance requirements that will require similarly detailed policies and procedures in order to achieve compliance operationally. Customer-facing personnel will need in-depth training to understand these new requirements and how the institution has chosen to implement them, as will back-end operational personnel processing the transactions.
  • Third parties. Third-party risk is inescapable for financial institutions offering remittance transfer services. Institutions may choose to outsource this service to third-party vendors offering turnkey solutions; however, even institutions that choose not to outsource will need to coordinate with correspondent banks, money transmitters and other agents to access key information. Institutions should manage these vendors in accordance with prudent third-party risk management practices, including contingency planning, robust initial and ongoing due diligence and clear contractual expectations regarding performance.
  • Technology. Given the automated manner in which such transactions are conducted – via online bill payment, ACH, wires, telephone, etc. – institutions must rely upon systems to facilitate compliance with these requirements. Operating systems must be capable of generating necessary disclosures, carrying out the transactions in the manner disclosed, and retaining all required information. Further, they must be designed with appropriate controls, safeguards and tools for monitoring and reporting. Finally, customers are increasingly using emerging technologies, such as mobile applications and text messaging; as such, institutions must have the necessary infrastructure in place to carry out such transactions and comply with the Rule.
  • Monitoring. Given the complexity of the Rule, the changes necessary to implement the requirements operationally, and the fact that such transactions may be offered in various departments throughout the organization, internal validation mechanisms are necessary to assess the effectiveness of the institution’s compliance with the Rule. Whether through exception reporting, compliance testing or an internal audit, processes and controls should be evaluated on a regular basis and deficiencies addressed promptly.
  • Issue management. Even in a well-designed process, things can go wrong. Manual errors may occur, systems may malfunction, and third parties may not fulfill their obligations. It is incumbent upon the financial institution to identify and manage any issues it notices expeditiously and completely, whether the issues are raised by the consumer or identified internally. Based upon the assessed nature of the issue and impact on the institution’s customers, changes to processes, systems and even third parties may be necessary, and the institution should be prepared to resolve any resulting errors with affected customers.

Finally, institutions that offer such products infrequently should take steps to ensure that they do not exceed unintentionally the annual transaction limits.

Effective Date

The disclosure requirements are effective for remittance transfers that are requested by a sender on or after October 28, 2013 (the “Effective Date”). For preauthorized remittance transfers, the pre-payment and receipt disclosure requirements will apply to preauthorized remittance transfers authorized by a sender on or after the Effective Date. The error resolution, refund and cancellation requirements are applicable only to remittance transfers on which a sender makes a payment on or after the Effective Date. For any remittance transfer scheduled by the sender at least three business days before the date of the transfer, the error resolution, refund and cancellation requirements apply to transfers authorized by a sender on or after the Effective Date.

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