[Federal Register Volume 85, Number 109 (Friday, June 5, 2020)]
[Rules and Regulations]
[Pages 34870-34909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10278]
[[Page 34869]]
Vol. 85
Friday,
No. 109
June 5, 2020
Part IV
Bureau of Consumer Financial Protection
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12 CFR Part 1005
Remittance Transfers Under the Electronic Fund Transfer Act (Regulation
E); Final Rule
Federal Register / Vol. 85, No. 109 / Friday, June 5, 2020 / Rules
and Regulations
[[Page 34870]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1005
[Docket No. CFPB-2019-0058]
RIN 3170-AA96
Remittance Transfers Under the Electronic Fund Transfer Act
(Regulation E)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretation.
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SUMMARY: The Electronic Fund Transfer Act, as amended by the Dodd-Frank
Wall Street Reform and Consumer Protection Act, establishes certain
protections for consumers sending international money transfers, or
remittance transfers. The Bureau of Consumer Financial Protection's
(Bureau) remittance rule in Regulation E (Remittance Rule or Rule)
implements these protections. The Bureau is amending Regulation E and
the official interpretations of Regulation E to provide tailored
exceptions to address compliance challenges that insured institutions
may face in certain circumstances upon the expiration of a statutory
exception that allows insured institutions to disclose estimates
instead of exact amounts to consumers. That exception expires on July
21, 2020. In addition, the Bureau is increasing a safe harbor threshold
in the Rule related to whether a person makes remittance transfers in
the normal course of its business.
DATES: This final rule is effective July 21, 2020.
FOR FURTHER INFORMATION CONTACT: David Gettler, Paralegal Specialist,
Yaritza Velez, Counsel, or Krista Ayoub, or Jane Raso, Senior Counsels,
Office of Regulations, at 202-435-7700. If you require this document in
an alternative electronic format, please contact
CFPB_Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
The Bureau is adopting several amendments to the Remittance
Rule,\1\ which implements section 919 of the Electronic Fund Transfer
Act (EFTA) \2\ governing international remittance transfers. First, the
Bureau is adopting amendments to increase a safe harbor threshold in
the Rule. Under both EFTA and the Rule, the term ``remittance transfer
provider'' is defined, in part, to mean any person that provides
remittance transfers for a consumer in the normal course of its
business.\3\ As originally adopted, the normal course of business safe
harbor threshold stated that a person is deemed not to be providing
remittance transfers for a consumer in the normal course of its
business if the person provided 100 or fewer remittance transfers in
the previous calendar year and provides 100 or fewer remittance
transfers in the current calendar year.\4\ The Bureau is adopting
amendments to increase the normal course of business safe harbor
threshold from 100 transfers annually to 500 transfers annually.\5\
These changes to the normal course of business safe harbor threshold
appear in the definition of remittance transfer provider in Sec.
1005.30(f) and related commentary.
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\1\ 77 FR 6194 (Feb. 7, 2012); as amended on 77 FR 40459 (July
10, 2012), 77 FR 50243 (Aug. 20, 2012), 78 FR 6025 (Jan. 29, 2013),
78 FR 30661 (May 22, 2013), 78 FR 49365 (Aug. 14, 2013), 79 FR 55970
(Sept. 18, 2014), 81 FR 70319 (Oct. 12, 2016), and 81 FR 83934 (Nov.
22, 2016) (together, Remittance Rule or Rule).
\2\ 15 U.S.C. 1693 et seq. EFTA section 919 is codified at 15
U.S.C. 1693o-1.
\3\ EFTA section 919(g)(3), codified at 15 U.S.C. 1693o-1(g)(3);
12 CFR 1005.30(f)(1).
\4\ 12 CFR 1005.30(f)(2)(i).
\5\ As used in this document, ``100 transfers annually'' or
``500 transfers annually'' refers to the normal course of business
safe harbor threshold, which is based on the number of remittance
transfers provided in the previous and current calendar years.
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Second, the Bureau is adopting tailored exceptions to the
Remittance Rule to address compliance challenges insured institutions
may face in certain circumstances upon the expiration of a statutory
exception that allows insured institutions to disclose estimates to
consumers of the exchange rate and covered third-party fees instead of
exact amounts (the temporary exception). This exception expires on July
21, 2020. Specifically, with respect to the exchange rate, the Bureau
is adopting a new, permanent exception that permits insured
institutions to estimate the exchange rate for a remittance transfer to
a particular country if, among other things, the designated recipient
will receive funds in the country's local currency and the insured
institution made 1,000 or fewer remittance transfers in the prior
calendar year to that country when the designated recipients received
funds in the country's local currency. With respect to covered third-
party fees, the Bureau is adopting a new, permanent exception that will
permit insured institutions to estimate covered third-party fees for a
remittance transfer to a designated recipient's institution if, among
other things, the insured institution made 500 or fewer remittance
transfers to that designated recipient's institution in the prior
calendar year.
With respect to both exceptions, the Bureau is adopting a
transition period for insured institutions that exceed, as applicable,
the 1,000-transfer or 500-transfer thresholds in a certain year. This
transition period will allow these institutions to continue to provide
estimates for a reasonable period of time while they come into
compliance with the requirement to provide exact amounts. Additionally,
the Bureau released a statement on April 10, 2020 announcing that in
light of the COVID-19 pandemic, for remittance transfers that occur on
or after July 21, 2020, and before January 1, 2021, the Bureau does not
intend to cite in an examination or initiate an enforcement action in
connection with the disclosure of exact third-party fees and exchange
rates against any insured institution that will be newly required to
disclose exact third-party fees and exchange rates after the temporary
exception expires.
The temporary exception and its statutorily mandated expiration
date are in existing Sec. 1005.32(a)(1) and (2); the Bureau's
amendments to add the new exceptions appear in new Sec. 1005.32(b)(4)
and (5) and related commentary, along with conforming changes in
existing Sec. Sec. 1005.32(c), 1005.33(a)(1)(iii)(A), and
1005.36(b)(3) and in the existing commentary accompanying Sec. Sec.
1005.32, 1005.32(b)(1), (c)(3) and (d), and 1005.36(b). Lastly, the
Bureau is adopting technical corrections in Sec. 1005.32(c)(4) and
existing commentary that accompany Sec. Sec. 1005.31(b)(1)(viii) and
1005.32(b)(1). These technical corrections do not change or alter the
meaning of the existing regulatory text and commentary.
Due to changes in requirements by the Office of the Federal
Register, when amending commentary the Bureau is now required to
reprint certain subsections being amended in their entirety rather than
providing more targeted amendatory instructions. The sections of
commentary included in this document show the language of those
sections as amended by this final rule. The Bureau is releasing an
unofficial, informal redline to assist industry and other stakeholders
in reviewing the changes that it is making to the regulatory text and
commentary of the Remittance Rule.\6\
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\6\ This redline can be found on the Bureau's regulatory
implementation page for the Remittance Rule, at https://www.consumerfinance.gov/policy-compliance/guidance/remittance-transfer-rule/. If any conflicts exist between the redline and the
text of the Remittance Rule or this final rule, the rules
themselves, as published in the Federal Register, are the
controlling documents.
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[[Page 34871]]
II. Background
A. Market Overview
Consumers in the United States send billions of dollars in
remittance transfers to recipients in foreign countries each year. The
term ``remittance transfers'' is sometimes used to describe consumer-
to-consumer transfers of small amounts of money, often made by
immigrants supporting friends and relatives in other countries. The
term may also include, however, consumer-to-business payments of larger
amounts, for instance, to pay bills, tuition, or other expenses.
Money services businesses (MSBs) as well as banks and credit unions
send remittance transfers on behalf of consumers. MSBs, however,
provide the overwhelming majority of remittance transfers for consumers
in the United States. For example, in the Bureau's October 2018
Remittance Rule Assessment Report,\7\ which is discussed in detail
below, the Bureau observed that in 2017, MSBs provided approximately
95.5 percent of all remittance transfers for consumers. The average
amount of a remittance transfer sent by MSBs on behalf of consumers was
approximately $381.
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\7\ Bureau of Consumer Fin. Prot., Remittance Rule Assessment
Report (Oct. 2018, rev. Apr. 2019) (Assessment Report), https:/
/.consumerfinance.gov///bcfp_remittance-rule-
assessment_report_corrected_2019-03.pdf. The Bureau's initial rule
and certain amendments took effect in October 2013. As explained in
the Assessment Report, the Assessment Report considers all rules
that took effect through November 2014 and refers to them
collectively as the Remittance Rule. See Assessment Report at 115.
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Banks and credit unions generally send fewer remittance transfers
on behalf of consumers than MSBs. The Bureau found that in 2017, banks
and credit unions conducted 4.2 and 0.2 percent of all remittance
transfers, respectively. However, the average amount that banks and
credit unions transferred was much greater than the average amount
transferred by MSBs. For example, based on the Bureau's analysis, the
average transfer size of a bank-sent remittance transfer was more than
$6,500.\8\ As such, based on information it received as part of its
assessment of the Remittance Rule in connection with the Assessment
Report, while banks and credit unions provide a small percentage of the
overall number of remittance transfers, because the average amount of
the transfers they send is higher than MSBs, banks and credit unions
collectively sent approximately 45 percent of the dollar volume of all
remittance transfers sent for consumers in the United States (43
percent attributed to banks and 2 percent attributed to credit unions).
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\8\ Id. at 73.
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In addition, MSBs differ from banks and credit unions in the means
by which they provide remittance transfers. Traditionally, MSBs sending
remittance transfers have predominantly relied on a storefront model
and a network of the MSBs' employees and agents (such as grocery stores
and neighborhood convenience stores).\9\ Because MSBs receive and
disburse funds either through their own employees or agents, the
payment system by which MSBs facilitate remittance transfers is
typically referred to as a ``closed network'' payment system. A single
entity in this system--the MSB--exerts a high degree of end-to-end
control over a transaction. Such level of control means, among other
things, that an entity that uses a closed network payment system to
send remittance transfers can disclose to its customers precise and
reliable information about the terms and costs of a remittance transfer
before the entity sends the remittance transfer on its customers'
behalf.
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\9\ Id. at 54. As noted in the Assessment Report, increased
access to digital devices has impacted the traditional MSB model by
enabling more MSB-facilitated transfers to be conducted via the
internet. See also id. at 102.
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In contrast to MSBs, banks and credit unions have predominantly
utilized an ``open network'' payment system made up of the
correspondent banking network \10\ to send remittance transfers on
behalf of consumers.\11\ The open network payment system based on the
correspondent banking network lacks a single, central operator. This
feature distinguishes it from closed network payment systems. The
correspondent banking network is a decentralized network of bilateral
banking relationships between the world's tens of thousands of banks
and credit unions. Most institutions only maintain relationships with a
relatively small number of correspondent banks but can nonetheless
ensure that their customers' remittance transfers are able to reach a
wide number of recipient financial institutions worldwide. Banks and
credit unions can reach these institutions even if the banks and credit
unions do not have control over, or a relationship with, all of the
participants involved in the transmission of a remittance transfer. As
discussed in greater detail in the section-by-section analysis of Sec.
1005.32(a) below, the decentralized nature of the correspondent banking
system has presented certain challenges to the ability of banks and
credit unions to disclose precise and reliable information about the
terms and costs of remittance transfers to its customers before these
institutions send remittance transfers on their customers' behalf.
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\10\ Generally speaking, a correspondent banking network is made
up of individual correspondent banking relationships, which consist
of bilateral arrangements under which one bank (correspondent) holds
deposits owned by other banks (respondents) and provides payment and
other services to those respondent banks. See, e.g., Bank for Int'l
Settlements, Correspondent Banking, at 9 (2016) (2016 BIS Report),
https://www.bis.org/cpmi/publ/d147.pdf.
\11\ The Bureau notes that some methods of sending cross-border
money transfers, including remittance transfers, include elements of
closed and open payment networks and some providers may also rely on
both types of systems to facilitate different transfers. For
example, the Bureau understands that banks may offer low-cost
international fund transfers to its commercial clients through the
use of the automated clearing house (ACH) system, and a minority of
banks also offer international ACH to their consumer clients. See
Bd. of Governors of the Fed. Reserve Sys., Report to Congress on the
Use of the ACH System and Other Payment Mechanisms for Remittance
Transfers to Foreign Countries, at 7 (May 2019), https://www.federalreserve.gov/publications/2019-may-ach-report-other-payment-mechanisms.htm.
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B. Remittance Rulemaking Under Section 1073 of the Dodd-Frank Act
Prior to the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act),\12\ remittance transfers fell largely outside of
the scope of Federal consumer protection laws. Section 1073 of the
Dodd-Frank Act amended EFTA by adding new section 919, which created a
comprehensive system for protecting consumers in the United States who
send remittance transfers to individuals and businesses in foreign
countries. EFTA applies broadly in terms of the types of remittance
transfers it covers. EFTA section 919(g)(2) defines ``remittance
transfer'' as the electronic transfer of funds by a sender in any State
to designated recipients located in foreign countries that are
initiated by a remittance transfer provider; only small dollar
transactions are excluded from this definition.\13\ EFTA also applies
broadly in terms of the providers subject
[[Page 34872]]
to it, including MSBs, banks, and credit unions.
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\12\ Public Law 111-203, 124 Stat. 1376 (2010).
\13\ 15 U.S.C. 1693o-1(g)(2). As adopted in the Remittance Rule,
the term ``remittance transfer'' means: ``[The] electronic transfer
of funds requested by a sender to a designated recipient that is
sent by a remittance transfer provider. The term applies regardless
of whether the sender holds an account with the remittance transfer
provider, and regardless of whether the transaction is also an
electronic fund transfer, as defined in [subpart A of Regulation
E].'' The Rule's definition specifically excludes (1) transfer
amounts of $15 or less and (2) certain securities and commodities
transfers. 12 CFR 1005.30(e).
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The Bureau adopted subpart B of Regulation E to implement EFTA
section 919 through a series of rulemakings that were finalized in 2012
and 2013, and which became effective on October 28, 2013.\14\ The
Bureau subsequently amended subpart B several times.\15\ The Rule
provides three significant consumer protections: It specifies the
information that must be disclosed to consumers who send remittance
transfers, including information related to the exact cost of a
remittance transfer; it provides consumers with cancellation and refund
rights; and it specifies procedures and other requirements for
providers to follow in resolving errors.
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\14\ 77 FR 6194 (Feb. 7, 2012); as amended on 77 FR 40459 (July
10, 2012); 77 FR 50243 (Aug. 20, 2012); 78 FR 6025 (Jan. 29, 2013);
78 FR 30661 (May 22, 2013); and 78 FR 49365 (Aug. 14, 2013).
\15\ 79 FR 55970 (Sept. 18, 2014), 81 FR 70319 (Oct. 12, 2016),
and 81 FR 83934 (Nov. 22, 2016).
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III. Summary of the Rulemaking Process
A. 2019 Proposal
On December 3, 2019, the Bureau issued a notice of proposed
rulemaking relating to the expiration of the temporary exception and
the normal course of business safe harbor threshold, which was
published in the Federal Register on December 6, 2019 (2019
Proposal).\16\ In the 2019 Proposal, the Bureau proposed to increase
the normal course of business safe harbor threshold from 100 transfers
annually to 500 transfers annually. The Bureau also proposed tailored
exceptions to the Remittance Rule to address compliance challenges that
insured institutions might face upon the expiration of the temporary
exception on the ability of insured institutions to comply with the
Rule's requirements to disclose the exchange rate and covered third-
party fees. Specifically, with respect to the exchange rate, the Bureau
proposed to adopt a new, permanent exception in the Remittance Rule
that would permit insured institutions to estimate the exchange rate
for a remittance transfer to a particular country if, among other
things, the designated recipient will receive funds in the country's
local currency and the insured institution made 1,000 or fewer
remittance transfers in the prior calendar year to that country when
the designated recipients received funds in the country's local
currency. With respect to covered third-party fees, the Bureau proposed
to adopt a new, permanent exception that would permit insured
institutions to estimate covered third-party fees for a remittance
transfer to a particular designated recipient's institution if, among
other things, the insured institution made 500 or fewer remittance
transfers to that designated recipient's institution in the prior
calendar year.
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\16\ 84 FR 67132 (Dec. 6, 2019).
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Along with these amendments, the Bureau proposed to make several
conforming changes in the existing Rule and related commentary. The
2019 Proposal proposed an effective date of July 21, 2020 for all these
amendments. Finally, the 2019 Proposal sought comment on a permanent
exception in the Rule (in Sec. 1005.32(b)(1)) permitting providers to
use estimates for transfers to certain countries and the process for
adding countries to the safe harbor countries list maintained by the
Bureau.
The comment period for the 2019 Proposal closed on January 21,
2020. The Bureau received approximately 100 comments and three ex parte
communications from a trade association representing large bank
remittance providers and a trade association representing credit
unions, respectively. Nearly half of the comments were submitted by
industry commenters, specifically banks and credit unions, their trade
associations, and their service providers. Commenters also included a
trade association representing MSBs, several consumer groups, a
regional bank of the Federal Reserve System, a virtual currency
company, and individuals.
Industry commenters were generally supportive of the Bureau's
proposed changes to increase the normal course of business safe harbor
threshold from 100 transfers annually to 500 transfers annually. They
were also generally supportive of the Bureau's proposal to adopt new
tailored exceptions from the general requirement to disclose exact
amounts in order to address the impact of the temporary exception's
expiration on July 21, 2020, but some industry commenters also noted
that while they generally supported the Bureau's proposal to address
the impact of the expiration of the temporary exception, they also
thought the Bureau's proposed amendments did not go far enough to
preserve the use of the temporary exception. In contrast, consumer
groups were opposed to the proposed changes.
There were approximately 60 comment letters submitted by
individuals. Credit union members submitted nearly all of these letters
and they expressed support for the 2019 Proposal. The Bureau also
received one comment letter from an anonymous commenter who did not
support the 2019 Proposal and one comment letter from an anonymous
commenter who supported it.
Lastly, the Bureau notes that some of the comments the Bureau
received raised issues that are beyond the scope of the 2019 Proposal.
For example, a number of commenters that represented credit unions,
their trade associations, and credit union members urged the Bureau to
eliminate the Remittance Rule's cancellation rights or modify the
existing requirements to enable consumers to waive their rights. To the
extent that a comment was within the scope of the 2019 Proposal, the
Bureau has considered it in adopting this final rule.
B. Other Outreach
Prior to the issuance of the 2019 Proposal, the Bureau received
feedback regarding the Remittance Rule through both formal and informal
channels. In addition, over the years, the Bureau has engaged in
ongoing market monitoring and other outreach to industry and other
stakeholders regarding the Remittance Rule. The following is a brief
summary of some of this outreach.
Assessment and 2017-2018 RFIs
The Bureau conducted an assessment of the Remittance Rule
(Assessment), as required pursuant to section 1022(d) of the Dodd-Frank
Act.\17\ In 2017, the Bureau issued a request for information (RFI) in
connection with the Assessment, and received approximately 40 comment
letters.\18\ As referenced above, in October 2018, the Bureau published
the results of the Assessment in the Assessment Report, providing
insights into the effectiveness of the Rule and its provisions.
Separately, in 2018, the Bureau issued a series of RFIs as part of a
call for evidence to ensure the Bureau is fulfilling its proper and
appropriate functions to best protect consumers, and received a total
of approximately 34 comments on the Remittance Rule in response.\19\
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\17\ Section 1022(d) requires the Bureau to conduct an
assessment of each significant rule or order adopted by the Bureau
under Federal consumer financial law and to publish a report of such
assessment not later than five years after the rule or order's
effective date. 12 U.S.C. 5512(d).
\18\ 82 FR 15009 (Mar. 24, 2017). The comment letters are
available on the public docket at https://www.regulations.gov/document?D=CFPB-2017-0004-0001. See also Assessment Report at 149.
\19\ https://www.regulations.gov/document?D=CFPB-2017-0004-0001.
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2019 RFI
Based on comments and other feedback from various remittance
transfer providers and their trade
[[Page 34873]]
associations in response to the RFIs described above, as well as its
own analysis, the Bureau published an RFI on April 20, 2019 (2019 RFI)
\20\ to seek information and data about the potential negative effects
of the expiration of the temporary exception and potential options to
address its impact. The 2019 RFI also sought information on possible
changes to the current normal course of business safe harbor threshold
in and whether an exception for ``small financial institutions'' may be
appropriate.
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\20\ 84 FR 17971 (Apr. 29, 2019).
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IV. Legal Authority
Section 1073 of the Dodd-Frank Act created a new section 919 of
EFTA requiring remittance transfer providers to provide disclosures to
senders of remittance transfers, pursuant to rules prescribed by the
Bureau. In particular, providers must provide a sender a written pre-
payment disclosure containing specified information applicable to the
sender's remittance transfer, including the amount to be received by
the designated recipient. The provider must also provide a written
receipt that includes the information provided on the pre-payment
disclosure, as well as additional specified information.\21\ In
addition, EFTA section 919(d) directs the Bureau to promulgate rules
regarding appropriate error resolution standards and cancellation and
refund policies.
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\21\ EFTA section 919(a); 15 U.S.C. 1693o-1(a).
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In addition to the Dodd-Frank Act's statutory mandates, EFTA
section 904(a) authorizes the Bureau to prescribe regulations necessary
to carry out the purposes of EFTA. The express purposes of EFTA, as
amended by the Dodd-Frank Act, are to establish ``the rights,
liabilities, and responsibilities of participants in electronic fund
and remittance transfer systems'' and to provide ``individual consumer
rights.'' \22\ EFTA section 904(c) further provides that regulations
prescribed by the Bureau may contain any classifications,
differentiations, or other provisions, and may provide for such
adjustments or exceptions for any class of electronic fund transfers or
remittance transfers that the Bureau deems necessary or proper to
effectuate the purposes of the title, to prevent circumvention or
evasion, or to facilitate compliance. As described in more detail
below, the changes herein are adopted pursuant to the Bureau's
authority under EFTA section 904(a) and (c).
