World Council, CUNA Voice Concerns on Final CFPB Remittance Transfers Rules
January 24, 2012
WASHINGTON, D.C. — World Council of Credit Unions and Credit Union National Association, the U.S. credit union trade group, have expressed concern about the compliance challenges to credit unions posed by new U.S. rules governing international remittance transfers. The 417-page remittance rules were issued Friday, Jan. 20, by the Consumer Financial Protection Bureau (CFPB) along with an accompanying proposal on remittance safe harbor requirements.
World Council and CUNA have been coordinating input to the CFPB on this issue since the remittance rules were first proposed. After reviewing the final regulations, the two groups indicated they plan to bring the problems they see with the rules to the attention of the CFPB and its newly appointed director, Richard Cordray.
"We are concerned that a number of credit unions that provide remittances as defined by the rule will face challenges in complying with the new regulation," said Brian Branch, president and CEO of World Council.
"CUNA plans to ask the CFPB to provide as much regulatory relief as possible through the accompanying proposed ‘safe harbor,'" said CUNA President and CEO Bill Cheney. "We also plan to meet with CFPB Director Cordray next week to raise this and other issues, and we are raising concerns in our comment letter to the CFPB on the agency's streamlining of regulatory requirements."
The remittances regulation will affect most U.S. credit unions that provide consumers with international electronic funds transfer services because it broadly defines the term "remittances" to include virtually all cross-border electronic funds transfers initiated by consumers in the United States (other than most transfers involving credit, debit and prepaid cards).
The new regulation will apply to consumer-initiated credit union international automated clearing house (ACH) and wire transfers using the SWIFT and similar systems, as well as to World Council's International Remittance Network® (IRnet) and other money transfer organizations more commonly associated with "workers remittances" sent home by immigrant workers to their families. It will not apply to international electronic funds transfers initiated by businesses but will apply to most international consumer ACH and wire transfers sent from the United States to a business overseas, for example to pay bills. The rule takes effect a year following its Jan. 20 publication in the Federal Register.
The accompanying proposed rule would exempt credit unions that provide 25 or fewer international consumer-initiated electronic funds transfers per year from all aspects of the rule. Credit unions performing more than 25 of these transactions per year would be subject to the rule if they provide international funds transfer services "in the ordinary course of business" under a facts and circumstances test.
Key points of the final rule for credit unions include:
- The rule contains a partial exemption from some of the disclosure requirements for federally insured credit unions until at least 2015, and possibly until 2020. This temporary exemption will allow credit unions initiating international wire and ACH transactions for consumers to provide estimates of applicable exchange rates and fees and taxes imposed by correspondent foreign banks and governments instead of providing consumers with the exact amounts in local currency. These rates, fees and taxes are currently unknowable to the initiating credit union in most cases because of fluctuating spot currency exchange rates and because the design of international wire and ACH systems rely on correspondent institutions and clearinghouses with which the initiating credit union does not have a direct relationship.
- Consumer FedGlobal ACH transfers sent to certain countries from the United States may also be subject to a permanent partial exemption allowing estimated disclosures. Although industry groups requested that the CFPB expand this permanent partial exemption to include other ACH systems and international wire systems such as SWIFT, the CFPB did not do so in the final rule.
- Even with these partial exemptions, credit unions will have to fully comply with the rule's other requirements such as the rule's error resolution and liability for acts of "agents" provisions and must still provide consumers with disclosures that include estimates of likely exchange rates, fees and taxes.
- Consumers will have up to 30 minutes to cancel an international transfer after requesting that it be initiated.
- The final rule will also displace the operation of Article 4A of the Uniform Commercial Code (UCC)—the state law that sets forth the legal relationships between credit unions and correspondent banks regarding transfers using the FedWire, SWIFT and other traditional wire systems—for any internationally bound consumer transfers subject to the final rule. This aspect of the rule creates considerable legal uncertainty regarding the rights and responsibilities of credit unions and banks using traditional wire systems for consumer transactions that fall under this regulation unless all states amend their versions of the UCC before the final rule takes effect.
- The final rule will apply even when the sender is transferring funds to an account in another country that is in the sender's own name.
- Although industry groups had asked the CFPB to set a maximum dollar value for transactions above which the regulation would not apply—because most traditional workers' remittance transfers have a value of only several hundred dollars—the CFPB did not include such an exemption in the final rule. The rule will therefore apply to most international consumer electronic fund transfers of more than US$15.
- The CFPB estimates that the aggregate regulatory burden of the regulation on banks and credit unions with more than US$10 billion in assets and on storefront money transfer agents will be more than 7.6 million person-hours annually during the first year, with an "ongoing" aggregate annual burden of more than 4.2 million person-hours. These estimates do not include the final rule's regulatory burden on the more than 7,200 U.S. credit unions and thousands of banks with less than US$10 billion in assets.