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\22\ EFTA section 902(b); 15 U.S.C. 1693(b).
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V. Section-by-Section Analysis
Section 1005.30 Remittance Transfer Definitions
30(f) Remittance Transfer Provider
30(f)(2) Normal Course of Business
EFTA section 919(g)(3) defines ``remittance transfer provider'' to
be a person or financial institution providing remittance transfers for
a consumer in the ``normal course of its business.'' \23\ The Rule uses
a similar definition.\24\ It states that whether a person provides
remittance transfers in the normal course of its business depends on
the facts and circumstances, including the total number and frequency
of transfers sent by the provider.\25\ The Rule currently contains a
safe harbor whereby a person that provides 100 or fewer remittance
transfers in each of the previous and current calendar years is deemed
not to be providing remittance transfers in the normal course of its
business, and therefore is outside of the Rule's coverage.\26\
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\23\ EFTA section 919(g)(3); 15 U.S.C. 1693o-1(g)(3).
\24\ See 12 CFR 1005.30(f)(1).
\25\ Comment 30(f)-2.i.
\26\ 12 CFR 1005.30(f)(2)(i).
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When the Bureau finalized the normal course of business 100-
transfer safe harbor threshold in August 2012, it stated that it
intended to monitor that threshold over time.\27\ The Bureau
acknowledged, among other things, that the administrative record
contained little data on the overall distribution and frequency of
remittance transfers to support treating any particular number of
transactions as outside the normal course of business.\28\ After
explaining the limitations in the data it did have, the Bureau stated
that it did not believe it could rely on the data received to describe
the number of remittance transfers provided by ``typical'' entities or
to identify a clear pattern in the distribution of providers by the
number of transfers provided.\29\ The Bureau concluded that the data
collected at the time provided some additional support for the 100-
transfer normal course of business safe harbor threshold, and that the
threshold was ``not so low as to be meaningless.'' \30\ The Bureau
determined at that time that a normal course of business safe harbor
threshold of 100 was high enough that persons would not risk exceeding
the safe harbor based on making transfers for just two or three
customers each month, while low enough to serve as a reasonable basis
for identifying persons who occasionally provide remittance transfers,
but not in the normal course of their business. The Bureau also noted
that 100 transfers per year is equivalent to an average of
approximately two transfers per week, or the number of transfers needed
to satisfy the needs of a handful of customers sending money abroad
monthly.\31\
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\27\ 77 FR 50243, 50252 (Aug. 20, 2012).
\28\ Id. at 50251-52.
\29\ Id.
\30\ Id. at 50252.
\31\ Id. at 50251.
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In the 2019 Proposal, the Bureau proposed to raise the normal
course of business safe harbor threshold from 100 remittance transfers
to 500 remittance transfers, in response to feedback it has received
over the years from banks, credit unions, and their trade associations
in which these entities asserted that the 100-transfer threshold is too
low. For reasons set forth herein, the Bureau is adopting this aspect
of the proposal as proposed.
The Bureau's Proposal
The Bureau proposed to raise the normal course of business safe
harbor threshold from 100 to 500 remittance transfers by proposing to
revise part of existing Sec. 1005.30(f)(2)(i). The proposed revision
stated that a person is deemed not to be providing remittance transfers
for a consumer in the normal course of its business if the person
provided 500 or fewer transfers in the previous calendar year and
provides 500 or fewer transfers in the current calendar year. The
Bureau also proposed to revise part of existing Sec. 1005.30(f)(2)(ii)
regarding the current normal course of business safe harbor transition
period to reflect the proposed 500-transfer normal course of business
safe harbor threshold and the proposed effective date of July 21, 2020.
Specifically, the proposed revision to Sec. 1005.30(f)(2)(ii) stated
that if, beginning on July 21, 2020, a person that provided 500 or
fewer remittance transfers in the previous calendar year provides more
than 500 remittance transfers in the current calendar year, and if that
person is then providing remittance transfers for a consumer in the
normal course of its business pursuant to Sec. 1005.30(f)(1), the
person has a reasonable period of time, not to exceed six months, to
begin complying with subpart B of Regulation E. Further, the Bureau
proposed to add new Sec. 1005.30(f)(2)(iii) to address the transition
period for persons qualifying for the normal course of business safe
harbor. Proposed Sec. 1005.30(f)(2)(iii) stated that if a person who
previously provided remittance transfers in the normal course of its
business in excess of the normal course of business safe harbor
threshold set forth in
[[Page 34874]]
Sec. 1005.30(f)(2) determines that, as of a particular date, it will
qualify for the normal course of business safe harbor, it may cease
complying with the requirements of subpart B of Regulation E with
respect to any remittance transfers for which payment is made after
that date. Proposed Sec. 1005.30(f)(2)(iii) also provided that the
requirements of EFTA and Regulation E, including those set forth in
Sec. Sec. 1005.33 and 1005.34, as well as the requirements set forth
in Sec. 1005.13, continue to apply to transfers for which payment is
made prior to that date.
The Bureau also proposed changes to the existing commentary
accompanying Sec. 1005.30(f) to align the commentary with the proposed
changes to existing Sec. 1005.30(f)(2) and provide further
clarification related to the proposed 500-transfer normal course of
business safe harbor threshold. Specifically, the Bureau proposed to
revise the last sentence in existing comment 30(f)-2.i to avoid
potential conflict or confusion with the proposed normal course of
business safe harbor threshold of 500 transfers. The Bureau also
proposed to revise existing comments 30(f)-2.ii and iii regarding the
normal course of business safe harbor and transition period by changing
100 to 500 throughout for consistency with the proposed changes to
Sec. 1005.30(f)(2)(i) and (ii). In addition, the Bureau proposed to
add a sentence in comment 30(f)-2.ii stating that on July 21, 2020, the
normal course of business safe harbor threshold in Sec.
1005.30(f)(2)(i) changed from 100 transfers to 500 transfers, to
incorporate the change in the commentary. The Bureau also proposed to
renumber existing comment 30(f)-2.iv as 30(f)-2.iv.A (in order to add
two additional examples, described below), revise the heading for this
comment to make clear that it provides an example of the normal course
of business safe harbor and transition period for the 100-transfer
normal course of business safe harbor threshold that was effective
prior to the proposed effective date of July 21, 2020, and change the
verb tense from present to past throughout the example.
In addition, the Bureau proposed to add new comment 30(f)-2.iv.B to
provide an example of how the normal course of business safe harbor
applies to a person that provided 500 or fewer transfers in 2019 and
provides 500 or fewer transfers in 2020. The Bureau also proposed to
add new comment 30(f)-2.iv.C, which provides an example of the normal
course of business safe harbor and transition period for the 500-
transfer normal course of business safe harbor threshold that would be
effective beginning on the proposed effective date of July 21, 2020.
This proposed comment was based on the example in existing comment
30(f)-2.iv, with modifications to reflect the changes the Bureau
proposed to Sec. 1005.30(f)(2), which are discussed in detail above.
Finally, the Bureau proposed to add new comment 30(f)-2.v to
explain a person's continued obligations under the Rule with respect to
transfers for which payment was made before the person qualifies for
the normal course of business safe harbor. The proposed comment stated
that proposed Sec. 1005.30(f)(2)(iii) addresses situations where a
person who previously was required to comply with subpart B of
Regulation E newly qualifies for the revised normal course of business
safe harbor in proposed Sec. 1005.30(f)(2)(i). It explained that
proposed Sec. 1005.30(f)(2)(iii) states that the requirements of EFTA
and Regulation E, including those set forth in Sec. Sec. 1005.33 and
1005.34 (which address procedures for resolving errors and procedures
for cancellation and refund of remittance transfers, respectively), as
well as the requirements set forth in Sec. 1005.13 (which, in part,
governs record retention), continue to apply to transfers for which
payment is made prior to the date the person qualifies for the normal
course of business safe harbor in Sec. 1005.30(f)(2)(i). The proposed
comment also explained that qualifying for the safe harbor in Sec.
1005.30(f)(2)(i) likewise does not excuse compliance with any other
applicable law or regulation. For example, if a remittance transfer is
also an electronic fund transfer, any requirements in subpart A of
Regulation E that apply to the transfer continue to apply, regardless
of whether the person must comply with subpart B. Relevant requirements
in subpart A of Regulation E may include, but are not limited to, those
relating to initial disclosures, change-in-terms notices, liability of
consumers for unauthorized transfers, and procedures for resolving
errors.
The Bureau sought comment on its proposal to increase the normal
course of business safe harbor threshold as well as on its proposed
revisions and additions to the accompanying commentary.
Comments Received
Most commenters to the 2019 Proposal responded to the Bureau's
proposed changes to the normal course of business safe harbor
threshold. Industry commenters, including banks, credit unions, and
trade associations, as well as a regional bank in the Federal Reserve
System, individuals who identified themselves as credit union members,
and one anonymous commenter generally supported the proposal to
increase the normal course of business safe harbor threshold from 100
to 500 remittance transfers annually. The credit union members and
about half of the industry commenters, including the credit unions and
credit union trade associations, recommended a higher threshold of
1,000 transfers; one community bank trade association recommended 1,200
transfers. In contrast, consumer groups opposed the proposal and urged
the Bureau instead to lower the current normal course of business safe
harbor threshold.\32\
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\32\ The Bureau also received a letter from an anonymous
commenter that generally opposed any changes to the Remittance Rule
that would compromise transparency to the public and stated that any
cost savings by institutions would not be passed on to consumers.
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Similar to the feedback the Bureau has received on the normal
course of business safe harbor threshold in the past, industry
commenters stated that compliance costs related to the Remittance Rule
have caused many credit unions and community banks that provide
remittance transfers as an accommodation to their account-holding
customers to limit the number of transfers they provide or exit the
market altogether. Several of these commenters explained that for them,
offering remittance transfer services is not a separate or profit-
making line of business, and that many of them do not provide enough
transfers to cover their compliance costs. These commenters also stated
that the undue burden caused by complying with the Remittance Rule has
led to consumer harm in the form of decreased access to remittance
transfer services at credit unions and community banks because these
entities have limited the number of transfers they provide or increased
prices to cover their compliance costs.
The industry commenters and credit union members that recommended a
normal course of business safe harbor threshold of 1,000 or 1,200
remittance transfers also generally supported the Bureau's proposal to
raise the current threshold from 100 transfers annually to 500
transfers annually. These industry commenters, all of which were credit
unions and credit union trade associations, stated that a 1,000-
transfer normal course of business safe harbor threshold is more
appropriate to alleviate burden for credit unions and would allow
credit unions that stopped or limited providing remittance transfers to
reenter the market or resume services. Several of these commenters
[[Page 34875]]
also asserted that banks and credit unions are not major players in the
remittance market, and as such, raising the threshold to 1,000
transfers would result in a minimal impact on the total number of
transfers that would be excluded from the Remittance Rule, which would
mean that the consumer impact would also be minimal. One credit union
trade association stated that providing fewer than 1,000 transfers is
not enough to generate meaningful income for most credit unions. One
credit union stated that a small increase to the normal course of
business safe harbor threshold would only present transitional issues
for entities that continue to experience steady organizational growth.
The credit union members stated that remittance transfers are
significant and popular services offered to credit union members and
noted that credit unions believe that the current Remittance Rule is
``an unnecessary barrier'' to such service. The community bank trade
association that recommended raising the normal course of business safe
harbor threshold to 1,200 stated that a safe harbor at that threshold
would ensure that consumers have access to remittance transfer services
at community banks and would allow community banks to compete in the
remittance market, thereby preserving it as a safe, convenient, secure,
and reasonably priced option for consumers.
In short, the commenters that supported the Bureau's proposal
stated that raising the normal course of business safe harbor threshold
would ease compliance burden on institutions that provide a low volume
of remittance transfers, many of which are credit unions and community
banks, and would benefit consumers who are customers at these
institutions, particularly those located in rural areas. The regional
bank in the Federal Reserve System also stated that the Bureau's
proposal would help ensure the engagement of all insured institutions,
especially small to mid-size institutions that have occasional
remittance transfer demands. Additionally, a few commenters suggested
that consumers that are customers of entities that would newly qualify
for the proposed normal course of business safe harbor would not
necessarily lose their protections related to remittance transfers. For
example, one bank trade association stated that based on their
membership feedback, entities that are no longer subject to the
Remittance Rule will still provide their customers with information
about the fees associated with sending a remittance transfer and will
also take steps to help consumers when there are errors related to
their transfers. Relatedly, several other industry commenters,
including a few credit union trade associations and one community bank
trade association, stated that credit unions and community banks have
strong connections to the communities they serve and that they exist to
serve their customers. One of the credit union trade associations also
stated that credit unions do not charge high fees or prevent consumers
from having reliable information about their transactions.
In response to the Bureau's request for comment on basing the
normal course of business safe harbor threshold on a metric other than
the number of remittance transfers, one credit union trade association
recommended a two-prong approach, whereby an entity would qualify for
the safe harbor if it met either an asset-size threshold of $1 billion
or a threshold of 1,000 remittance transfers. One bank commenter
opposed using anything other than the number of remittance transfers,
stating that using another metric, such as the percentage of an
entity's customers that send remittance transfers, would be unduly
burdensome to monitor.
A few commenters expressed general support for the Bureau's
proposed commentary related to the normal course of business safe
harbor transition period. One bank trade association recommended that
the Bureau clarify that the current transition period provision in
existing Sec. 1005.30(f)(2)(ii) continue to apply to the Rule, as
amended, so that when an entity exceeds the normal course of business
safe harbor threshold, it will have six months to come into compliance
(as set forth in the current Rule). However, one bank commenter
suggested that for entities that cease to satisfy the requirements of
the Rule's normal course of business safe harbor (and therefore must
come into compliance with the Rule), the Bureau should adopt a
transition period longer than six months. As noted above, the Bureau
proposed to keep the transition period provision in existing Sec.
1005.30(f)(2)(ii) unchanged.\33\
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\33\ As described in detail above, the 2019 Proposal would have
provided that if a person that provided 500 or fewer remittance
transfers in the previous calendar year provides more than 500
remittance transfers in the current calendar year, and if that
person is then providing remittance transfers for a consumer in the
normal course of its business pursuant to Sec. 1005.30(f)(1), then
the person has a reasonable period of time, which must not exceed
six months, to begin complying with the Remittance Rule.
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Another bank commenter responded to the Bureau's request for
comment on whether the phrase ``payment is made'' is the appropriate
standard on which to hinge various of the Remittance Rule provisions,
including those related to the transition period for coming into
compliance after ceasing to qualify for the normal course of business
safe harbor, and stated that the Bureau should continue using the term
as it is an easily understood term that is consistent with the current
regulation. One bank and one credit union responded to the Bureau's
request for comment on the proposed effective date of July 21, 2020 for
the proposed normal course of business safe harbor threshold and agreed
that July 21, 2020 should also be the effective date for that
threshold.
Several industry commenters urged the Bureau to address coverage
under the Remittance Rule using standards other than the normal course
of business safe harbor threshold. One credit union trade association
and one credit union suggested exempting credit unions entirely from
the Rule, stating that the disclosure and error resolution requirements
have caused credit unions to discontinue remittance transfer services
due to the significant compliance costs, and that such an exemption
would cultivate a competitive remittance market, given that only the
largest and most technologically sophisticated institutions can afford
to comply with the Rule. One trade association representing community
banks and another representing credit unions recommended implementing a
small financial institution exemption with an asset size threshold of
$5 billion or $10 billion. One trade association that represents
community banks and credit unions recommended an exemption for
recurring remittance transfers and for transfers under a certain dollar
amount, such as $10,000.
As noted above, consumer groups were opposed to the Bureau's
proposal to raise the normal course of business safe harbor threshold.
Consumer groups stated that under the current 100-transfer normal
course of business safe harbor threshold, nearly all depository
institutions are not required to comply with the Remittance Rule, and
that this fact alone justifies implementing a lower threshold.\34\
These consumer
[[Page 34876]]
groups stated that Congress intended the term ``remittance transfer
provider'' to have broad coverage and the normal course of business
exemption to be narrow. These commenters stated that an exemption that
covers three-quarters of banks and credit unions is not narrow or
limited in scope, which contradicts Congress's intent and the Bureau's
conclusion from 2012 when it finalized the 100-transfer normal course
of business safe harbor threshold. These commenters stated that a 500-
transfer normal course of business safe harbor threshold would bring
the safe harbor even closer to a complete depository institution
exemption and therefore would be more at odds with Congress's intent
and the Bureau's earlier determination.
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\34\ Consumer groups specifically cited the Assessment Report,
which states that at the time of the report, approximately 80
percent of banks and 75 percent of credit unions that offer
remittance transfers were below the 100-transfer normal course of
business safe harbor threshold.
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Further, consumer groups stated that the Bureau's proposal would
harm consumers by excluding tens or hundreds of thousands of remittance
transfers from the Rule's protections, including a consumer's right to
accurate disclosures and error resolution. These commenters added that
losing these protections would be especially critical for transfers
provided by banks, given that bank transfers tend to be higher-value
transfers, which would in turn mean that more of the consumer's money
would be at stake if there was an error or the money was lost. These
commenters stated that the Bureau recognized this type of risk in 2012
when it rejected industry suggestions to exempt all open network
transfers above a certain dollar amount, but that now the Bureau
appeared to have changed its position without explanation.
Consumer groups also stated that exempting most depository
institutions from the Rule's disclosure requirements by raising the
normal course of business safe harbor threshold would harm covered
providers because the exempted entities would be permitted to appear to
offer less expensive and faster remittance services than those offered
by the covered providers. In addition, commenters noted that consumers
would not be able to compare prices or easily identify which providers
were required to comply with the Rule and offer its protections.
Consumer groups also stated that any downward price pressure resulting
from transparency could be reduced because so many institutions would
no longer be providing the required disclosure information.
Consumer groups also stated that the Bureau did not provide data to
support the assertion that a 500-transfer normal course of business
safe harbor threshold may be more appropriate to identify persons who
occasionally provide remittance transfers, but not in the normal course
of business. These commenters noted that the Bureau dismissed
suggestions to raise the normal course of business safe harbor
threshold to a number higher than 100 in 2012 when it finalized the
current threshold, and that the Bureau has not adequately explained or
justified its change in position. In addition, these commenters stated
that a threshold of 500 remittance transfers annually (or an average of
about ten transfers per week) sounds quite normal, not occasional.
These commenters added that the issue of the normal course of business
safe harbor threshold is whether entities offer remittance transfers
normally, not whether they are trying to attract new customers or
provide services to current ones. Moreover, consumer groups stated that
the Bureau's claim that compliance costs are disproportionate for
entities providing 500 or fewer transfers is not supported by the
findings in the Assessment Report and does not justify the proposal
because the concept of normal course of business does not tie to an
entity's cost of doing business. These commenters also noted that the
Assessment Report found that prices have decreased since the Rule took
effect, and that preliminary analysis of statistically robust data sets
suggests that the Rule may have contributed to the price decline.
Finally, consumer groups stated that the Bureau's proposal
conflates the expiring temporary exception that allows insured
institutions to provide estimates in certain circumstances with the
proposed normal course of business safe harbor threshold that would
exempt most of these institutions from coverage altogether. These
commenters stated that the fact that expanding the normal course of
business safe harbor would ease the burden of the expiring temporary
exception is immaterial because the cost an entity might bear due to
the expiration of the temporary exception has nothing to do with
whether the entity provides remittance transfers in the normal course
of business. These commenters noted that the temporary exception is not
widely used by the entities the Bureau proposed to exempt by expanding
the normal course of business safe harbor and cited bank Call Report
data indicating that less than 10 percent of the entities providing
between 100 and 500 transfers per year use the temporary exception
today.
The Final Rule
For the reasons set forth herein, the Bureau is finalizing the
changes to Sec. 1005.30(f) and related commentary as proposed.
Specifically, the Bureau is adopting revisions to existing Sec.
1005.30(f)(2)(i) and (ii) and comments 30(f)-2.i through 2.iv, and
adding new Sec. 1005.30(f)(iii) and new comments 30(f)-2.iv.B, 30(f)-
2.iv.C, and 30(f)-2.v, as proposed.
As discussed below, the Bureau believes that the term ``normal
course of business'' is ambiguous. Since the adoption of the current
normal course of business safe harbor in 2012, the Bureau has conducted
outreach and research and met with industry stakeholders and consumer
groups to better understand the remittance transfer market. Based on
its experience and expertise, as well as the data and information
gained since 2012, the Bureau concludes that a more appropriate
understanding of ``normal course of business'' that better reflects
Congress's purpose in writing this standard should take into
consideration a multitude of factors including disproportionate costs
that entities may encounter because of the Remittance Rule; the
frequency and regularity of remittance transfers; whether transfers are
offered as an accommodation for customers; and a consideration of the
extent of consumer harm that could arise from excluding certain
providers. Applying these factors, and after considering the comments
received, the Bureau concludes that a 500-transfer normal course of
business safe harbor threshold better serves the purposes of the normal
course of business provision in the statutory definition of remittance
transfer provider. The Bureau concludes that this provision is intended
to balance several goals, including excluding from coverage providers
that do not normally send remittance transfers and would thus bear
disproportionate costs to do so, while preserving coverage of providers
that service the vast majority of consumers and are more equipped to
bear the costs of compliance.
When the Bureau finalized the current 100-transfer normal course of
business safe harbor threshold in August 2012, the Bureau did not have
the benefit of knowing the information the Bureau knows today regarding
industry's experience in the remittance transfer market since the
Remittance Rule went into effect in October 2013. As described in the
August 2012 final rule, the Bureau primarily considered the frequency
of remittance transfers provided when determining the appropriate
threshold for whether an entity provides transfers in the normal course
of its business. The Bureau stated at the time that it believed that:
[[Page 34877]]
[T]he inclusion of the phrase ``normal course of business'' in
the statutory definition of ``remittance transfer provider'' was
meant to exclude persons that provide remittance transfers on a
limited basis. As a result, the fact that a person provides only a
small number of remittance transfers can strongly indicate that the
person is not providing such transfers in the normal course of its
business.\35\
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\35\ 77 FR 50244, 50249-50 (Aug. 20, 2012).
The Bureau also stated that it was ``concerned that a person who
provides more than 100 transfers in a calendar year is more likely than
other persons to be providing remittance transfers in the normal course
of its business, such as by making transfers generally available to its
customers, and by providing them more frequently,'' and that it did not
have ``industry-wide information linking commenters' suggested higher
thresholds either to the definition of `normal course of business,' or
to other factors that commenters suggested were relevant, such as the
cost of compliance'' with the Rule.\36\
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\36\ Id. at 50251.
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After more than six years of outreach to industry and other
stakeholders examining data and information, including for purposes of
the Assessment, the Bureau has a better understanding of the various
considerations, as described above, that bear on whether an entity is
providing remittance transfers in the normal course of its business and
are therefore relevant in determining the appropriate threshold for
provision of a safe harbor. In particular, the Bureau is now aware of
the disproportionate compliance burden borne by certain entities that
provide a limited number of remittance transfers per year. As discussed
in the Assessment Report, entities incur ongoing costs, such as those
attributed to developing information and compliance systems, training
staff, and contracting with other institutions to fulfill certain Rule
requirements, when coming into and remaining in compliance with the
Remittance Rule.\37\ These costs are fixed, in the sense that entities
must incur them to provide any remittance transfers that comply with
the Remittance Rule. Institutions that provide relatively small numbers
of remittance transfers (which tend to be smaller institutions) have
fewer transactions to produce revenues through which to recover the
fixed compliance costs associated with the Rule.\38\ Therefore, based
on this information and the feedback from industry over the years
regarding compliance costs, including in response to the 2019 Proposal,
the Bureau has better information than it did in 2012 to understand the
impact of the Rule and recognizes that certain entities that make a
limited number of remittance transfers per year as an accommodation to
their customers face challenges complying with the Remittance Rule. The
Bureau has determined that the term ``normal course of business'' is
reasonably interpreted to take account of this burden.
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\37\ Assessment Report at 117-20.
\38\ See id. See also 84 FR 17971, 17975 (Apr. 29, 2019)
(Remittance RFI 2019).
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Applying these and other relevant considerations to the normal
course of business safe harbor threshold, the Bureau concludes that
raising the normal course of business safe harbor threshold from 100 to
500 remittance transfers annually appropriately implements, and is a
reasonable interpretation of, the statutory definition of remittance
transfer provider as a person or financial institution providing
remittance transfers in the normal course of its business, whether or
not the consumer holds an account with such a person.\39\ As stated in
the 2019 Proposal, the Bureau believes that a threshold of 500
transfers is more appropriate to identify persons who occasionally
provide remittance transfers, but not in the normal course of their
business. Five hundred transfers annually is equivalent to an average
of approximately 10 transfers per week, which the Bureau believes
allows entities to send a relatively limited number of transfers
without having to incur the costs of developing and implementing
processes and procedures to comply with the Rule or the costs of
continued compliance with the Rule. The Bureau believes that, at this
volume, entities are generally offering remittance transfers as an
accommodation for their account-holding customers.
---------------------------------------------------------------------------
\39\ EFTA section 919(g)(3); 15 U.S.C. 1693o-1(g)(3).
---------------------------------------------------------------------------
The Bureau also believes that a 500-transfer normal course of
business safe harbor threshold will help ensure participation in the
remittance market of all entities, including small and mid-size banks
and credit unions that have occasional remittance transfer demands,
while minimally impacting consumers. Based on the feedback from
industry commenters on their experience in the remittance transfer
market and the costs associated with providing remittance transfers,
the Bureau understands that an entity that provides a low number of
remittance transfers may experience compliance challenges because the
limited number of transfers it provides is insufficient to justify, and
the revenues from those transfers are not enough to cover, the level of
fixed and variable compliance costs necessitated by the Remittance
Rule. As noted above, many of the industry commenters that supported
raising the normal course of business safe harbor threshold indicated
that compliance costs related to the Remittance Rule have caused many
credit unions and community banks that provide remittance transfers as
an accommodation to their account-holding customers to limit the number
of transfers they provide or exit the market altogether. Several of
these commenters also stated that they would consider reentering the
market or resuming offering remittance transfer services if the Bureau
raised the normal course of business safe harbor threshold because they
would not have to bear the costs discussed above. In the Assessment
Report, the Bureau explained that it did not find evidence that, on
net, banks or credit unions ceased or limited providing remittance
transfers because the normal course of business safe harbor threshold
was too low.\40\ To the extent this has occurred, however, the Bureau
expects that raising the normal course of business safe harbor
threshold from 100 to 500 remittance transfers annually will encourage
at least some entities to reenter the market or resume offering
remittance transfer services, which would benefit consumers and allow
smaller entities to compete with other providers.
---------------------------------------------------------------------------
\40\ Assessment Report at 133-35.
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Further, the Bureau believes that raising the normal course of
business safe harbor threshold to 500 remittance transfers
appropriately balances the goals of ensuring that most transfers remain
covered, and that the number of affected consumers overall remain
relatively small. As discussed in part VI below, the data now available
through Call Reports \41\ indicate that a substantial proportion of
banks and credit unions make between 101 and 500 remittance transfers
per year, although their percentage of the overall annual volume of
remittance transfers is quite small.\42\ Specifically, based on the
Bureau's analysis of the 2018 Call
[[Page 34878]]
Report data,\43\ raising the threshold from 100 to 500 transfers would
remove approximately 414 banks and 247 credit unions (which represent
54.6 percent and 62.4 percent of such entities currently covered by the
Remittance Rule, respectively). These entities account for 0.83 percent
(92,623) of bank transfers, and 6.3 percent (49,347) of credit union
transfers, for a total of approximately 141,970 transfers that would no
longer be covered by the Rule.\44\ Banks overall provided 11.1 million
transfers and credit unions provided 790,000 transfers, while MSBs
provided 325 million transfers in 2017.\45\ Therefore, given that the
combined number of bank and credit union transfers that would no longer
be covered at a threshold of 500 annual transfers represents only a
minimal percentage of all remittance transfers made annually--
specifically, less than one-tenth of one percent (0.054 percent)--and
based on an extrapolation of this data,\46\ the Bureau believes that
the total number of consumers that might be impacted by the revised
normal course of business safe harbor threshold is relatively small.
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\41\ Banks and credit unions are required to submit quarterly
``Call Reports'' by the Federal Financial Institutions Examination
Council (FFIEC) and the National Credit Union Administration (NCUA),
respectively. For a more detailed description of these reporting
requirements, see Assessment Report at 24.
\42\ As used in this document, ``between 101 and 500'' means 101
or more and 500 or fewer--that is, above the current safe harbor
threshold but at or below the new 500-transfer normal course of
business safe harbor threshold.
\43\ Banks and credit unions continue to update their Call
Reports over time, so these numbers are current based on the Call
Reports as archived in November 2019 following the December 2019
NPRM.
\44\ The 414 banks account for 1.98 percent of the $101 billion
in remittance transfers provided by banks in 2018. Credit unions do
not report the dollar volume of remittance transfers on their Call
Reports.
\45\ In the Assessment Report, the Bureau estimated the number
of remittance transfers in 2017 to be 325 million (see Assessment
Report at 63-64) and that more than 95 percent of transfers were
provided by MSBs in 2017. The Bureau does not have an estimate of
the total transfers in 2018 but assumed that 95 percent of transfers
were provided by MSBs in 2018 to calculate this proportion.
\46\ The Call Report data track the number of remittance
transfers, not the number of consumers. Remittance transfer
providers may provide transfers to the same consumer multiple times
per year, and consumers may use more than one provider in a year.
The number of transfers gives an upper bound for the number of
consumers that may be affected by the new normal course of business
safe harbor threshold.
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The Bureau also concludes, based on the feedback of several
industry commenters, that consumers that are customers of the entities
that will newly qualify for the revised normal course of business safe
harbor threshold might still receive protections similar to those
provided under the Remittance Rule. For instance, as noted above, one
bank trade association stated that entities that are no longer subject
to the Remittance Rule will still provide their customers with
information about the fees associated with sending a remittance
transfer and will also take steps to help consumers when there are
errors related to their transfers. In addition, several other industry
commenters, including a few credit union trade associations and one
community bank trade association, noted their strong connections to the
communities they serve and stated that they exist to serve their
customers. One of the credit union trade associations stated that
credit unions provide reliable information about remittance transfers
and charge reasonable rates.
Further, the Bureau recognizes that raising the normal course of
business safe harbor threshold to 500 remittance transfers annually
will address compliance challenges separate from the compliance
challenges related to the expiration of the temporary exception that
the Bureau is addressing in the changes it is adopting in Sec.
1005.32, discussed below. As explained above, the Bureau believes that
a 500-transfer normal course of business safe harbor threshold better
serves the purposes of the normal course of business provision in the
statutory definition of remittance transfer provider and is therefore
appropriate.
The Bureau declines at this time to raise the normal course of
business safe harbor threshold to a number higher than 500 remittance
transfers, as the credit union members and a number of industry
commenters recommended. As noted above and based on the discussion
herein, the Bureau believes that a threshold of 500 transfers is more
appropriate to identify persons who occasionally provide remittance
transfers, but not in the normal course of their business. As discussed
in the 2019 Proposal, the Bureau proposed a 500-transfer normal course
of business safe harbor threshold because it believed that raising the
threshold to 500 transfers would appropriately implement the purposes
of EFTA section 919, including the statutory definition of remittance
transfer provider (and its normal course of business provision), by
helping to reduce burden for banks and credit unions that provide
transfers only as an accommodation to their customers, thereby ensuring
that banks and credit unions continue to offer the service to benefit
consumers and do not bear a disproportionate cost to do so. The
proposed threshold was based on limited information, and as such, in
the 2019 Proposal, the Bureau requested data or other evidence that
would have assisted it in determining what number would be most
appropriate for the normal course of business safe harbor threshold.
The Bureau did not receive data or other evidence indicating that a
specific higher number would have been a more appropriate normal course
of business safe harbor threshold, and as noted above, the Bureau
believes a 500-transfer threshold is a more appropriate threshold,
after consideration of the multitude of factors noted above as well as
the comments received. For these reasons, the Bureau declines at this
time to raise the normal course of business safe harbor threshold to a
number other than 500 transfers annually.
The Bureau is also retaining the maximum time period allowed for a
person to come into compliance with the Remittance Rule as ``not to
exceed six months'' after the person is deemed to be providing
transfers in the normal course of business. As noted above, an industry
commenter requested that the Bureau clarify that the existing
transition period provision in Sec. 1005.30(f)(2)(ii) continue to
apply so that when an entity exceeds the threshold, it has six months
to come into compliance. Another industry commenter suggested making
the transition period for entities that qualified for the normal course
of business safe harbor threshold but then exceed the threshold (and
therefore must comply with the Remittance Rule) at least six months.
The Bureau believes that the transition period is sufficiently
clarified in the changes the Bureau is finalizing in Sec.
1005.30(f)(2)(ii) and (iii) as well as the accompanying commentary, and
therefore declines to make additional changes. The Bureau also declines
to further extend the transition period because the Bureau is not
persuaded that a longer transition period is necessary.
Further, the Bureau is keeping the phrase ``payment is made.'' As
discussed in the 2019 Proposal, the Bureau noted that existing language
in Sec. 1005.30(f)(2)(ii) regarding the six-month transition period
that a person has to come into compliance with the Rule, as well as the
proposed language in Sec. 1005.30(f)(2)(iii) regarding the transition
period for a person that qualifies for the normal course of business
safe harbor, both peg their requirements on the phrase ``payment is
made.'' The Bureau also noted that the phrase ``payment is made'' is
used numerous times throughout the Rule and believed that it provided a
clear and consistent test as to whether any particular remittance
transfer is subject to the Rule. The Bureau solicited comment on this
aspect of the proposal, and as noted above, one industry commenter
responded to this issue and stated that the Bureau should continue
using the phrase as it is easily understood and consistent with the
current regulation. Lastly, the Bureau did not receive any comments
[[Page 34879]]
suggesting changes to the other proposed revisions to the commentary
accompanying Sec. 1005.30(f), and as such, the Bureau is adopting them
as proposed.
Other approaches suggested by commenters. The Bureau also declines
to base the normal course of business safe harbor threshold on a
standard other than the number of remittance transfers. As noted above,
one industry commenter recommended a two-prong approach, whereby an
entity would qualify for the normal course of business safe harbor if
it met either an asset-size threshold of $1 billion or a remittance
transfer threshold of 1,000. Another industry commenter opposed using
any standard other than the number of remittance transfers, stating
that using another metric, such as the percentage of an entity's
customers that send remittance transfers, would be unduly burdensome to
monitor. The Bureau agrees that basing the normal course of business
safe harbor threshold on something other than the number of transfers
would introduce complexity. In addition, the Bureau believes that a
normal course of business safe harbor provides the most certainty if it
is based on a bright-line measure that permits entities to identify
easily whether they qualify, especially if it is a measure with which
industry is already familiar.
1005.32 Estimates
As discussed in part II above, a significant consumer protection
provided by the Remittance Rule is the requirement that remittance
transfer providers disclose certain information to consumers that send
remittance transfers. Relatedly, a significant consumer protection
established by EFTA section 919 is that remittance transfer providers
generally must disclose (both prior to and at the time the consumer
pays for the transfer) the exact exchange rate and the amount to be
received by the designated recipient of a remittance transfer.\47\
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\47\ 15 U.S.C. 1693o-1(a)(1) and (2).
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Accordingly, the Rule generally requires that providers disclose to
senders the exact amount of currency that the designated recipient will
receive. Existing EFTA section 919 and Sec. 1005.32 of the Rule,
however, set forth several exceptions to this general requirement,
including the temporary exception in existing Sec. 1005.32(a). As
such, the Bureau proposed to provide two new permanent, tailored
exceptions in light of the expiration of the temporary exception in
existing Sec. 1005.32.
32(a) Temporary Exception for Insured Institutions
As noted above, EFTA section 919 sets forth a temporary exception
that permits certain financial institutions to disclose estimates
instead of exact amounts to consumers under certain circumstances until
July 21, 2020. The Bureau implemented the temporary exception in Sec.
1005.32. Section 1005.32(a)(1) provides that a remittance transfer
provider may give estimates in compliance with Sec. 1005.32(c) for the
exchange rate (if applicable), covered third-party fees, and certain
other disclosure information if the provider meets three conditions:
(1) The provider must be an insured institution; (2) the provider must
not be able to determine the exact amounts to be disclosed for reasons
beyond its control; and (3) the transfer generally must be sent from
the sender's account with the insured institution. Section
1005.32(a)(2) provides that the temporary exception shall expire on
July 21, 2020. Section 1005.32(a)(3) provides that insured depository
institutions, insured credit unions, and uninsured U.S. branches and
agencies of foreign depository institutions are considered ``insured
institutions'' for purposes of the temporary exception. Importantly,
MSBs are not ``insured institutions'' for purposes of the temporary
exception.
EFTA section 919 expressly limits the length of the temporary
exception to July 21, 2020, and this rule cannot and does not change
that fact. However, this final rule discusses this provision as
background to the two new exceptions in Sec. 1005.32(b)(4) and (5) the
Bureau is adopting in this final rule to provide tailored exceptions to
address compliance challenges that insured institutions may face in
certain circumstances upon the expiration of the temporary exception
and to preserve consumers' access to certain remittance transfers.
Challenges of Insured Institutions in Disclosing Exact Amounts
In 2012, when the Bureau adopted Sec. 1005.32(a), it stated the
following in the notice of final rulemaking:
Congress specifically recognized that it would be difficult for
financial institutions to meet certain disclosure requirements with
regard to open network transactions and tailored a specific
accommodation to allow use of reasonably accurate estimates for an
interim period until financial institutions can develop methods to
determine exact disclosures, such as fees and taxes charged by third
parties.\48\
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\48\ 77 FR 6194, 6208 (Feb. 7, 2012).
As discussed in part II above, banks and credit unions have
predominantly utilized an ``open network'' payment system made up of
the correspondent banking network to send remittance transfers on
behalf of consumers, and most banks and credit unions only maintain a
relatively small number of correspondent banking relationships. As
such, in many cases involving remittance transfers sent via the
correspondent banking network, the sending institution must find a
chain of one or more intermediary financial institutions to transmit
funds from the sending institution to the designated recipient's
institution.
There are two basic ways such a chain works where the originating
(sending) institution has no correspondent banking relationship with
the designated recipient's institution: (1) The ``serial'' method, and
(2) the ``cover'' method (also known as the ``split and cover''
method).\49\ Sending a remittance transfer using the serial method
means that the payment instructions are transferred, and the
transferred funds are settled,\50\ one step at a time between each of
the financial institutions in the transmittal route. Each connected
pair of financial institutions in the transmittal route have a
correspondent banking relationship with each other, which enables fund
settlement.\51\ By current market practice, each intermediary financial
institution typically deducts a fee from the payment amount, which
results in the recipient of the payment not receiving the full amount
of the original payment order.\52\ Sending a remittance transfer using
the cover method means that the payment information is conveyed from
the sending institution to the designated recipient's institution,
while settlement is handled separately through correspondent banks.\53\
Further, current market practice is such that correspondent banks
typically do not deduct transaction fees from payments sent using the
cover method.\54\
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\49\ See 2016 BIS Report at 33-34.
\50\ ``Settlement'' generally refers to the ``discharge[ing of]
obligations in respect of funds or securities transfers between two
or more parties.'' Bank for Int'l Settlements, A glossary of terms
used in payments and settlement systems, at 45 (2003), https://www.bis.org/cpmi/glossary_030301.pdf.
\51\ Id. at 34.
\52\ Id. at 37.
\53\ Every cross-border money transfer, including remittance
transfers, sent via the correspondent banking network has two
components: The payment information and the settlement instruction.
Whereas these two components travel together when using the serial
method, the cover method separates the payment information from the
settlement instructions.
\54\ 2016 BIS Report at 37.
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[[Page 34880]]
As discussed above, the temporary exception permits insured
institutions to disclose estimates (rather than exact amounts) of the
exchange rate and covered third-party fees (and other amounts that have
to be estimated because the exchange rate and covered third-party fees
are estimated). With respect to the exchange rate, insured institutions
and their trade associations have reported to the Bureau that because
exchange rates fluctuate, sending institutions comply with the
requirement to disclose exact exchange rates by ``fixing'' the exchange
rate at the time a sender requests a remittance transfer. They do this
by converting the funds to the applicable foreign currency up-front
themselves, or by using their correspondent bank or third-party service
provider (instead of having an intermediary financial institution or
the designated recipient's institution perform the foreign currency
conversion). Insured institutions may face a number of hurdles with
respect to converting funds to certain currencies up-front. In such
cases, they may rely on the temporary exception with respect to the
disclosure of the exchange rate.\55\
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\55\ Section 1005.32(b) also contains other exceptions that
permit the estimation of the exchange rate in certain circumstances.
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With respect to covered third-party fees, insured institutions and
their trade associations have told the Bureau that if banks and credit
unions send remittance transfers using the serial method (where sending
institutions do not have a correspondent relationship with all of the
financial institutions in the remittance transfer's transmittal route),
they cannot control or even know what transaction fees another
financial institution in the payment chain imposes without having a
correspondent relationship with that financial institution. As such,
they rely on the temporary exception with respect to the disclosure of
covered third-party fees.
Recent market developments and potential solutions. In the
Assessment Report, the Bureau observed that the remittance market has
undergone substantial change since the Rule became effective.
Specifically, the Assessment Report described several developments
regarding the growth and incorporation of innovative technologies by
providers of cross-border money transfers and other companies that
support such providers.\56\
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\56\ Assessment Report at 97-106.
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The Bureau has continued to monitor the remittance transfer market
since the publication of the Assessment Report and observes that most
of these developments continue to progress. Examples include: (1) The
continued growth and expanding functionality of the Society for
Worldwide Interbank Financial Telecommunication (SWIFT)'s ``global
payment innovation'' (gpi) tracking product, which can increase the
amount of up-front information available to sending institutions, and
the expansion of the major payment card networks' capacity to support
cross-border payments; \57\ (2) the continued growth of ``fintech''
nonbank remittance transfer providers and their further expansion into
partnerships and other relationships with banks and credit unions,
which allow such entities to tap into the closed network payment
systems that nonbank remittance transfer providers have developed; \58\
and (3) the continued growth and expanding partnerships of virtual
currency companies, such as Ripple, which offer both a payments
messaging platform to support cross-border money transfers as well as a
virtual currency, XRP, which can be used to effect settlement of those
transfers.\59\
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\57\ SWIFT provides financial messaging services that support a
large share of all cross-border interbank payments sent via
correspondent banks. See, e.g., Press Release, SWIFT, SWIFT enables
payments to be executed in seconds (Sept. 23, 2019), https://www.swift.com/news-events/press-releases/swift-enables-payments-to-be-executed-in-seconds; John Adams, Small cross-border deals play a
big role for Visa, Mastercard, PaymentsSource (May 21, 2019),
https://www.paymentssource.com/news/small-cross-border-deals-play-a-big-role-for-visa-mastercard.
\58\ See, e.g., Zoe Murphy, TransferWise launches TransferWise
for Banks in the U.S. with Novo, Tearsheet (Sept. 26, 2019), https://tearsheet.co/new-banks/transferwise-launches-transferwise-for-banks-in-the-u-s-with-novo/.
\59\ See, e.g., Press Release, Ripple, Ripple Announces
Strategic Partnership with Money Transfer Giant, MoneyGram (June 17,
2019), https://www.ripple.com/insights/ripple-announces-strategic-partnership-with-money-transfer-giant-moneygram/; Sharon Kimathi,
PNC becomes first US bank on RippleNet, FinTech Futures (Aug. 29,
2019), https://www.fintechfutures.com/2019/08/pnc-becomes-first-us-bank-on-ripplenet/.
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These developments suggest that in the future there may be means by
which banks and credit unions could reduce their reliance on estimates,
but there are limits on the degree to which the developments can solve
the problem. All of the developments apply elements of a closed network
payment system to cross-border money transfers sent by banks and credit
unions. As discussed in part II above, in a closed network payment
system, a single entity generally exerts a high degree of end-to-end
control over a transaction. This control generally facilitates
standardization and uniformity over terms, conditions, and processes to
which participants in a closed network payment system must adhere. That
standardization and uniformity, in turn, can provide a great deal of
certainty to all participants in such a system as to the terms and
conditions that will apply to individual transactions within that
system.
To the degree banks and credit unions increase their reliance on
closed network payment systems for sending remittance transfers and
other cross-border money transfers, the Bureau notes that this could
result in greater standardization and ease by which sending
institutions can know exact covered third-party fees and exchange
rates. The Bureau also believes that expanded adoption of SWIFT's gpi
product or Ripple's suite of products could similarly allow banks and
credit unions to know the exact final amount that recipients of
remittance transfers will receive before they are sent.
However, based on the Bureau's market monitoring and experience as
well as feedback the Bureau has received from banks, credit unions, and
their trade associations regarding the impending expiration of the
temporary exception, the Bureau in the 2019 Proposal stated that it did
not believe that it was likely in the short-to-medium term that the
developments described above would be able to fully eliminate reliance
on the correspondent banking network as the predominant method for
banks and credit unions to send remittance transfers. There are
thousands of financial institutions worldwide that could receive
remittance transfers with new financial institutions being added to the
network (or leaving the market) on regular basis. If, as noted above,
the different approaches described above share the similarity of
replicating some elements of a closed network payment system, the
approaches likely would need to enroll all or most of those financial
institutions into their platforms to offer banks and credit unions up-
front certainty when sending transfers for which they currently rely on
the temporary exception. It may be costly, excessively time-consuming,
or otherwise difficult to enroll all or even most of these
institutions, especially the smaller ones. Accordingly, the Bureau
proposed in 2019 to provide tailored permanent exceptions that would
allow insured institutions to estimate, as applicable, the exchange
rate, covered third-party fees, and other disclosure information
impacted by the estimation of those amounts, to address compliance
challenges that insured institutions may face in certain circumstances
upon the expiration of the temporary exception
[[Page 34881]]
and to preserve consumers' access to certain remittance transfers.
Comments Received
Several trade associations and one bank suggested alternatives to
proposed Sec. 1005.32(b)(4) and (5) in determining whether insured
institutions can estimate the exchange rate or covered third-party
fees, respectively. One bank opposed proposed Sec. 1005.32(b)(4) and
(5) and instead encouraged the Bureau to make the temporary exception
permanent. One trade association representing community banks opposed
proposed Sec. 1005.32(b)(4) and (5) and urged the Bureau to utilize
its EFTA section 904(c) authority to exempt insured institutions from
providing exact exchange rates and covered third-party fees, allowing
them to continue to rely on estimates in their disclosures when they
are unable to determine accurate information, without attaching a
threshold to the exceptions. One credit union and one trade association
representing credit unions recommended that the Bureau consider
simplified exceptions that treat a sending institution's reliance on
exchange rate and covered third-party fee amounts provided by its
correspondent bank as sufficient for disclosure purposes. Another trade
association urged the Bureau to provide an alternative basis under
which an insured institution can rely upon for estimating the exchange
rates or covered third-party fees even if the institution exceeds the
volume thresholds. For example, this trade association indicated that
the Bureau could require additional recordkeeping by insured
institutions in the event that they rely upon proposed Sec.
1005.32(b)(4) or (5) after exceeding the thresholds in the prior
calendar year.
The Final Rule
As discussed above, the temporary exception will expire on July 21,
2020, and this final rule cannot and does not change that fact. As
discussed in the 2019 Proposal, EFTA section 919 expressly limits the
length of the temporary exception to July 21, 2020. As such, the
exception will expire on July 21, 2020.
For similar reasons, this final rule does not adopt provisions that
would replicate the temporary exception, as one trade association
commenter and one bank commenter suggested the Bureau should do.\60\
This final rule adopts the two new exceptions in Sec. 1005.32(b)(4)
and (5) generally as proposed, to address compliance challenges that
insured institutions may face in certain circumstances upon the
expiration of the temporary exception and to preserve consumers' access
to certain remittance transfers.
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\60\ As noted above, one trade association commenter urged the
Bureau to utilize its EFTA section 904(c) authority by exempting
insured institutions from providing exact estimates of exchange
rates and covered third-party fees and allowing them to continue
relying on estimates in their disclosures when they are unable to
determine accurate information, without attaching a threshold to the
exemptions. Also, a bank commenter asked the Bureau to adopt
simplified exceptions that treat a sending institution's reliance on
exchange rate and covered third-party fee amounts provided by a
correspondent as sufficient for disclosure purposes.
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Except as discussed in the section-by-section analysis of Sec.
1005.32(b)(5) below, this final rule also does not adopt an alternative
basis under which an insured institution can rely upon for estimating
the exchange rates or covered third-party fees even if the institution
exceeds the volume thresholds set forth in Sec. 1005.32(b)(4) and (5).
This final rule does not adopt the alternative basis suggested by the
trade association commenter that the Bureau require additional
recordkeeping by insured institutions in the event that they rely upon
proposed Sec. 1005.32(b)(4) or (5) after exceeding the thresholds in
the prior calendar year. The Bureau does not believe this alternative
basis is sufficiently objective to be used to determine if an insured
institution is in compliance with the Remittance Rule. The Bureau
believes that the exceptions in Sec. 1005.32(b)(4) and (5) are better
approaches in that these exceptions will create bright-line thresholds
to estimating exchange rates and covered third-party fees and that the
Bureau's exceptions are better tailored to address the problems faced
by institutions in determining exact amounts. The Bureau believes that
the clarity of the two new exceptions in Sec. 1005.32(b)(4) and (5)
are more likely than the suggested alternative to reduce uncertainty
and promote compliance.
32(b) Permanent Exceptions
32(b)(4) Permanent Exception for Estimation of the Exchange Rate by an
Insured Institution
Proposed Sec. 1005.32(b)(4) provided that insured institutions may
estimate the exchange rate (and other disclosure information that
depend on the exchange rate) that must be provided in the disclosures
required by Sec. Sec. 1005.31(b)(1) through (3) and 1005.36(a)(1) and
(2) in certain circumstances. This proposed exception was designed to
provide a tailored permanent exception to address compliance challenges
that insured institutions may face in certain circumstances upon the
expiration of the temporary exception and to preserve consumers' access
to certain remittance transfers. For reasons set forth herein, the
Bureau is adopting the proposed exception generally as proposed.
The Bureau's Proposal
Proposed Sec. 1005.32(b)(4)(i) provided that for disclosures
described in Sec. Sec. 1005.31(b)(1) through (3) and 1005.36(a)(1) and
(2), estimates may be provided for a remittance transfer to a
particular country in accordance with Sec. 1005.32(c) for the amounts
required to be disclosed under Sec. 1005.31(b)(1)(iv) through (vii) if
the designated recipient of the remittance transfer will receive funds
in the country's local currency and all of the following conditions are
met: (1) The remittance transfer provider is an insured institution as
defined in Sec. 1005.32(a)(3); (2) the insured institution cannot
determine the exact exchange rate for that particular remittance
transfer at the time it must provide the applicable disclosures; (3)
the insured institution made 1,000 or fewer remittance transfers in the
prior calendar year to the particular country for which the designated
recipients of those transfers received funds in the country's local
currency; and (4) the remittance transfer generally is sent from the
sender's account with the insured institution.
Proposed Sec. 1005.32(b)(4) applied only if the designated
recipient of the remittance transfer receives funds in the country's
local currency. Proposed Sec. 1005.32(b)(4)(i) also generally applied
to the following disclosures set forth in Sec. 1005.31(b)(1)(iv)
through (vii) respectively: (1) The exchange rate (as applicable); (2)
if ``covered third-party fees'' as defined in Sec. 1005.30(h) are
imposed, the total amount that will be transferred to the recipient
inclusive of the covered third-party fees; (3) the amount of any
covered third-party fees; and (4) the amount that will be received by
the designated recipient (after deducting any covered third-party
fees). Proposed Sec. 1005.32(b)(4)(ii) provided, however, that the
total amount that will be transferred to the recipient inclusive of
covered third-party fees, the amount of covered third-party fees, and
the amount that will be received by the designated recipient (after
deducting covered third-party fees) may be estimated under proposed
Sec. 1005.32(b)(4)(i) only if the exchange rate is permitted to be
estimated under proposed Sec. 1005.32(b)(4)(i) and the estimated
exchange rate affects the amount of such disclosures. For example, if a
remittance transfer will be received by the designated recipient in
[[Page 34882]]
the same currency as the one in which the transfer is funded, the
insured institution would not disclose an exchange rate for the
transfer, and the total amount that will be transferred to the
recipient inclusive of covered third-party fees, the amount of covered
third-party fees, and the amount that will be received by the
designated recipient (after deducting covered third-party fees) will
not be affected by an exchange rate. In that case, an insured
institution could not have used proposed Sec. 1005.32(b)(4) to
estimate those disclosures. The insured institution, however, may be
able to use another permanent exception set forth in Sec. 1005.32(b),
including the exception in proposed Sec. 1005.32(b)(5), to estimate
those disclosures if the conditions of those provisions are met.
Proposed comment 32(b)(4)-1 provided guidance on whether an insured
institution cannot determine the exact exchange rate applicable to a
remittance transfer at the time the disclosures must be given.
Specifically, proposed comment 32(b)(4)-1 stated that for purposes of
proposed Sec. 1005.32(b)(4)(i)(B), an insured institution cannot
determine the exact exchange rate required to be disclosed under Sec.
1005.31(b)(1)(iv) for a remittance transfer to a particular country
where the designated recipient of the transfer will receive funds in
the country's local currency if the exchange rate for the transfer is
set by a person other than (1) the insured institution; (2) an
institution that has a correspondent relationship with the insured
institution; (3) a service provider for the insured institution; or (4)
a person that acts as an agent of the insured institution. The Bureau
believed that proposed comment 32(b)(4)-1 set forth the circumstances
in which an insured institution could not determine the exchange rate
for a particular transfer sent through correspondent banks in an open
network payment system and sought comment on this provision.
Proposed comment 32(b)(4)-1.i set forth an example of when an
insured institution cannot determine an exact exchange rate under
proposed Sec. 1005.32(b)(4)(i)(B) for a remittance transfer. Proposed
comment 32(b)(4)-1.ii would set forth two examples of whether an
insured institution could determine an exact exchange rate under
proposed Sec. 1005.32(b)(4)(i)(B) for a remittance transfer, and thus
the insured institution may not use the proposed exception in proposed
Sec. 1005.32(b)(4) to estimate the disclosures required under Sec.
1005.31(b)(1)(iv) through (vii) for the remittance transfer.
Proposed comment 32(b)(4)-2.i set forth that for purposes of
determining whether an insured institution made 1,000 or fewer
remittance transfers in the prior calendar year to a particular country
pursuant to proposed Sec. 1005.32(b)(4)(i)(C), the number of
remittance transfers provided includes transfers in the prior calendar
year to that country if the designated recipients of those transfers
received funds in the country's local currency regardless of whether
the exchange rate was estimated for those transfers. The proposed
comment provided an example to illustrate. Also, proposed comment
32(b)(4)-2.ii provided that for purposes of the 1,000-transfer
threshold, the number of remittance transfers does not include
remittance transfers to a country in the prior calendar year if the
designated recipients of those transfers did not receive the funds in
the country's local currency. The proposed comment contained an example
to illustrate.
The Bureau also proposed conforming changes to the following
provisions to reference the proposed exception in Sec. 1005.32(b)(4)
if the temporary exception in Sec. 1005.32(a) currently is referenced
and pertains to the estimation of the exchange rate: (1) Sec.
1005.32(c); (2) Sec. 1005.33(a)(1)(iii)(A); (3) Sec. 1005.36(b)(3);
(4) comment 32-1; (5) comment 32(b)(1)-4.ii; (6) comment 32(d)-1; and
(7) comment 36(b)-3.
Comments Received
The Bureau received a significant number of comments on proposed
Sec. 1005.32(b)(4) from banks, credit unions, their trade
associations, and their service providers. The Bureau received
approximately 60 comment letters from individual consumers; nearly all
of whom were credit union members. The Bureau received two comments
from consumer groups.
Comments from credit unions, banks, their trade associations, and
their service providers. Many industry commenters provided the same
comments for both proposed Sec. 1005.32(b)(4) related to estimating
the exchange rate and proposed Sec. 1005.32(b)(5) related to
estimating covered third-party fees. These comments generally are
addressed in this section in relation to Sec. 1005.32(b)(4) and are
addressed in the section-by-section analysis of Sec. 1005.32(b)(5) in
relation to Sec. 1005.32(b)(5).
Many industry commenters encouraged the Bureau to adopt proposed
Sec. 1005.32(b)(4) and (5) to permit insured institutions to estimate
the exchange rate and covered third-party fees in certain
circumstances. For example, one credit union indicated that these
proposed exceptions would help financial institutions to reenter the
international funds transfer system without placing undue risk and
burdens on the institution for issues outside their control. A trade
association representing credit unions indicated that it supported
these proposed exceptions and appreciated the Bureau's efforts to
manage consumer protection while fostering an environment in which
credit unions can provide and develop affordable products and services
to their members. One service provider indicated that the proposed
exceptions would help ensure that entities that make a limited number
of remittance transfers can remain competitive in the global payments
space without incurring the burden of compliance costs.
Several trade associations representing credit unions urged the
Bureau to revise proposed Sec. 1005.32(b)(4) and (5) to increase the
threshold amount for exchange rates and covered third-party fees to
2,000 transfers in the prior calendar year. Several of these trade
associations indicated that to align proposed exceptions in proposed
Sec. 1005.32(b)(4) and (5) with their recommendation that the Bureau
raise the normal course of business safe harbor threshold to 1,000
transfers, the Bureau should correspondingly increase the thresholds
for proposed Sec. 1005.32(b)(4) and (5) to 2,000 or fewer transfers in
the prior calendar year. Another trade association representing credit
unions indicated that a 2,000-transfer threshold in the prior calendar
year would allow more institutions that are not primarily remittance
transfer businesses to be positioned to continue to offer remittances
without incurring the higher costs (normally passed through to the
consumer) that will likely result should the temporary exception simply
expire in July 2020. Another trade association representing credit
unions suggested that the threshold amounts in proposed Sec.
1005.32(b)(4) and (5) should be the same, and the Bureau should raise
both thresholds to 2,000 in the prior calendar year. This trade
association indicated that having the same threshold for both proposed
exceptions would be easier to implement from an operational perspective
because the adoption of differing thresholds on a per member basis
could introduce complicated tracking issues.
With respect to the threshold amounts in proposed Sec.
1005.32(b)(4) and (5), one trade association indicated that the Bureau
should exclude correspondent
[[Page 34883]]
remittance transfers serviced by a financial institution from the
threshold amounts. Another trade association indicated that the Bureau
should exclude closed loop transfers from being considered for purposes
of the thresholds under Sec. 1005.32(b)(4) and (5). This trade
association indicated that closed loop offerings involve agency-type
relationships with recipient institutions and do not require
estimation, but they are distinct from wire transfers and should not be
counted towards the threshold amounts. One trade association
representing credit unions indicated that the Bureau should commit to
revisiting the sufficiency of the thresholds in proposed Sec.
1005.32(b)(4) and (5) shortly after implementation of a final rule to
ensure that costs borne by correspondents ineligible to use estimates
are not passed on to community institutions that do not themselves
exceed the thresholds.
One bank requested that the Bureau provide guidance regarding
application of thresholds set forth in proposed Sec. 1005.32(b)(4) and
(5) if an institution merges with another or acquires another
institution. This bank indicated that the Bureau should provide a grace
period of at least six months when this occurs, as the combination of
two remittance transfer providers could result in the number of
transfers exceeding a threshold and thereby imposing requirements that
had not applied before. The bank indicated that when this happens, the
institution that remains should be afforded sufficient time to adjust
its processes and procedures to the Remittance Rule's requirements.
Two trade associations indicated that the Bureau should establish a
six-month transition period after an insured institution exceeds the
threshold amounts in proposed Sec. 1005.32(b)(4) and (5) during which
the institution could still avail itself of the new proposed
exceptions. They asserted this would ease the compliance burden for
institutions that cross a threshold towards the end of a calendar year.
In the 2019 Proposal, the Bureau solicited comment on whether the
proposed exceptions in proposed Sec. 1005.32(b)(4) and (5) should
contain a sunset provision. Several banks and a trade association urged
the Bureau not to sunset proposed Sec. 1005.32(b)(4) and (5). They
asserted that sunset provisions create unnecessary uncertainty for
consumers and institutions.
Several industry commenters provided comments that related
specifically to proposed Sec. 1005.32(b)(4) for estimating the
exchange rate. One trade association supported proposed Sec.
1005.32(b)(4) and indicated that the cost of keeping up with all of the
potential exchange rates is an additional regulatory burden that has
discouraged smaller community banks from offering this service.
One trade association believed that the 1,000 transfer-threshold
under proposed Sec. 1005.32(b)(4) was appropriate if, as discussed
below, the Bureau encourages broader use of the permanent exception for
transfers to certain countries in existing Sec. 1005.32(b)(1). This
trade association indicated that a remittance transfer provider's
ability to disclose an exchange rate is not necessarily tied to the
number of transfers in local currency that it sends to a particular
country. This trade association indicated that, even if a provider
sends more than the prescribed number of transfers in local currency to
a country, depository institutions may still need to estimate exchange
rates due to the idiosyncrasies of certain currencies. This trade
association believed that their members could address these
idiosyncrasies without the need to increase the 1,000-transfer
threshold if, as discussed below, the Bureau encourages broader use of
the permanent exception for transfers to certain countries in existing
Sec. 1005.32(b)(1).
One trade association requested that the Bureau clarify whether
remittance transfer providers must disclose an exchange rate in
situations in which the sender instructs the remittance transfer
provider to send the transfer in U.S. dollars, but the provider knows
that the general market practice in the recipient country is to convert
transfers received in U.S. dollars into the local currency.
The Bureau received no comments from industry specifically on
proposed comment 32(b)(4)-1 that set forth guidance on whether, under
proposed Sec. 1005.32(b)(4)(i)(B), an insured institution cannot
determine the exact exchange rate applicable to a remittance transfer
at the time the disclosures must be given.
Individual commenters. Nearly all of the individual commenters were
credit union members. These individual commenters suggested that the
Bureau should increase the thresholds for the proposed exceptions in
Sec. 1005.32(b)(4) and (5) to 2,000 or fewer transfers. These
individual commenters indicated that to align proposed exceptions in
proposed Sec. 1005.32(b)(4) and (5) with their recommendation that the
Bureau raise the normal course of business safe harbor threshold to
1,000 transfers, the Bureau should correspondingly increase the
thresholds for proposed Sec. 1005.32(b)(4) and (5) to 2,000 or fewer
transfers in the prior calendar year to reflect a ``normal course of
business'' threshold set at 1,000 transfers. One individual commenter
supported the proposed exceptions in proposed Sec. 1005.32(b)(4) and
(5), asserting that they would benefit insured institutions but not
likely harm consumers. One individual commenter opposed the proposed
exceptions in Sec. 1005.32(b)(4) and (5), asserting that these
exceptions prevent transparency for the public and consumers.
Consumer groups. The Bureau received two comment letters from
consumer groups. These consumer groups opposed both the proposed
exceptions in proposed Sec. 1005.32(b)(4) and (5), citing three
primary concerns: (1) Market data, including data related to financial
institution remittance transfers, do not support the need for the rule
changes; (2) there is insufficient legal justification for the broad
changes proposed in the 2019 Proposal; and (3) the Bureau has not
sufficiently studied the impact of the proposed amendments on consumers
to assess the need for the amendments and any possible negative
impacts. These consumer groups also asserted that these proposed
exceptions would further harm consumers and contradict congressional
intent by, in effect, converting an exception that Congress designated
as temporary (ending in July 2020) into exceptions that are permanent,
for many of the financial institutions that use it today. They thus
asserted that adopting the exceptions as proposed would harm consumers
by limiting the protections and benefits they receive from the Rule,
including the ability to know precisely how much money a recipient will
receive, the ability to accurately identify the cheapest provider, and
access to full error resolution protections when the amount received is
different from the amount disclosed. These consumer groups suggested
that the Bureau should withdraw its proposal in its entirety and
instead consider ways to expand the applicability of EFTA's protections
for remittances.
The consumer groups also indicated that, if the Bureau does adopt
proposed Sec. 1005.32(b)(4) and (5), the Bureau should not make these
exceptions permanent. They indicated that the Bureau's analysis
recognizes that market evolutions are giving financial institutions
more options for disclosing exact exchange rates and fees, but
inexplicably creates exceptions that lasts forever. They indicated that
in doing so, the Bureau ignores the important forcing effect of a
compliance
[[Page 34884]]
deadline, the existing trend away from reliance on the temporary
exception, and the evolution of methods for sending money.
In the 2019 Proposal, the Bureau requested comment on whether
proposed Sec. 1005.32(b)(4) and (5) should apply to providers that are
not insured institutions. The consumer groups indicated that the Bureau
should not extend these proposed exceptions to non-insured
institutions. They indicated that rolling back already-required
protections in other segments of the market would harm consumers and
undermine the purpose of EFTA. They believed there is no reason or
authority for extending any new exceptions to non-insured entities.
The Final Rule
As set forth herein, this final rule adopts Sec. 1005.32(b)(4) and
comments 32(b)(4)-1 and -2 as proposed. As explained in more detail
below, this final rule adds comment 32(b)(4)-3 to provide a transition
period for insured institutions that exceed the 1,000-transfer
threshold under Sec. 1005.32(b)(4) in a certain year, which would
allow them to continue to provide estimates of the exchange rate for a
reasonable period of time while they come into compliance with the
requirement to provide exact exchange rates. This final rule also
adopts conforming changes as proposed to the following provisions to
reference the exception in Sec. 1005.32(b)(4) where the temporary
exception in Sec. 1005.32(a) currently is referenced and pertains to
the estimation of the exchange rate: (1) Sec. 1005.32(c); (2) Sec.
1005.33(a)(1)(iii)(A); (3) Sec. 1005.36(b)(3); (4) comment 32-1; (5)
comment 32(b)(1)-4.ii; (6) comment 32(d)-1; and (7) comment 36(b)-3.
Based on the comments received on the 2019 Proposal and prior
outreach and research, the Bureau believes that the data it has
collected support the adoption of Sec. 1005.32(b)(4) and comments
32(b)(4)-1 through -3. The Bureau's legal authority to adopt these
provisions is discussed below.
Based on the comments received on the 2019 Proposal and prior
outreach and research, the Bureau determines that if an insured
institution is sending 1,000 or fewer remittance transfers to a
particular country in the country's local currency, it may be unduly
costly for the institution to establish and maintain currency-trading
desk capabilities and risk management policies and practices related to
foreign exchange trading of that currency. It also may be unduly costly
to use service providers, correspondent institutions, or persons that
act as the insured institution's agent to obtain exact exchange rates
for that currency. Based on the comments received on the 2019 Proposal
and other outreach and research, the Bureau determines that the
disproportionate cost of sending to certain countries is a primary
factor in whether an insured institution will perform the currency
exchange and thus whether it would know the exact exchange rate to
provide in its disclosures. In cases in which the volume is less than
the proposed 1,000-transfer threshold in the previous calendar year to
a particular country in the country's local currency, the Bureau
concludes that if the insured institution cannot estimate the exchange
rate for a particular transfer to that country, the institution would
no longer continue to make transfers to that country in the country's
local currency because the costs associated with performing the
currency exchange upfront outweigh the benefits given the relatively
few transfers sent to the country. The Bureau determines that if these
institutions discontinued providing such transfers, consumer access to
remittance transfer services for certain countries may be reduced or
eliminated. As discussed in more detail above in the section-by-section
analysis of Sec. 1005.32(a), it appears increasingly unlikely that any
new technologies or partnerships will be able to fully eliminate
insured institutions' reliance on estimates in the short-to-medium
term. The Bureau concludes that some financial institutions may lack
the scale for it to be practicable to cover the costs of establishing
and maintaining currency-trading desks and managing the risk of
exchange rate trading of currency for certain countries, or to use
service providers, correspondent institutions, or persons that act as
the insured institution's agent to obtain exact exchange rates for
those currencies.
Also, the Bureau determines that, when the temporary exception
expires, if the Rule did not allow estimates of the exchange rate in
certain circumstances, some insured institutions that continue to offer
remittance transfer services may see costs increase when sending
transfers to certain countries because these institutions may have to
change how they provide remittance transfers to disclose exact exchange
rates. This would lead to increased prices for consumers. In addition,
the Bureau concludes that prices for consumers may also increase for
transfers to certain countries due to reduced competition if the number
of remittance transfer providers offering remittance transfers to such
countries were reduced due to some insured institutions eliminating or
curtailing remittance transfer services because they could not
determine and disclose exact exchange rates for those countries.
Each of the four conditions set forth in Sec. 1005.32(b)(4)(i)(A)
through (D) is discussed in more detail below.
The remittance transfer provider is an insured institution. This
final rule adopts Sec. 1005.32(b)(4)(i)(A) as proposed to provide that
the remittance transfer provider must be an insured institution as
defined in Sec. 1005.32(a)(3). In the 2019 Proposal, the Bureau
solicited comment on whether the proposed exception in Sec.
1005.32(b)(4) should be extended to apply to remittance transfer
providers that are not insured institutions, including MSBs and broker-
dealers. This final rule does not extend the exception in Sec.
1005.32(b)(4) to apply to remittance transfer providers that are not
insured institutions. In response to the 2019 Proposal, the consumer
group commenters did not support extending the exception in Sec.
1005.32(b)(4) to providers that are not insured institutions. No
industry commenters commented on this issue. The Bureau believes that
it is appropriate to apply the exception in Sec. 1005.32(b)(4) only to
insured institutions. The exception in Sec. 1005.32(b)(4) is primarily
designed to address providers' concerns about knowing the exact
exchange rate at the time disclosures are provided for remittance
transfers sent via correspondent banks in an open network payment
system. The Bureau believes that the great majority of these transfers
are provided by insured institutions and that, in turn, these open
network transfers are the most common type of remittance transfer
provided by insured institutions.
The insured institution cannot determine the exact exchange rate
for the transfer at the time it must provide the applicable
disclosures. This final rule adopts Sec. 1005.32(b)(4)(i)(B) as
proposed to require that, at the time the insured institution must
provide the disclosure required by Sec. 1005.31(b)(1) through (3) or
Sec. 1005.36(a)(1) or (2), as applicable, the insured institution
cannot determine the exact exchange rate required to be disclosed under
Sec. 1005.31(b)(1)(iv) for that remittance transfer. This final rule
also adopts comment 32(b)(4)-1 as proposed to provide guidance on
whether an insured institution cannot determine the exact exchange rate
applicable to a remittance transfer at the time the disclosures must be
given. The Bureau did not receive any specific comments on Sec.
1005.32(b)(4)(i)(B) or comment 32(b)(4)-1. The Bureau notes that if the
[[Page 34885]]
insured institution can determine the exact exchange rate required to
be disclosed under Sec. 1005.31(b)(1)(iv) for the remittance transfer,
the insured institution may not use the exception in Sec.
1005.32(b)(4) to estimate the exchange rate, even if the insured
institution made 1,000 or fewer remittance transfers in the prior
calendar year to the particular country as set forth in Sec.
1005.32(b)(4)(i)(C).
The insured institution made 1,000 or fewer remittance transfers in
the prior calendar year to the particular country for which the
designated recipients of those transfers received funds in the
country's local currency. This final rule adopts Sec.
1005.32(b)(4)(i)(C) as proposed to provide that, with respect to the
country to which the remittance transfer is being sent, the insured
institution must have made 1,000 or fewer remittance transfers in the
prior calendar year to the particular country for which the designated
recipients of those transfers received funds in the country's local
currency. Several industry commenters suggested that the Bureau should
increase this threshold amount to 2,000 transfers in the previous year.
Nonetheless, these commenters did not provide specific data on why this
higher threshold is needed to protect access to transfers to certain
countries. The Bureau determines that the 1,000-transfer threshold
adopted in Sec. 1005.32(b)(4) is consistent with its goal to provide a
tailored permanent exception to address compliance challenges that
insured institutions may face in certain circumstances upon the
expiration of the temporary exception and to preserve consumers' access
to remittance transfers sent to certain countries.
With respect to the threshold amount for proposed Sec.
1005.32(b)(4)(i)(C), one trade association indicated that the Bureau
should exclude correspondent remittance transfers serviced by a
financial institution from the count. The Bureau agrees and further
believes that the 2019 Proposal was, and this final rule is, clear that
the 1,000-transfer threshold set forth in Sec. 1005.32(b)(4)(i)(C)
only includes transfers in the previous year that are made by the
insured institution in its role as the remittance transfer provider.
The 1,000-transfer threshold does not include transfers where an
insured institution is acting as a correspondent on behalf of a sending
institution.
The Bureau is not excluding closed loop transfers from being
included in the number of transfers that count toward the threshold
under Sec. 1005.32(b)(4)(i)(C). The Bureau understands that with
respect to closed loop transfers, the insured institution does not need
to estimate the exchange rate because it has set up currency-trading
desk capabilities and risk management policies and practices related to
foreign exchange trading of that currency, or arranged to use service
providers, correspondent institutions, or persons that act as the
insured institution's agent to obtain exact exchange rates for that
currency. The Bureau does not believe that these closed loop transfers
should be excluded from the 1,000-transfer threshold because those
transfers might make it more likely that it is cost effective for the
insured institution to extend these existing capabilities to cover
additional transfers.
In this final rule, the Bureau also declines to commit to revisit
the sufficiency of the thresholds in proposed Sec. 1005.32(b)(4) and
(5) shortly after implementation of a final rule to ensure that costs
borne by correspondents ineligible to use estimates are not passed on
to community institutions that do not themselves exceed the thresholds.
The Bureau expects that larger insured institutions that cannot
estimate the exchange rate or covered third-party fees for their own
transfers under the exceptions in Sec. 1005.32(b)(4) or (5) will
continue to act as correspondent banks for sending institutions that
can continue to estimate the exchange rate or covered third-party fees
under the exceptions in Sec. 1005.32(b)(4) or (5) for their transfers.
The Bureau will continue to monitor the remittance market, including
monitoring the impact of the new exceptions in Sec. 1005.32(b)(4) and
(5), and will revisit the thresholds if it concludes that it may be
appropriate to change them.
The remittance transfer is sent from the sender's account with the
insured institution. This final rule adopts Sec. 1005.32(b)(4)(i)(D)
as proposed to provide that the remittance transfer must be sent from
the sender's account with the insured institution; provided, however,
for the purposes of Sec. 1005.32(b)(4)(i)(D), a sender's account does
not include a prepaid account, unless the prepaid account is a payroll
card account or a government benefit account. The Bureau did not
receive any comments on this provision.
Transition period. In response to comments received on the 2019
Proposal, the Bureau is adding a new comment 32(b)(4)-3 to provide a
transition period for institutions that exceed the 1,000-transfer
threshold under Sec. 1005.32(b)(4) in a certain year, which would
allow them to continue to provide estimates of the exchange rate for a
reasonable period of time while they come into compliance with the
requirement to provide exact exchange rates. Specifically, comment
32(b)(4)-3 provides that if an insured institution in the prior
calendar year did not exceed the 1,000-transfer threshold to a
particular country pursuant to Sec. 1005.32(b)(4)(i)(C), but does
exceed the 1,000-transfer threshold in the current calendar year, the
insured institution has a reasonable amount of time after exceeding the
1,000-transfer threshold to begin providing exact exchange rates in
disclosures (assuming it cannot rely on another exception in Sec.
1005.32 to estimate the exchange rate). The reasonable amount of time
must not exceed the later of six months after exceeding the 1,000-
transfer threshold in the current calendar year or January 1 of the
next year. Comment 32(b)(4)-3 also provides an example to illustrate
this guidance.
The Bureau concludes that this transition period will facilitate
compliance with the Remittance Rule by allowing institutions a
reasonable amount of time to establish currency-trading desk
capabilities and develop risk management policies and practices related
to foreign exchange trading of that currency, or to enter into
agreements with service providers, correspondent institutions, or
persons that act as the insured institution's agent to obtain exact
exchange rates for that currency. Without this provision, insured
institutions may find it difficult or impossible to comply with the
requirement to provide exact exchange rate disclosures starting January
1 of the next year if they exceed the 1,000-transfer threshold late in
the current year. The Bureau determines this transition period also may
help to address issues raised by industry commenters related to mergers
and acquisitions, if the combination of two remittance transfer
providers could result in the number of transfers exceeding a threshold
and thereby imposing requirements that had not applied before.
Permanent exception. In the 2019 Proposal, the Bureau solicited
comment on whether the Bureau should adopt a sunset provision with
respect to the exception in proposed Sec. 1005.32(b)(4). Consumer
group commenters indicated that if the Bureau does adopt proposed Sec.
1005.32(b)(4), the Bureau should not make this exception permanent.
They indicated that the Bureau's analysis recognizes that market
evolutions are giving financial institutions more options for
disclosing exact exchange rates and fees and noted the important
forcing effect of a compliance deadline,
[[Page 34886]]
the existing trend away from reliance on the temporary exception, and
the evolution of methods for sending money. Several banks and a trade
association urged the Bureau not to sunset proposed Sec.
1005.32(b)(4). They asserted that sunset provisions create unnecessary
uncertainty for consumers and institutions.
The Bureau is not adopting a sunset provision with respect to Sec.
1005.32(b)(4). The Bureau agrees certain developments in the market
could make it practicable for insured institutions to disclose exact
exchange rates for transfers, but the Bureau cannot forecast when
technological and market developments will permit this to occur.
Instead of setting a specific sunset date, the Bureau will continue to
monitor the market and make any changes to the exception as necessary
through the notice and comment process. The Bureau concludes that this
process will allow it to respond better to changes in market
conditions, rather than adopting a specific sunset date in the face of
technological and market uncertainty.
Guidance on when the disclosure of an exchange rate is required.
One trade association requested that the Bureau clarify if remittance
transfer providers must disclose an exchange rate in situations in
which the sender instructs the remittance transfer provider to send the
transfer in U.S. dollars, but the provider knows that the general
market practice in the recipient country is to convert transfers
received in U.S. dollars into the local currency. As discussed in the
2019 Proposal, current comment 31(b)(1)(iv)-1 provides guidance on how
a remittance transfer provider can determine in which currency the
designated recipient will receive the funds. The comment provides that
for purposes of determining whether an exchange rate is applied to the
transfer, if a remittance transfer provider does not have specific
knowledge regarding the currency in which the funds will be received,
the provider may rely on a sender's representation as to the currency
in which funds will be received. For example, if a sender requests that
a remittance transfer be deposited into an account in U.S. dollars, the
provider need not disclose an exchange rate, even if the account is
denominated in Mexican pesos and the funds are converted prior to
deposit into the account. Thus, under the existing commentary, a
remittance transfer provider may rely on a sender's representation as
to the currency in which funds will be received for purposes of
determining whether an exchange rate is applied to the transfer, unless
the remittance transfer provider has actual knowledge regarding the
currency in which the funds will be received for the transfer. Actual
knowledge does not include knowledge that the general market practice
in the recipient country is to convert transfers received in U.S.
dollars into the local currency. If a sender does not know the currency
in which funds will be received, the provider may assume that the
currency in which funds will be received is the currency in which the
remittance transfer is funded.
Legal authority. To effectuate the purposes of EFTA and to
facilitate compliance, the Bureau is using its EFTA section 904(a) and
(c) authority to adopt a new exception under Sec. 1005.32(b)(4). Under
its EFTA section 904(c) authority, the Bureau ``may provide for such
adjustments and exceptions for any class of electronic fund transfers
or remittance transfers, as in the judgment of the Bureau are necessary
or proper to effectuate the purposes of this subchapter, to prevent
circumvention or evasion thereof, or to facilitate compliance
therewith.'' \61\ The Bureau believes that this exception would
facilitate compliance with EFTA, preserve consumer access, and
effectuate its purposes. Specifically, the Bureau interprets
``facilitate compliance'' to include enabling or fostering continued
operation in conformity with the law. The Bureau believes that this
exception is targeted to facilitate compliance in those circumstances
where it may be infeasible or impracticable (due to disproportionate
cost) for insured institutions to determine the exchange rate because
of an insufficient number of transfers to a particular country.
Moreover, in the circumstances where institutions may be able to take
advantage of this disclosure exception, the insured institutions remain
subject to the Remittance Rule's other requirements, including the
continued obligation to provide disclosures and the requirements
related to error resolution and cancellation rights. The Bureau's
authority, therefore, is tailored to providing an adjustment for the
specific compliance difficulties or challenges that insured
institutions face in providing exact disclosures that could cause those
institutions to reduce or cease offering transfers to certain
countries, which in turn could mean that consumers have less access to
remittance transfer services or have to pay more for them. By
preserving such access, the exception could also help maintain
competition in the marketplace, therefore effectuating one of EFTA's
purposes. If the temporary exception expired without the Bureau taking
any mitigation measures, the Bureau concludes that certain insured
institutions may stop sending transfers to certain countries, therefore
potentially reducing competition for those transfers. This potential
loss of competition could be detrimental to consumers because the price
of transfers could increase or because it could become less convenient
to send them.\62\
---------------------------------------------------------------------------
\61\ 15 U.S.C. 1693b(c).
\62\ As the Bureau stated in the 2019 RFI, the Bureau recognizes
the value to consumers of being able to send remittance transfers
directly from a checking account to the account of a recipient in a
foreign country through their bank or credit union. 84 FR at 17974.
---------------------------------------------------------------------------
32(b)(5) Permanent Exception for Estimation of Covered Third-Party Fees
by an Insured Institution
Proposed Sec. 1005.32(b)(5) provided that in certain
circumstances, insured institutions may estimate covered third-party
fees (and other disclosure information that depend on the covered
third-party fees) that must be included in the disclosures required by
Sec. Sec. 1005.31(b)(1) through (3) and 1005.36(a)(1) and (2). This
proposed exception was designed to provide a tailored permanent
exception to address compliance challenges that insured institutions
may face in certain circumstances upon the expiration of the temporary
exception and to preserve consumers' access to certain remittance
transfers. For the reasons set forth herein, the Bureau is adopting the
proposed exception generally as proposed.
The term ``covered third-party fees'' is defined in Sec.
1005.30(h)(1) to mean any fees (other than ``non-covered third-party
fees'' described in Sec. 1005.30(h)(2)) that a person other than the
remittance transfer provider imposes on the transfer. Fees imposed on a
remittance transfer by an intermediary institution are covered third-
party fees. In addition, fees imposed by a designated recipient's
institution on a remittance transfer are covered third-party fees if
the designated recipient's institution acts as an agent for the
remittance transfer provider.
In contrast, the term ``non-covered third-party fees'' is defined
in Sec. 1005.30(h)(2) as any fees imposed by the designated
recipient's institution for receiving a remittance transfer into an
account except if the institution acts as an agent of the remittance
transfer provider. Fees a designated recipient's institution imposes on
a remittance transfer are non-covered third-party fees if the
designated recipient's institution
[[Page 34887]]
does not act as an agent of the remittance transfer provider. The term
``agent'' is defined in Sec. 1005.30(a) to mean an agent, authorized
delegate, or person affiliated with a remittance transfer provider, as
defined under State or other applicable law, when such agent,
authorized delegate, or affiliate acts for that remittance transfer
provider.
The Bureau's Proposal
Proposed Sec. 1005.32(b)(5)(i) generally provided that for
disclosures described in Sec. Sec. 1005.31(b)(1) through (3) and
1005.36(a)(1) and (2), estimates may be provided for a remittance
transfer to a particular designated recipient's institution in
accordance with Sec. 1005.32(c) for the amounts required to be
disclosed under Sec. 1005.31(b)(1)(vi) through (vii), if all of the
following conditions are met: (1) The remittance transfer provider is
an insured institution, as defined in Sec. 1005.32(a)(3); (2) the
insured institution cannot determine the exact covered third-party fees
for a remittance transfer to a particular designated recipient's
institution at the time it must provide the applicable disclosures; (3)
the insured institution made 500 or fewer remittance transfers in the
prior calendar year to that designated recipient's institution; and (4)
the remittance transfer generally is sent from the sender's account
with the insured institution.
Proposed Sec. 1005.32(b)(5)(i) generally applied to the following
disclosures set forth in Sec. 1005.31(b)(1)(vi) through (vii)
respectively: (1) The amount of any covered third-party fees; and (2)
the amount that will be received by the designated recipient (after
deducting any covered third-party fees). Proposed Sec.
1005.32(b)(5)(ii) provided, however, that the amount that will be
received by the designated recipient (after deducting covered third-
party fees) may be estimated under proposed Sec. 1005.32(b)(5)(i) only
if covered third-party fees are permitted to be estimated under
proposed Sec. 1005.32(b)(5)(i) and the estimated covered third-party
fees affect the amount of such disclosure. For example, if the covered
third-party fees for a remittance transfer may not be estimated under
proposed Sec. 1005.32(b)(5), the amount that will be received by the
designated recipient (after deducting any covered third-party fees) may
not be estimated under proposed Sec. 1005.32(b)(5). The insured
institution, however, could be able to use another permanent exception
set forth in Sec. 1005.32(b), including the proposed exception in
Sec. 1005.32(b)(4), to estimate that disclosure if the conditions of
those exceptions are met.
Proposed comment 32(b)(5)-1 provided guidance on when an insured
institution cannot determine the exact covered third-party fees as
applicable to a remittance transfer at the time the disclosures must be
given. Specifically, proposed comment 32(b)(5)-1 provided that for
purposes of Sec. 1005.32(b)(5)(i)(B), an insured institution cannot
determine, at the time it must provide the applicable disclosures, the
exact covered third-party fees required to be disclosed under Sec.
1005.31(b)(1)(vi) for a remittance transfer to a designated recipient's
institution when all of the following conditions are met: (1) The
insured institution does not have a correspondent relationship with the
designated recipient's institution; (2) the designated recipient's
institution does not act as an agent of the insured institution; (3)
the insured institution does not have an agreement with the designated
recipient's institution with respect to the imposition of covered
third-party fees on the remittance transfer (e.g., an agreement whereby
the designated recipient's institution agrees to charge back any
covered third-party fees to the insured institution rather than impose
the fees on the remittance transfer); and (4) the insured institution
does not know at the time the disclosures are given that the only
intermediary financial institutions that will impose covered third-
party fees on the transfer are those institutions that have a
correspondent relationship with or act as an agent for the insured
institution, or have otherwise agreed upon the covered third-party fees
with the insured institution. The Bureau initially concluded that
proposed comment 32(b)(5)-1 set forth the circumstances in which an
insured institution cannot determine the exact covered third-party fees
for remittance transfers sent through correspondent banks in an open
network payment system and sought comment on this provision.
In contrast, proposed comment 32(b)(5)-2 provided that for purposes
of proposed Sec. 1005.32(b)(5)(i)(B), an insured institution can
determine, at the time it must provide the applicable disclosures,
exact covered third-party fees for a remittance transfer, and thus the
insured institution may not use the exception in proposed Sec.
1005.32(b)(5) to estimate the disclosures required under Sec.
1005.31(b)(1)(vi) or (vii) for the transfer, if any of the following
conditions are met: (1) An insured institution has a correspondent
relationship with the designated recipient's institution; (2) the
designated recipient's institution acts as an agent of the insured
institution; (3) an insured institution has an agreement with the
designated recipient's institution with respect to the imposition of
covered third-party fees on the remittance transfer; or (4) an insured
institution knows at the time the disclosures are given that the only
intermediary financial institutions that will impose covered third-
party fees on the transfer are those institutions that have a
correspondent relationship with or act as an agent for the insured
institution, or have otherwise agreed upon the covered third-party fees
with the insured institution. The Bureau initially concluded that
proposed comment 32(b)(5)-2 set forth the circumstances in which an
insured institution can determine the exact covered third-party fees
for remittance transfers sent through correspondent banks in an open
network payment system and sought comment on this provision.
Proposed comment 32(b)(5)-3.i provided that for purposes of
determining whether an insured institution made 500 or fewer remittance
transfers in the prior calendar year to a particular designated
recipient's institution pursuant to proposed Sec. 1005.32(b)(5)(i)(C),
the number of remittance transfers provided includes remittance
transfers in the prior calendar year to that designated recipient's
institution regardless of whether the covered third-party fees were
estimated for those transfers. The proposed comment provided an example
to illustrate.
Proposed comment 32(b)(5)-3.ii provided that for purposes of the
proposed 500-transfer threshold, the number of remittance transfers
includes remittance transfers provided to the designated recipient's
institution in the prior calendar year regardless of whether the
designated recipients received the funds in the country's local
currency or in another currency. The proposed comment provided an
example to illustrate.
The Bureau also proposed conforming changes to the following
provisions to reference the proposed exception in Sec. 1005.32(b)(5)
where the temporary exception in Sec. 1005.32(a) currently is
referenced and pertains to the estimation of covered third-party fees:
(1) Sec. 1005.32(c); (2) Sec. 1005.33(a)(1)(iii)(A); (3) Sec.
1005.36(b)(3); (4) comment 32-1; (5) comment 32(c)(3)-1; and (6)
comment 36(b)-3.
Comments Received
Similar to proposed Sec. 1005.32(b)(4), the Bureau received a
significant
[[Page 34888]]
number of comments on proposed Sec. 1005.32(b)(5) from banks, credit
unions, their trade associations, and their service providers. The
Bureau also received approximately 60 comments from individual
consumers, nearly all of whom were credit union members. The Bureau
received two comments from consumer groups.
Comments from credit unions, banks, their trade associations, and
their service providers. As discussed in more detail in the section-by-
section analysis of Sec. 1005.32(b)(4), many industry commenters
provided the same comments for both proposed Sec. 1005.32(b)(4)
related to estimating the exchange rate and proposed Sec.
1005.32(b)(5) related to estimating covered third-party fees. Many
industry commenters encouraged the Bureau to adopt proposed Sec.
1005.32(b)(4) and (5) to permit insured institutions to estimate the
exchange rate and covered third-party fees, respectively, in certain
circumstances. Several trade associations representing credit unions
urged the Bureau to revise both proposed Sec. 1005.32(b)(4) and (5) to
increase the threshold amounts to 2,000 transfers in the prior calendar
year. Another trade association indicated that the Bureau should
exclude closed loop transfers from being considered for purposes of the
thresholds under proposed Sec. 1005.32(b)(4) and (5). One bank
requested that the Bureau provide guidance regarding application of the
thresholds set forth in proposed Sec. 1005.32(b)(4) and (5) if an
institution merges with another or acquires another institution. Two
trade associations indicated that the Bureau should establish a six-
month transition period after an insured institution exceeds the
threshold amounts in proposed Sec. 1005.32(b)(4) and (5) during which
the institution could still avail itself of the new proposed
exceptions. In the 2019 Proposal, the Bureau solicited comment on
whether the proposed exceptions in proposed Sec. 1005.32(b)(4) and (5)
should be sunset. Several banks and a trade association urged the
Bureau not to sunset proposed Sec. 1005.32(b)(4) and (5). These
comments are addressed with respect to Sec. 1005.32(b)(5) below.
One trade association representing credit unions indicated that the
Bureau should commit to revisiting the sufficiency of the thresholds in
proposed Sec. 1005.32(b)(4) and (5) shortly after implementation of a
final rule to ensure that costs borne by correspondents ineligible to
use estimates are not passed on to community institutions that do not
themselves exceed the thresholds. This comment is addressed in the
section-by-section analysis of Sec. 1005.32(b)(4).
Several industry commenters provided comments that related
specifically to proposed Sec. 1005.32(b)(5) for estimating covered
third-party fees. Two trade associations requested that the Bureau
increase the threshold to 1,000 or fewer transfers to a particular
designated recipient's institution in the prior calendar year. These
trade associations indicated that a 1,000-transfer threshold is more
appropriate due to repetitive requests by consumer to send transfers to
a single institution. One credit union urged the Bureau to increase the
threshold to 3,000 or fewer transfers to a particular designated
recipient's institution in the prior calendar year. This credit union
indicated that the 3,000-transfer threshold amount is a more accurate
number that reflects when an institution is unable to determine an
exact amount of covered third-party fees.
One trade association suggested that insured institutions should be
permitted to send more than 500 transfers in the prior year to a
particular designated recipient's institution and still qualify for the
exception, if one of the following conditions applies: (i) Establishing
a relationship management application (RMA) or correspondent or agency
arrangement with a recipient institution would exceed the provider's
risk tolerance; (ii) regulatory compliance challenges posed by another
rule or guideline that prevent the provider from establishing these
relationships or other regulatory restrictions; (iii) a recipient
institution refuses to have an RMA or correspondent or agency
arrangement with the provider; (iv) a recipient institution is in a
jurisdiction where instructions (such as OUR codes) \63\ are routinely
disregarded; or (v) the remittance transfer is instructed in a currency
that is not the local currency. This trade association indicated that
during an examination, a regulator can evaluate that the provider did
in fact document risk or regulatory compliance reasons for being unable
to establish an RMA.
---------------------------------------------------------------------------
\63\ As discussed in greater detail in the 2019 Proposal, the
OUR code instructs financial institutions that receive payment
instructions sent via SWIFT that the sending institution will bear
all of the payment transaction fees and the recipient of the payment
will not pay any such fees. 84 FR 67132, 67148 (Dec. 6, 2019).
---------------------------------------------------------------------------
Several industry commenters suggested that the Bureau exclude
certain transfers from the 500-transfer threshold or clarify whether
certain transfers are included within the threshold. One trade
association indicated that the Bureau should exclude remittance
transfers delivered in U.S. dollars from the threshold count,
regardless of whether money is converted into local currency before
final delivery in U.S. dollars. Two trade associations indicated that
the Bureau should count recipient institutions by the first eight
digits in a bank identifier code, which identify a bank at a country
level. These trade associations urged the Bureau to count transfers at
a country, rather than global level, given that multinational banks
typically have very different policies from one country to the next.
The Bureau did not receive any comments from industry specifically
on proposed comments 32(b)(5)-1 and -2 that set forth guidance on
whether under proposed Sec. 1005.32(b)(5)(i)(B) an insured institution
cannot determine the exact covered third-party fees applicable to a
remittance transfer at the time the disclosures must be given.
Individual commenters. Nearly all of the individual commenters were
credit union members. These individual commenters suggested that the
Bureau should increase the thresholds for the proposed exceptions in
Sec. 1005.32(b)(4) and (5) to 2,000 or fewer transfers. These
individual commenters indicated that to align proposed exceptions in
proposed Sec. 1005.32(b)(4) and (5) with their recommendation that the
Bureau raise the normal course of business safe harbor threshold to
1,000 transfers, the Bureau should correspondingly increase the
thresholds for proposed Sec. 1005.32(b)(4) and (5) to 2,000 or fewer
transfers in the prior calendar year to reflect a ``normal course of
business'' threshold set at 1,000 transfers. One individual commenter
supported the proposed exceptions in proposed Sec. 1005.32(b)(4) and
(5), asserting that they would benefit insured institutions but not
likely harm consumers. One individual commenter opposed the proposed
exceptions in Sec. 1005.32(b)(4) and (5), asserting that these
exceptions prevent transparency for the public and consumers.
Consumer groups. The Bureau received comment letters from two
consumer groups. As discussed in more detail in the section-by-section
analysis of Sec. 1005.32(b)(4), these consumer groups opposed both of
the proposed exceptions in proposed Sec. 1005.32(b)(4) and (5). These
consumer groups indicated that the Bureau should withdraw its proposal
in its entirety and instead consider ways to expand the applicability
of EFTA's protections for remittances. The consumer groups also
indicated that if the Bureau does adopt proposed Sec. 1005.32(b)(4)
and (5), the Bureau should not make these
[[Page 34889]]
exceptions permanent. The consumer groups also indicated that the
Bureau should not extend these proposed exceptions to non-insured
institutions.
The Final Rule
This final rule adopts Sec. 1005.32(b)(5) and comments 32(b)(5)-1
and -2 generally as proposed with one revision to Sec. 1005.32(b)(5).
As revised, Sec. 1005.32(b)(5) permits an insured institution to
continue to use Sec. 1005.32(b)(5) to provide estimates of covered
third-party fees for a remittance transfer sent to a particular
designated recipient's institution even if the insured institution sent
more than 500 transfers to the designated recipient's institution in
the prior calendar year, if a United States Federal statute or
regulation prohibits the insured institution from being able to
determine the exact covered third-party fees, and the insured
institution meets the other conditions set forth in Sec.
1005.32(b)(5).\64\ This final rule adopts comment 32(b)(5)-3 as
proposed with one revision to clarify that the 500-transfer threshold
applicable to a particular designated recipient's institution in the
past calendar year only includes transfers to the designated
recipient's institution and any of its branches in the country to which
the particular transfer described in Sec. 1005.32(b)(5) is sent. This
final rule also adds a new comment 32(b)(5)-4 to provide additional
guidance on the provision related to United States Federal statutes or
regulations as discussed above. This final rule also adds new comment
32(b)(5)-5 to provide a transition period for institutions that exceed
the 500-transfer threshold-amount under Sec. 1005.32(b)(5) in a
certain year, which would allow them to continue to provide estimates
of covered third-party fees for a reasonable period of time while they
come into compliance with the requirement to provide exact covered
third-party fees. Each of these revisions are discussed in more detail
below. This final rule also adopts conforming changes to the following
provisions to reference the exception in Sec. 1005.32(b)(5) where the
temporary exception in Sec. 1005.32(a) currently is referenced and
pertains to the estimation of covered third-party fees: (1) Sec.
1005.32(c); (2) Sec. 1005.33(a)(1)(iii)(A); (3) Sec. 1005.36(b)(3);
(4) comment 32-1; (5) comment 32(c)(3)-1; and (6) comment 36(b)-3.
---------------------------------------------------------------------------
\64\ This provision only applies if a United States Federal
statute or regulation prohibits the insured institution from being
able to determine the exact covered third-party fees. The Bureau
notes, however, that the permanent exception in Sec. 1005.32(b)(1)
allows estimates in certain circumstances if a remittance transfer
provider cannot determine the exact amounts when the disclosure is
required because the laws of the recipient country do not permit
such a determination.
---------------------------------------------------------------------------
In light of the comments received on the 2019 Proposal and prior
outreach and research, the Bureau concludes that the data it collected
support the adoption of Sec. 1005.32(b)(5) and comments 32(b)(5)-1
through -5. The Bureau's legal authority to adopt these provisions is
discussed below.
Based on the comments received on the 2019 Proposal and prior
outreach and research, the Bureau determines that if an insured
institution is sending 500 or fewer transfers annually to a given
designated recipient's institution, it may be unduly costly for the
insured institution to establish the necessary relationships to know
the covered third-party fees that would apply to a remittance transfer
at the time the disclosures must be given. For example, based on
comments received on the 2019 Proposal and prior outreach and research,
the Bureau understands that insured institutions sending remittance
transfers through correspondent banks in an open network payment system
would know the exact amount of covered third-party fees that will apply
to a remittance transfer at the time disclosures are given if the
insured institution has a correspondent relationship with the
designated recipient's institution. The Bureau understands that another
way in which the insured institution may know at the time the
disclosures must be given the exact amount of covered third-party fees
for a particular remittance transfer is through using the cover method
under the SWIFT network, as discussed above. To use the cover method,
the insured institution would need an RMA with the designated
recipient's institution.
The Bureau understands that there are costs to maintaining the
relationships that are needed to enable insured institutions to provide
exact disclosures of covered third-party fees for remittance
transfers.\65\ Based on comments on the 2019 Proposal, and prior
outreach and research, the Bureau determines that anticipated transfer
volume from an insured institution to a particular designated
recipient's institution is an important factor in the insured
institution's decision about whether to form and maintain such
relationships.
---------------------------------------------------------------------------
\65\ See Financial Stability Bd., FSB Correspondent Banking Data
Report, at 4, 44 (2017); 2016 BIS Report at 11.
---------------------------------------------------------------------------
Based on the comments received on the 2019 Proposal, and prior
outreach and research, the Bureau concludes that if it does not provide
any additional exceptions that allow estimates of covered third-party
fees after the temporary exception expires, some insured institutions
may choose to stop sending remittance transfers to recipients with
accounts at certain designated recipient's institutions. These insured
institutions may choose to stop providing certain remittance transfers
because they deem the costs of determining exact covered third-party
fees to be prohibitively expensive. The Bureau concludes that if these
institutions discontinue providing such transfers, consumer access to
remittance transfer services for certain designated recipient's
institutions may be reduced or eliminated. As discussed in more detail
above in the section-by-section analysis of Sec. 1005.32(a), it
appears unlikely in the short-to-medium term that any new technologies
or partnerships will be able to fully eliminate insured institutions'
reliance on estimates.
Also, the Bureau concludes that in a scenario in which the Bureau
provides no new exception to allow estimates of covered third-party
fees when the temporary exception expires, insured institutions that
continue to offer remittance transfer services may see costs increase
when sending transfers to certain designated recipient's institutions
if insured institutions have to change the ways they provide remittance
transfers in order to disclose exact covered third-party fees. The
Bureau expects that this could lead to increased prices for consumers.
In addition, the Bureau determines that prices for consumers may also
increase for transfers to certain designated recipient's institutions
(due to reduced competition) if the number of remittance transfer
providers offering remittance transfers to such designated recipient's
institutions is reduced due to some providers eliminating or curtailing
transfer services because they could not determine and disclose exact
covered third-party fees for those designated recipient's institutions.
Each of the four conditions set forth in Sec. 1005.32(b)(5)(i)(A)
through (D) is discussed in more detail below.
The remittance transfer provider is an insured institution. This
final rule adopts Sec. 1005.32(b)(5)(i)(A) as proposed to provide that
the remittance transfer provider must be an insured institution as
defined in Sec. 1005.32(a)(3). In the 2019 Proposal, the Bureau
solicited comment on whether the proposed exception in Sec.
1005.32(b)(5) should be extended to apply to remittance transfer
providers that are not insured institutions,
[[Page 34890]]
including MSBs and broker-dealers, and the reasons why the proposed
exception should apply to these persons. For the same reasons discussed
in the section-by-section analysis of Sec. 1005.32(b)(4), this final
rule does not extend the exception in Sec. 1005.32(b)(5) to apply to
remittance transfer providers that are not insured institutions.
The insured institution cannot determine the exact covered third-
party fees for a remittance transfer to a particular designated
recipient's institution at the time it must provide the applicable
disclosures. This final rule adopts Sec. 1005.32(b)(5)(i)(B) as
proposed to provide that, at the time the insured institution must
provide, as applicable, the disclosure required by Sec. 1005.31(b)(1)
through (3) or Sec. 1005.36(a)(1) or (2), the insured institution
cannot determine the exact covered third-party fees required to be
disclosed under Sec. 1005.31(b)(1)(vi) for that remittance transfer.
This final rule also adopts comments 32(b)(5)-1 and -2 as proposed that
provide guidance on when an insured institution can or cannot determine
the exact covered third-party fees as applicable to a remittance
transfer at the time the disclosures must be given. The Bureau did not
receive specific comments on Sec. 1005.32(b)(5)(i)(B) and comments
32(b)(5)(i)-1 and -2. The Bureau notes that if the insured institution
can determine the exact covered third-party fees required to be
disclosed under Sec. 1005.31(b)(1)(iv) for the remittance transfer,
the insured institution may not use the exception in Sec.
1005.32(b)(5) to estimate the exchange rate, even if the insured
institution made 500 or fewer remittance transfers in the prior
calendar year to the designated recipient's institution as set forth in
Sec. 1005.32(b)(5)(i)(C).
The insured institution made 500 or fewer remittance transfers in
the prior calendar year to that designated recipient's institution.
This final rule adopts the 500-transfer threshold in Sec.
1005.32(b)(5)(i)(C) as proposed but, as discussed below, is providing
additional guidance on which transfers count in this threshold. Several
industry commenters suggested that the Bureau should increase this
threshold amount to 1,000, 2,000, or 3,000 transfers in the previous
year. Nonetheless, these commenters did not provide specific data on
why these higher thresholds are needed to protect access to transfers
to particular designated recipient's institutions because it would not
be cost effective to establish the necessary relationships to obtain
exact covered third-party fees. The Bureau believes that the 500-
transfer threshold adopted in Sec. 1005.32(b)(5)(i)(C) is consistent
with its goal to provide a tailored permanent exception to address
compliance challenges that insured institutions may face in certain
circumstances upon the expiration the temporary exception and to
preserve consumers' access to remittances transfers to certain
designated recipient's institutions.
This final rule revises comment 32(b)(5)-3 from the proposal to
clarify that the 500-transfer threshold applicable to a particular
designated recipient's institution in the past calendar year only
includes transfers to the designated recipient's institution and any of
its branches in the country to which the particular transfer described
in Sec. 1005.32(b)(5) is sent. New comment 32(b)(5)-3.iii provides the
following example: If the particular remittance transfer described in
Sec. 1005.32(b)(5) is being sent to the designated recipient's
institution Bank XYZ in Nigeria, the number of remittance transfers for
purposes of the 500-transfer threshold would include remittances
transfers in the previous calendar year that were sent to Bank XYZ, or
to its branches, in Nigeria. The 500-transfer threshold would not
include remittance transfers that were sent to branches of Bank XYZ
that were located in any country other than Nigeria. Based on outreach,
the Bureau recognizes that correspondent relationships or RMAs with
designated recipient's institutions are formed for a particular country
and the same relationship does not cover all countries in which that
designated recipient's institution operates.
With respect to the threshold amount for proposed Sec.
1005.32(b)(5)(i)(C), one trade association indicated that the Bureau
should exclude from the threshold correspondent remittance transfers
serviced by a financial institution. The Bureau agrees and further
believes that the 2019 Proposal was, and this final rule is, clear that
the 500-transfer threshold set forth in Sec. 1005.32(b)(5)(i)(C) only
includes transfers in the previous year that are made by the insured
institution in its role as the remittance transfer provider. The 500-
transfer threshold does not include transfers where an insured
institution is acting as a correspondent on behalf of a sending
institution.
The Bureau is not excluding closed loop transfers from being
included in the threshold amount under Sec. 1005.32(b)(5)(i)(C). The
Bureau understands with respect to closed loop transfers, the insured
institution does not need to estimate covered third-party fees because
they have an agency-type relationship that allows the insured
institution to know the exact covered third-party fees. The Bureau
concludes that these closed loop transfers should not be excluded from
the 500-transfer threshold because these transfers might make it more
likely that it is cost effective for the insured institution to extend
these existing relationships to cover additional transfers.
The Bureau also is not excluding remittance transfers delivered in
U.S. dollars or in a currency other than the country's local currency
from the threshold amount under Sec. 1005.32(b)(5)(i)(C). The Bureau
concludes that these transfers are relevant to whether it is cost
effective to develop relationships necessary to determine exact covered
third-party fees regardless of whether the transfers are delivered in
U.S. dollars or in a currency other than the country's local currency.
A United States Federal statute or regulation prohibits the insured
institution from being able to determine the exact covered third-party
fees. One trade association suggested that insured institutions should
be permitted to send more than 500 transfers in the prior year to a
particular designated recipient's institution and still qualify for the
exception, if regulatory compliance challenges posed by another rule or
guideline exists that prevent the provider from establishing the
necessary relationships to determine exact covered third-party fees, or
other regulatory restriction.
The Bureau believes that it is appropriate for an insured
institution to be able to estimate covered third-party fees if a United
States Federal statute or regulation prohibits the insured institution
from being able to determine the exact covered third-party fees and the
insured institution meets the other conditions set forth in Sec.
1005.32(b)(5). This final rule revises proposed Sec.
1005.32(b)(5)(i)(C) to permit an insured institution to still use Sec.
1005.32(b)(5) to provide estimates of covered third-party fees for a
remittance transfer sent to a particular designated recipient's
institution even if the insured institution sent more than 500 transfer
to the designated recipient's institution in the prior calendar year if
a United States Federal statute or regulation prohibits the insured
institution from being able to determine the exact covered third-party
fees and the insured institution meets the other conditions set forth
in Sec. 1005.32(b)(5). This final rule also adopts new comment
32(b)(5)-4 to provide additional guidance on the United
[[Page 34891]]
States Federal statute or regulation provision in Sec.
1005.32(b)(5)(i)(C).
New comment 32(b)(5)-4 provides that a United States Federal
statute or regulation prohibits the insured institution from being able
to determine the exact covered third-party fees for the remittance
transfer if the United States Federal statute or regulation (1)
prohibits the insured institution from disclosing exact covered third-
party fees in disclosures for transfers to a designated recipient's
institution; or (2) makes it infeasible for the insured institution to
form a relationship with the designated recipient's institution and
that relationship is necessary for the insured institution to be able
to determine, at the time it must provide the applicable disclosures,
exact covered third-party fees. For example, if a correspondent
relationship is necessary for an insured institution to be able to
determine the exact covered third-party fees for transfers to a
designated recipient's institution and a United States Federal statute
or regulation makes it infeasible for the insured institution to
establish that relationship, the insured institution may use Sec.
1005.32(b)(5) to provide estimates of covered third-party fees for a
remittance transfer sent to the designated recipient's institution even
if the insured institution sent more than 500 transfers to the
designated recipient's institution in the prior calendar year, as long
as the insured institution meets the other conditions set forth in
Sec. 1005.32(b)(5). The Bureau is not aware of, nor did commenters
identify, any United States Federal statute or regulation that would
both make it infeasible for insured institutions to establish such a
relationship or the other types of relationships described in comment
32(b)(5)-2 while still allowing the insured institution to make
remittance transfers to a designated recipient's institution.
The trade association commenter discussed above also suggested that
insured institutions should be permitted to send more than 500
transfers in the prior year to a particular designated recipient's
institution and still qualify for the exception, if any of the
following conditions apply: (i) Establishing an RMA or correspondent or
agency arrangement with a recipient institution would exceed the
provider's risk tolerance; (ii) a recipient institution refuses to have
an RMA or correspondent or agency arrangement with the provider; or
(iii) a recipient institution is in a jurisdiction where instructions
(such as OUR codes) are routinely disregarded. The Bureau is not
adopting these suggestions. The Bureau concludes that these conditions
do not establish objective criteria that are both outside the
provider's control and are sufficiently clear such that the Bureau and
the industry would be able to determine whether these conditions are
met.
The remittance transfer is sent from the sender's account with the
insured institution. This final rule adopts Sec. 1005.32(a)(5)(i)(D)
as proposed to provide that the remittance transfer must be sent from
the sender's account with the insured institution; provided, however,
for the purposes of Sec. 1005.32(b)(5), a sender's account would not
include a prepaid account, unless the prepaid account is a payroll card
account or a government benefit account. The Bureau did not receive
specific comments on this provision.
Transition period. In response to comments received on the 2019
Proposal, the Bureau is adding a new comment 32(b)(5)-5 to provide a
transition period for institutions that exceed the 500-transfer
threshold-amount under Sec. 1005.32(b)(5) in a certain year, which
would allow them to continue to provide estimates of covered third-
party fees for a reasonable period of time while they come into
compliance with the requirement to provide exact covered third-party
fees. Specifically, comment 32(b)(5)-5 provides that if an insured
institution in the prior calendar year did not exceed the 500-transfer
threshold to a particular designated recipient's institution pursuant
to Sec. 1005.32(b)(5)(i)(C), but does exceed the 500-transfer
threshold in the current calendar year, the insured institution has a
reasonable amount of time after exceeding the 500-transfer threshold to
begin providing exact covered third-party fees in disclosures (assuming
that a United States Federal statute or regulation does not prohibit
the insured institution from being able to determine the exact covered
third-party fees, or the insured institution cannot rely on another
exception in Sec. 1005.32 to estimate covered third-party fees). The
reasonable amount of time must not exceed the later of six months after
exceeding the 500-transfer threshold in the current calendar year or
January 1 of the next year. Comment 32(b)(5)-5 also provides an example
to illustrate this guidance.
The Bureau determines that this transition period will facilitate
compliance with the Remittance Rule by allowing institutions a
reasonable amount of time to establish the relationships necessary with
designated recipient's institutions to provide covered third-party
fees. Without this provision, insured institutions may find it
difficult or impossible to comply with the requirement to provide exact
covered third-party fee disclosures starting January 1 of the next year
if they exceed the 500-transfer threshold late in the current year. The
Bureau concludes that this transition period also may help to address
issues raised by industry commenters related to mergers and
acquisitions, if the combination of two remittance transfer providers
could result in the number of transfers exceeding a threshold and
thereby imposing requirements that had not applied before.
Permanent exception. In the 2019 Proposal, the Bureau solicited
comment on whether the Bureau should adopt a sunset provision with
respect to the exception in proposed Sec. 1005.32(b)(5). For the same
reasons discussed in the section-by-section analysis of Sec.
1005.32(b)(4), the Bureau is not adopting a sunset provision with
respect to Sec. 1005.32(b)(5).
Legal authority. To effectuate the purposes of EFTA and to
facilitate compliance, the Bureau is using its EFTA section 904(a) and
(c) authority to add a new exception under Sec. 1005.32(b)(5). Under
its EFTA section 904(c) authority, the Bureau ``may provide for such
adjustments and exceptions for any class of electronic fund transfers
or remittance transfers, as in the judgment of the Bureau are necessary
or proper to effectuate the purposes of this subchapter, to prevent
circumvention or evasion thereof, or to facilitate compliance
therewith.'' \66\ The Bureau determines that the exception would
facilitate compliance with EFTA, preserve consumer access, and
effectuate its purposes. Specifically, the Bureau interprets
``facilitate compliance'' to include enabling or fostering continued
operation in conformity with the law. The Bureau concludes that the
exception set forth in Sec. 1005.32(b)(5) is targeted to facilitate
compliance in those circumstances where it would be unduly burdensome
for an insured institution to determine covered third-party fees (i.e.,
it may be infeasible or impracticable, due to disproportionate cost or
conflict with United States Federal statute or regulation). Moreover,
in the circumstances in which institutions may be able to take
advantage of this disclosure exception, the insured institutions remain
subject to the Remittance Rule's other requirements, including the
continued obligation to provide disclosures and the
[[Page 34892]]
requirements related to error resolution and cancellation rights.
---------------------------------------------------------------------------
\66\ 15 U.S.C. 1693b(c).
---------------------------------------------------------------------------
The Bureau's authority, therefore, is tailored to providing an
adjustment for the specific compliance difficulties or challenges that
insured institutions face in providing exact disclosure of covered
third-party fees that could cause those institutions to reduce or cease
offering transfers to certain institutions, which in turn could mean
that consumers have less access to remittance transfer services or have
to pay more for them. By preserving such access, the exception also
could help maintain competition in the marketplace, therefore
effectuating one of EFTA's purposes. If the temporary exception expired
without the Bureau taking any mitigation measure, the Bureau concludes
certain insured institutions may stop sending transfers to some
designated recipient's institutions, therefore reducing sender access
and competition for those transfers. This potential loss of market
participants could be detrimental to senders because it could result in
a reduced ability to send transfers to some designated recipient's
institutions or an increase the price of remittance transfers.\67\
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\67\ As the Bureau stated in the 2019 RFI, the Bureau recognizes
the value to consumers of being able to send remittance transfers
directly from a checking account to the account of a recipient in a
foreign country though their bank or credit union. 84 FR at 17974.
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Technical Corrections
This final rule adopts several technical corrections to the
existing regulatory text and commentary. These technical corrections
address clerical errors the Bureau found in the Remittance Rule. First,
the Bureau is making a technical correction to existing Sec.
1005.32(c)(4) by italicizing the heading of this subsection (``Amount
of currency that will be received by the designated recipient'').
Second, the Bureau is making a technical correction to existing comment
31(b)(1)(viii)-2 to fix two misspelled cross-references to other
sections of the regulatory text and commentary. Third, the Bureau is
making a technical correction to existing comment 32(b)(1)-5 by adding
a definite article (``the'') that should have been in the commentary
text. These technical corrections do not change or alter the meaning of
the existing regulatory text and commentary.
The Permanent Exception in Sec. 1005.32(b)(1) and the Bureau's Safe
Harbor Countries List
Section 919(c) of EFTA) allows the Bureau to write regulations
specific to transfers to certain countries if it has determined that
the recipient country does not legally allow, or the methods by which
transactions are made in the recipient country do not allow, a
remittance transfer provider to know the amount of currency the
designated recipient will receive. If these conditions are met, the
provider may use a reasonably accurate estimate of the foreign currency
to be received, based on the exchange rate the provider conveyed to the
sender at the time the sender initiated the transaction.\68\
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\68\ EFTA section 919(c)(2), codified at 15 U.S.C. 1693o-
1(c)(2).
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The Bureau implemented section 919(c) of EFTA in Sec.
1005.32(b)(1), creating a ``permanent exception for transfers to
certain countries.'' The exception is available in two situations.
First, Sec. 1005.32(b)(1)(i) permits providers to use estimates if
they cannot determine exact amounts because (A) the laws of the
recipient country do not permit such a determination, or (B) the method
by which transactions are made in the recipient country does not permit
such determination. Comment 32(b)(1)-2.i explains that, for example,
under the first category, the laws do not permit exact disclosures when
the exchange rate is determined after the provider sends the transfer
or at the time of receipt. Comment 32(b)(1)-3 offers an example of a
situation that qualifies for the methods exception. The example
provided is a situation where transactions are sent via international
ACH on terms negotiated between the U.S. government and the recipient
country's government, under which the exchange rate is a rate set by
the recipient country's central bank or other governmental authority
after the provider sends the remittance transfer. Comments 32(b)(1)-4.i
through iii provide additional examples of situations that do and do
not qualify for the methods exception.
Second, Sec. 1005.32(b)(1)(ii) offers a safe harbor allowing
remittance transfer providers to disclose estimates instead of exact
amounts for remittance transfers to certain countries as determined by
the Bureau. However, the Rule does not allow a remittance transfer
provider to use this safe harbor if the provider has information that a
country's laws or the method by which transactions are conducted in
that country in fact permits a determination of the exact disclosure
amount.
In 2012, the Bureau issued a list of five countries--Aruba, Brazil,
China, Ethiopia, and Libya--that qualify for this safe harbor.\69\ The
list contains countries whose laws the Bureau has decided prevent
remittance transfer providers from determining, at the time the
required disclosures must be provided, the exact exchange rate on the
date of availability for a transfer involving a currency exchange.\70\
The Bureau also explained that the safe harbor countries list was
subject to change, and provided instructions for contacting the Bureau
to request that countries be added or removed from the list.\71\ Since
2012, the Bureau has not added any additional countries to this list.
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\69\ Bureau of Consumer Fin. Prot., Remittance Rule Safe Harbor
Countries List (Sept. 26, 2012) (Countries List), http://files.consumerfinance.gov/f/201209_CFPB_Remittance-Rule-Safe-Harbor-Countries-List.pdf. The Bureau subsequently published that list in
the Federal Register. 78 FR 66251 (Nov. 5, 2013).
\70\ Countries List at 3.
\71\ Id. at 3-4.
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The Bureau has received feedback over the years from some
remittance transfer providers and their trade associations regarding
the Bureau's countries list. In the 2019 RFI, the Bureau sought comment
on what other countries, if any, should be added to the list because
their laws do not permit the determination of exact amounts at the time
the pre-payment disclosure must be provided.\72\ In response, several
industry commenters, including trade associations, banks, and a credit
union, made various requests, primarily suggesting that particular
countries or regions be added to the list. A few of these commenters
requested that the Bureau make other changes to the permanent exception
in Sec. 1005.32(b)(1) to address, for example, difficulties in
obtaining accurate fee and exchange rate information that they assert
occur when sending open network transfers. A group of trade association
commenters also suggested that the Bureau loosen and revise its
requirements for the inclusion of additional countries on the countries
list as a way to mitigate the expiration of the temporary exception.
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\72\ The Bureau also asked that commenters describe how the
relevant laws prevent such a determination, and whether the
countries were ones for which remittance transfer services were not
currently being provided, or whether providers were relying on
estimates. 84 FR 17971, 17977 (Apr. 29, 2019).
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In the 2019 Proposal, the Bureau did not propose to make any
changes to Sec. 1005.32(b)(1) or to the Bureau's safe harbor countries
list, but again sought comment on the permanent exception in Sec.
1005.32(b)(1) and on the countries list. The Bureau asked commenters to
provide feedback on a number of issues, such as the current composition
of the countries list, the substantive criteria by which the Bureau
adds countries to the countries list, and the processes and
[[Page 34893]]
standards by which the Bureau considers requests to make changes to the
countries list (e.g., whether the Bureau should articulate a more
detailed list of information and documents that an applicant should
submit to make such a request of the Bureau). The Bureau also solicited
comment on whether insured institutions expected that new permanent
exceptions would address their concerns regarding providing estimates
or whether they would additionally need to rely on Sec. 1005.32(b)(1).
The Bureau noted in the 2019 Proposal that its focus in this rulemaking
was to address the expiration of the temporary exception and the safe
harbor threshold. Accordingly, the Bureau cautioned that, in light of
its timeframe for doing so, it would give priority to addressing those
issues over the issues relating to the countries list.
Five commenters, including one credit union, one regional bank in
the Federal Reserve System, and three trade associations addressed
Sec. 1005.32(b)(1) and the countries list. Two of the trade
association commenters asked the Bureau to revise the procedures the
Bureau uses to evaluate requests to change the countries list. One of
these commenters suggested specific changes, such as providing a list
of specific evidence required for submission when making requests and
publishing the Bureau's determinations. This commenter, which
represents large banks, along with two other commenters, including a
trade association representing credit unions and a regional bank in the
Federal Reserve System, also provided suggestions for revising the
substantive criteria to determine whether a country qualifies for the
permanent exception. One of the trade association commenters, which
represents MSBs, asked the Bureau to add two specific countries to the
list and provided information supporting that request. Finally, the
credit union commenter stated its belief that finalizing the exceptions
in proposed Sec. 1005.32(b)(4) and (5) would obviate the need for the
permanent exception set forth in Sec. 1005.32(b)(1).
The Bureau noted in the 2019 Proposal that its focus in this
rulemaking was to address the expiration of the temporary exception and
the normal course of business safe harbor threshold. Therefore, the
Bureau is not amending Sec. 1005.32(b)(1) or the countries list as
part of this final rule. However, the Bureau will update the process it
uses to consider requests to add or remove countries from the countries
list. The Bureau also will make determinations in response to the
pending request to add two countries to the countries list.
Effective Date
In the 2019 Proposal, the Bureau proposed to have the proposed
amendments take effect on July 21, 2020 and sought comment on the
proposed effective date. The Bureau also sought comment on any
compliance issues that might arise for insured institutions when
transitioning from use of the temporary exception to use of the two
proposed permanent exceptions set forth in proposed Sec. 1005.32(b)(4)
and (5). In addition, the Bureau solicited feedback on whether a mid-
year change in the normal course of business safe harbor threshold
would pose any complications for providers or cause confusion, and if
so, whether the Bureau should make the change to the normal course of
business safe harbor threshold effective on some later date, such as
January 1, 2021.
Five commenters, including three trade associations and two credit
unions, addressed the effective date. The two credit union commenters
expressed support for the proposed July 21, 2020 effective date. A
trade association representing banks urged the Bureau to establish the
earliest possible effective date. One credit union commenter stated
that a 30-day implementation period would provide ample time for
implementation. Two trade associations representing large banks and
other financial institutions urged the Bureau to extend the temporary
exception for one year to provide entities time to transition to the
new permanent exceptions. Both cited the need for providers to have
time to assess their eligibility for the new permanent exceptions. One
of these commenters also identified specific challenges associated with
implementing the expiration of the temporary exception, such as
transitioning from providing estimates, entering into new agreements,
and establishing new currency desks. No commenters addressed the mid-
year effective date of the revised normal course of business safe
harbor thresholds.
The Bureau is finalizing the effective date as proposed. As such,
the amendments adopted in this final rule will take effect on July 21,
2020. This effective date ensures that providers can take advantage of
the revised normal course of business safe harbor threshold and the new
permanent exceptions when the temporary exception expires. As discussed
above, EFTA section 919 expressly limits the length of the temporary
exception to July 21, 2020. The Bureau, therefore, cannot and is not
extending the exception. As such, the temporary exception will expire
on July 21, 2020.
The Bureau recognizes, however, the serious impact that the COVID-
19 pandemic is having on consumers and the operations of many entities.
In addition, the Bureau recognizes that, for insured institutions
providing remittance transfers for their customers, the expiration of
the statutory temporary exception to the Remittance Rule's requirement
to disclose the exact costs of remittance transfers will deepen the
potential impact on those customers. Moreover, insured institutions
that are remittance transfer providers play a vital role in ensuring
that consumers can send money abroad. This access is especially
critical in responding to the dramatic effects on the finances of
consumers, both in the United States and abroad, as a result of the
coronavirus crisis. The Bureau therefore issued a statement on April
10, 2020 to announce that, for remittances that occur on or after July
21, 2020, and before January 1, 2021, the Bureau does not intend to
cite in an examination or initiate an enforcement action in connection
with the disclosure of actual third-party fees and exchange rates
against any insured institution that will be newly required to disclose
actual third-party fees and exchange rates after the temporary
exception expires.\73\
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\73\ See https://files.consumerfinance.gov/f/documents/cfpb_policy-statement_remittances-covid-19_2020-04.pdf.
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The Bureau's statement is in addition to the actions it is taking
in this final rule. As set forth above in greater detail in the
section-by-section analyses of Sec. 1005.32(b)(4) and (5), this final
rule adopts a transition period for insured institutions that exceed,
as applicable, the 1,000-transfer or 500-transfer thresholds in a
certain year for the permanent exceptions found in Sec. 1005.32(b)(4)
and (5). These transition periods will allow these institutions to
continue provide estimates for a reasonable period of time after they
cross the relevant thresholds (whenever that occurs, even if beyond
January 1, 2021) while they come into compliance with the requirement
to provide exact amounts.
VI. Dodd-Frank Act Section 1022(b) Analysis
A. Overview
The Bureau has considered the potential benefits, costs and impacts
of
[[Page 34894]]
this final rule.\74\ In developing this final rule, the Bureau has
consulted with appropriate Federal agencies regarding the consistency
of this final rule with prudential, market, or systemic objectives
administered by such agencies as required by section 1022(b)(2)(B) of
the Dodd-Frank Act.\75\
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\74\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
(12 U.S.C. 5512(b)(2)(A)) requires the Bureau to consider the
potential benefits and costs of the regulation to consumers and
covered persons, including the potential reduction of access by
consumers to consumer financial products or services; the impact of
the proposed rule on insured depository institutions and insured
credit unions with $10 billion or less in total assets as described
in section 1026 of the Dodd-Frank Act (12 U.S.C. 5516); and the
impact on consumers in rural areas.
\75\ Section 1022(b)(2)(B) of the Dodd-Frank Act (12 U.S.C.
5512(b)(2)(B)) requires that the Bureau consult with the appropriate
prudential regulators or other Federal agencies prior to proposing a
rule and during the comment process regarding consistency of the
proposed rule with prudential, market, or systemic objectives
administered by such agencies.
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This final rule amends several elements of the Remittance Rule. (1)
It raises the normal course of business safe harbor threshold for
providing remittance transfers in the normal course of business from
100 transfers annually to 500 transfers annually. Under this change, a
person that provided 500 or fewer remittance transfers in the previous
calendar year and provides 500 or fewer remittance transfers in the
current calendar year is deemed not to be providing remittance
transfers in the normal course of its business and thus is not subject
to the Rule. (2) This final rule provides a permanent exception that
allows insured institutions to estimate the exchange rate (and other
disclosure information that depend on the exchange rate) under certain
conditions when sending to a country, principally that (a) the
designated recipient of the remittance transfer will receive funds in
the country's local currency, (b) the insured institution made 1,000 or
fewer transfers in the prior calendar year to that country for which
the designated recipients of those transfers received funds in the
country's local currency, and (c) the insured institution cannot
determine the exact exchange rate for that particular transfer at the
time it must provide the applicable disclosures. (3) This final rule
provides a permanent exception that permits insured institutions to
estimate covered third-party fees (and other disclosure information
that depend on the amount of those fees) under certain conditions when
sending to a designated recipient's institution, principally that (a)
the insured institution made 500 or fewer remittance transfers to that
designated recipient's institution in the prior calendar year, or a
United States Federal statute or regulation prohibits the insured
institution from being able to determine the exact covered third-party
fees, and (b) the insured institution cannot determine the exact
covered third-party fees for that particular transfer at the time it
must provide the applicable disclosures.
The Bureau generally considered the benefits, costs, and impacts of
this final rule against a baseline in which the Bureau takes no action.
The baseline under this approach includes the following: (1) The
expiration of the Rule's existing temporary exception, which allows
insured institutions to disclose estimates instead of exact amounts to
consumers under certain circumstances, and (2) the normal course of
business safe harbor threshold of 100 transfers in the current Rule.
The impact analysis discusses two baselines in sequence, as
follows. First, for purposes of considering the normal course of
business safe harbor threshold of 500 transfers, the Bureau uses a
baseline that assumes the temporary exception will expire and the
proposed permanent exceptions are not adopted (first baseline). Second,
for purposes of considering the permanent exceptions for exchange rate
and covered third-party fees, the Bureau uses a baseline in which the
temporary exception has expired and the agency has amended the normal
course of business safe harbor threshold, so entities that provide 500
or fewer transfers in the previous and current calendar years are
excluded but the proposed permanent exceptions are not adopted (second
baseline). Because this final rule increases the normal course of
business safe harbor threshold from 100 transfers annually to 500
transfers annually, certain entities that are currently covered by the
Rule and are currently benefitting from the temporary exception will be
exempt from the Rule entirely. These entities will obtain no additional
reduction in burden from the permanent exceptions for the exchange rate
and covered third-party fees that the Bureau is adopting in this final
rule, because they will be excepted entirely from the Rule, as amended.
Given this, the Bureau determines it is appropriate to consider the
reduction in burden from the permanent exceptions against a baseline in
which the Bureau has amended the normal course of business safe harbor
threshold. In other words, the Bureau considers the potential benefits,
costs, and impacts of the permanent exceptions only on insured
institutions that provide more than 500 transfers in the prior and
current calendar years.
With respect to the provisions of this final rule, the Bureau's
analysis considers the benefits and costs to remittance transfer
providers (covered persons) as well as to senders (consumers). The
Bureau has discretion in any rulemaking to choose an appropriate scope
of analysis with respect to benefits, costs, and impacts, as well as an
appropriate baseline or baselines.
B. Data Limitations and Quantification of Benefits, Costs, and Impacts
The discussion in this impact analysis relies on data the Bureau
gathered prior to issuing the 2019 Proposal, which include data
obtained from industry, other regulatory agencies, and publicly
available sources, and in response to its 2019 Proposal. Over the
years, the Bureau has done extensive outreach on many of the issues
that this final rule addresses, including conducting the Assessment and
issuing the Assessment Report as required under section 1022(d) of the
Dodd-Frank Act, issuing the 2019 RFI, meeting with consumer groups,
holding discussions with a number of remittance transfer providers that
are banks and credit unions of different sizes and consulting with
other stakeholders before the Bureau issued the 2019 Proposal, and
requesting comment in the 2019 Proposal. The Bureau received some data
in response to each of these outreach efforts. However, as discussed
further below, the data with which to quantify the potential costs,
benefits, and impacts of this final rule are generally limited.
Quantifying the benefits of this final rule for consumers presents
certain challenges. As discussed further below, this final rule will
tend to preserve access to wire transfers, a form of remittance
transfer provided overwhelmingly by insured institutions, and will tend
to hold steady the pricing of wire transfers for certain, but not
necessarily all, consumers who send wire transfers. This final rule
allows some insured institutions to continue to estimate, as
applicable, the exchange rate, covered third-party fees, and other
disclosure information that depend on those amounts when certain
circumstances are met, while other insured institutions will be
required to provide exact amounts in disclosures. Determining the
number of consumers experiencing these different effects and the impact
on consumers would require representative market-wide data on the
prevalence of consumers who receive exact amounts as opposed to
estimated amounts in disclosures required by the
[[Page 34895]]
Rule, information on the difference between the estimated amounts and
the actual amounts, as well as information on the costs to remittance
transfer providers of providing the exact disclosure amounts. The
Bureau would then need to predict the responses of remittance transfer
providers to these costs and the prevalence of consumers who would
receive exact amounts versus estimated amounts in disclosures under
this final rule. The Bureau does not have the data needed to quantify
these effects, nor could it readily quantify the benefits to consumers
of these effects.
In light of these data limitations, the analysis below provides
both a quantitative and qualitative discussion of the potential
benefits, costs, and impacts of this final rule. Where possible given
the data available, the Bureau makes quantitative estimates based on
economic principles. Where the data are limited or not available, the
Bureau relies on general economic principles and the Bureau's
experience and expertise in consumer financial markets to provide a
qualitative discussion of the potential benefits, costs, and impacts of
this final rule.
C. Potential Benefits and Costs to Covered Persons and Consumers
As discussed above in explaining the baselines, the cost to certain
insured institutions of the expiration of the temporary exception will
be mitigated, although to differing extents, by the increase in the
normal course of business safe harbor threshold and the permanent
exceptions that permit insured institutions to provide estimates of the
exchange rate and covered third-party fees in certain circumstances. In
particular, insured institutions that currently provide between 101 and
500 transfers \76\ in the prior and current calendar years are no
longer covered by the Rule and will therefore no longer be required by
the Rule to provide disclosures. The permanent exceptions permitting
estimation of exchange rate and covered third-party fees do not have
any additional effect on the insured institutions (and their customers)
that the Rule no longer covers. The Bureau therefore believes that it
is appropriate to consider the benefits and costs to consumers and
covered persons of this final rule through considering: (1) The effects
of the increase in the normal course of business safe harbor threshold;
and (2) the effects of the new permanent exceptions to allow certain
insured institutions to provide estimates for the exchange rate,
covered third-party fees, and other disclosure information that depend
on those amounts under certain circumstances on banks and credit unions
that currently provide more than 500 transfers annually.
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\76\ As noted above in the section-by-section analysis of Sec.
1005.30(f), ``between 101 and 500'' means 101 or more and 500 or
fewer.
---------------------------------------------------------------------------
As explained above, the Bureau is not aware of any MSB remittance
transfer providers that will qualify for the 500-transfer normal course
of business safe harbor threshold (and thus will not be subject to the
Rule). In particular, the Bureau believes that all MSBs that provide
remittance transfers provide more than 500 transfers annually. Further,
the two permanent exceptions apply only to insured institutions and do
not apply to MSBs.
In light of the above, this final rule overall could affect MSBs
only indirectly, through shifts in the volume of remittance transfers
sent by MSBs relative to the volume sent by insured institutions. The
Bureau determines, however, that these shifts will be limited because
MSBs provide a somewhat different service than banks and credit unions
to meet different consumer demands. For example, as discussed in part
II above, in the Assessment Report, the Bureau found that the dollar
value of the average remittance transfer provided by MSBs is typically
much smaller (approximately $381 on average) than the dollar value of
transfers (more than approximately $6,500 on average) provided by banks
or credit unions.\77\ Thus, in general, if some insured institutions
increase the cost of sending remittance transfers or cease sending
remittance transfers to certain countries and/or designated recipient's
institutions when the temporary exception expires, the Bureau
determines that consumers who had been using these insured institutions
to send wire transfers will generally shift to other insured
institutions and not to MSBs. The Bureau therefore expects only a
modest impact relative to the market today on MSBs from the expiration
of the temporary exception, with or without this final rule. Thus, the
Bureau expects only a modest impact on MSBs from this final rule
relative to either baseline.\78\
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\77\ Assessment Report at 68, 73.
\78\ Entities besides insured institutions and traditional MSBs
can be remittance transfer providers, including broker-dealers. The
Bureau lacks data on the number of remittance transfers sent by
these entities. The Bureau understands that broker-dealers may use
wire services provided by banks for remittance transfers and that a
broker-dealer's reliance on the temporary exception may mirror that
of the banks with whom they are associated.
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1. Raising the Normal Course of Business Safe Harbor Threshold to 500
Transfers Annually
This section considers the benefits, costs, and impacts of raising
the normal course of business safe harbor threshold from 100 transfers
annually to 500 transfers annually. This analysis proceeds in two
steps. First, it examines the information available to the Bureau to
determine the likely impact of the change. Second, the analysis then
considers the likely benefits, costs, and impacts of this change.
This final rule raises the normal course of business safe harbor
threshold from 100 transfers annually to 500 transfers annually. Under
this final rule, a person that provided 500 or fewer remittance
transfers in the previous calendar year and provides 500 or fewer
remittance transfers in the current calendar year will be deemed not to
be providing remittance transfers in the normal course of its business
and thus will not be subject to the Rule. Based on their respective
Call Reports,\79\ 414 banks and 247 credit unions provided between 101
and 500 transfers in either 2017 or 2018, but not more than 500 in
either year.\80\ As such, due to the increase in the normal course of
business safe harbor threshold, although these banks and credit unions
are currently covered by the Remittance Rule, they will not be covered
after this final rule takes effect. These institutions represent 55
percent of banks providing more than 100 transfers and 62 percent of
credit unions providing more than 100 transfers. Thus, under this final
rule, 661 previously covered institutions no longer need to provide
exact disclosures or meet any of the other requirements of the Rule.
Comparing these numbers to calculations from 2017 and earlier in the
Assessment Report, the number of banks and credit unions providing
between 101 and 500 transfers has not changed much from year to year,
so is likely to be representative of the relief in burden when this
final rule takes effect.
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\79\ As noted above in the section-by-section analysis of Sec.
1005.30(f), banks and credit unions are required to submit quarterly
``Call Reports'' by the FFIEC and the NCUA, respectively. For a more
detailed description of these reporting requirements, see Assessment
Report at 24.
\80\ The 2018 transfers of a bank or credit union is included in
this calculation if it provided between 101 and 500 transfers in
either 2017 or 2018, even if, for example, it transferred 100 or
fewer transfers in 2018. Similarly, it is excluded if it provided
more than 500 transfers in either year.
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Benefits and Costs to Insured Institutions
As discussed above, 414 banks and 247 credit unions subject to the
Rule
[[Page 34896]]
under the first baseline will no longer incur the compliance costs of
the Rule under the 500-transfer normal course of business safe harbor
threshold. The Bureau does not have a precise estimate of the costs
these institutions will stop incurring. However, the Assessment Report
discusses the kinds of compliance costs faced by providers covered by
the Rule.\81\ These costs include staff training costs, information
acquisition costs for disclosures, and error investigation and
resolution costs.
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\81\ Assessment Report at 117-20.
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In addition, if any banks and credit unions were restricting the
number of remittance transfers that they provide to 100 or fewer in
order to qualify for the existing normal course of business safe harbor
threshold, it is possible they may decide to start providing more
remittance transfers after the threshold is increased to 500 transfers.
However, the Assessment Report indicates that banks and credit unions
did not limit the number of transfers to stay under the existing normal
course of business safe harbor threshold, nor did banks or credit
unions appear to cease providing remittance transfers because of the
Rule.\82\ These facts suggest it is unlikely that many institutions
will start providing more remittance transfers because of the increase
in the normal course of business safe harbor threshold.
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\82\ Id. at 133-38.
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Finally, it is possible that some insured institutions will see
effects from the increased normal course of business safe harbor
threshold because of the preferences of their customers. One
possibility is that the customers of insured institutions that are
excluded from coverage because of the increase in the normal course of
business safe harbor threshold to 500 transfers may decide to use
insured institutions that remain subject to the Rule to send remittance
transfers. These customers may prefer receiving the protections the
Rule affords them (e.g., receiving pre-payment disclosures and
receipts, or availing themselves of the Rule's error resolution
rights), even if they have to pay more for remittance transfers.
Conversely, if the insured institutions that are no longer covered by
the Rule due to the increase in the normal course of business safe
harbor threshold lower the price they charge to send remittance
transfers, some consumers may switch to those institutions. Given the
inconvenience of consumers changing from one institution to another
institution, such as closing their account at one bank and opening an
account at another bank, and the analysis of the impact of the 100-
transfer normal course of business safe harbor threshold on the market
for remittance transfers discussed in the Assessment Report,\83\ the
Bureau expects that the net change in remittance transfers and market
participation will likely be small for insured institutions that are no
longer covered by the Rule because of the increase in the normal course
of business safe harbor threshold to 500 transfers.
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\83\ Id. at 133-37.
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Benefits and Costs to Consumers
In 2018, insured institutions that would not have been covered if
the normal course of business safe harbor threshold was set at 500
transfers provided approximately 141,900 transfers.\84\ These transfers
represent 1.2 percent of calendar year 2018 transfers by insured
institutions providing more than 100 transfers in either 2017 or
2018.\85\ The Assessment Report found that these numbers have been
fairly stable from year to year before 2018, so are likely to be
representative of the decrease in the number of covered transfers when
this final rule takes effect.\86\
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\84\ These numbers are from the bank and credit union Call
Reports. The total represents approximately 92,600 bank transfers
and 49,300 credit union transfers.
\85\ These numbers are from the bank and credit union Call
Reports. The dollar volume of the transfers provided by banks
providing between 101 and 500 transfers in either 2017 or 2018, but
not more than 500 in either year, was $2 billion. Credit unions do
not report their dollar volume.
\86\ Assessment Report at 76-77, 83-84.
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This final rule has potential benefits and costs to the customers
of banks and credit unions providing between 101 and 500 remittance
transfers annually. The benefits include potentially lower prices for
consumers if the remittance transfer provider passes on to them any
reduction in regulatory compliance costs. As discussed in the
Assessment Report, at least some bank and credit union providers
reported to the Bureau that in response to the Rule, they increased the
price they charged consumers to provide remittance transfers.\87\
Excepting such entities from the Rule's coverage could result in
decreased prices by these banks and credit unions for sending
remittance transfers.
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\87\ Id. at 94.
---------------------------------------------------------------------------
The costs to customers of banks and credit unions providing between
101 and 500 remittance transfers annually are the potential loss of the
Rule's pre-payment disclosures, which may facilitate comparison
shopping, and other Rule protections, including cancellation and error
resolution rights. The Bureau does not have the information necessary
to quantify these costs. The Bureau has received relatively few
complaints from consumers arising from transfers provided by banks and
credit unions not covered by the Rule.\88\ The Assessment Report found
that consumers asserted errors for as many as 1.9 percent of transfers
and cancelled between 0.29 and 4.5 percent of transfers depending on
the provider.\89\ Some banks and credit unions providing between 101
and 500 remittance transfers annually may continue to provide certain
of these protections to their customers, although perhaps in a more
limited manner than required by the Rule. For example, in response to
the 2019 Proposal, as noted in the section-by-section analysis of Sec.
1005.30(f)(2), one bank trade association commenter asserted that
entities that are no longer subject to the Remittance Rule will still
provide their customers with information about the fees and charges
associated with sending a remittance transfer and will also take steps
to help consumers when there are errors related to their transfers.
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\88\ From April 1, 2013 through December 31, 2017, about 0.4
percent of complaints the Bureau has received are about
``international money transfers'' including remittance transfers.
Id. at 113-16. The number of complaints may be low because providers
are complying with the law. Another possibility is that some
consumers who send remittance transfers may have limited English
proficiency, and therefore, be less likely to know that they can
submit complaints to the Bureau or may be less likely to seek help
from a government agency than other consumers. These percentages are
based on all complaints about international transfers, not just
complaints made when the provider is an insured institution.
\89\ Id. at 126, 131. These percentages were calculated with
data on both insured institutions and other providers. The
Assessment Report cautions that the data is not necessarily
representative of a particular set of institutions.
---------------------------------------------------------------------------
As noted above, it is possible that, to the extent any banks and
credit unions intentionally provide 100 or fewer transfers (so as to
qualify for the existing normal course of business safe harbor
threshold), they may decide to increase their transfers under this
final rule. The Assessment Report did not find that banks or credit
unions were limiting the number of transfers they provided to stay
under the existing 100-transfer normal course of business safe harbor
threshold or that banks or credit unions had stopped providing
remittance transfers because of the Rule.\90\ Thus, the Bureau
concludes that there will not be much if any increase in access to
remittance transfer services resulting from the increase in the normal
course of business safe harbor threshold.
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\90\ Id. at 133-38.
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[[Page 34897]]
Alternatives
In the 2019 Proposal, the Bureau considered an alternative 200-
transfer threshold for the normal course of business safe harbor
threshold. There were 156 banks and 138 credit unions in 2018 that
provided between 101 and 200 transfers in either 2017 or 2018, but not
more than 200 in either year, based on their respective Call Reports.
As reported above, the corresponding numbers under this final rule are
414 banks and 247 credit unions. Thus, this final rule more than
doubles the number of banks that are not subject to the Rule relative
to an alternative normal course of business safe harbor threshold of
200 remittance transfers. The corresponding relative increase under
this final rule for credit unions is 79 percent. Under the alternative,
the banks and credit unions that would not be subject to the Rule
represent 21 percent of banks providing more than 100 transfers in
either 2017 or 2018 and 35 percent of credit unions providing more than
100 transfers in either 2017 or 2018. As reported above, the
corresponding numbers under this final rule are 55 percent for banks
and 62 percent for credit unions. The other impacts as described above
for a normal course of business safe harbor threshold of 500 transfers
would follow for a threshold of 200 transfers.
The total number of transfers in 2018 for banks and credit unions
that provided between 101 and 200 transfers in either 2017 or 2018, but
not more than 200 in either year, were 19,900 bank transfers and 18,200
credit union transfers. As reported above, the corresponding numbers
under this final rule are approximately 92,600 bank transfers and
49,300 credit union transfers. Thus, this final rule more than
quadruples the number of bank transfers and more than doubles the
number of credit union transfers that are not subject to the Rule
relative to the alternative. Under the alternative, the bank and credit
union transfers in 2018 that would not be subject to this final rule
represent 0.18 percent of transfers by banks providing more than 100
transfers in either 2017 or 2018, and 2.31 percent of transfers by
credit unions providing more than 100 transfers in either 2017 or 2018.
Overall this is 0.32 percent of transfers in 2018 by insured
institutions providing greater than 100 transfers in either 2017 or
2018. The corresponding numbers under this final rule are 0.83 percent
for bank transfers and 6.3 percent for credit union transfers. As
reported above, this is 1.2 percent of all 2018 transfers by insured
institutions providing more than 100 transfers in either 2017 or 2018.
Again, the other impacts as described above for a normal course of
business safe harbor threshold of 500 transfers would follow for a 200-
transfer threshold.
As discussed in greater detail in the section-by-section analysis
of Sec. 1005.30(f)(2), the 2019 Proposal solicited comment on basing
the normal course of business safe harbor on the percentage of an
entity's customers that send remittance transfers. A limitation on the
ability of the Bureau to consider the impacts of potential alternatives
is the lack of institutional-level data or representative averages for
groups of institutions on, among other things, the percentage of
customers that send remittance transfers, the average number of
remittance transfers sent by customers who send remittance transfers,
and the distribution of transfers across customers (e.g., whether
sending remittance transfers is concentrated among a small share of
customers or dispersed). The numbers of consumers and covered persons
affected by different per-customer thresholds would depend on this
information. The qualitative effects on consumers and covered persons
that would not be covered by the Rule at different normal course of
business safe harbor thresholds would be as described above. In the
2019 Proposal, the Bureau requested data and other information that
would be useful for quantifying the number of affected consumers and
persons sending remittance transfers and the benefits and costs on the
affected consumers and persons, but did not receive such information.
2. Permanent Exceptions To Estimate Exchange Rates and Covered Third-
Party Fees
This section considers the benefits, costs, and impacts of the two
permanent exceptions being adopted in this final rule that will allow
remittance transfer providers that are insured institutions to estimate
the exchange rate and covered third-party fees in certain
circumstances. This analysis proceeds in two steps. First, it examines
the information available to the Bureau to determine the likely impact
of the expiration of the existing temporary exception. Second, the
analysis then considers the likely benefits, costs, and impacts of the
permanent exceptions. For reasons explained above, the analysis
generally considers only the impacts of the expiration of the temporary
exception and adoption of the new permanent exceptions on banks and
credit unions that do not qualify for the normal course of business
safe harbor threshold, as amended by this final rule (i.e., banks and
credit unions that provide more than 500 remittance transfers
annually).
According to their Call Reports, of 343 banks providing more than
500 transfers in 2017 or 2018, 48 (14 percent) reported using the
temporary exception in 2018.\91\ These 48 banks estimate they used the
temporary exception for approximately 770,000 transfers in 2018,
representing approximately 7.0 percent of all transfers by banks
providing more than 500 transfers annually. The Bureau does not have
comparable information on the use of the temporary exception for credit
unions, and as such, assumes that credit union usage is similar to that
of banks.\92\ Specifically, assuming that the same proportion of credit
unions providing more than 500 transfers annually use the temporary
exception as banks and use the temporary exception for the same
proportion of transfers as banks, around 21 credit unions would have
used the temporary exception for 52,000 transfers. Thus, absent any
mitigation to address the potential impact of the expiration of the
temporary exception (other than the expansion of the normal course of
business safe harbor threshold described above), it is reasonable to
estimate that the approximately 70 insured institutions using the
temporary exception for approximately 822,000 transfers would need to
undertake certain adjustments.\93\
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\91\ It is possible that there are more banks using the
temporary exception than report it on their Call Reports. For
example, smaller bank providers that rely on a larger service
provider may not accurately report their usage.
\92\ In the 2019 Proposal, the Bureau requested data and other
information on the use of the temporary exception by credit unions,
and in particular by credit unions providing more than 500 transfers
annually. Commenters did not provide any such data or other
information.
\93\ According to their Call Reports, 34 banks providing between
101 and 500 remittance transfers annually relied on the temporary
exception for 6,500 transfers. Assuming proportional use for credit
unions providing between 101 and 500 remittance transfers annually,
approximately 20 credit unions relied on the temporary exception for
3,500 transfers. For a baseline in which the normal course of
business safe harbor threshold was not increased, the impacts on
consumers and covered persons considered would also apply to these
transfers and covered persons.
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Bank Call Reports do not differentiate between the use of the
temporary exception for exchange rates and covered third-party fees.
From discussions with some large banks and a trade association
representing a number of the largest banks, the Bureau understands that
the temporary exception generally is not used by very large banks to
estimate exchange rates because providing the exact exchange rate is
not difficult for such banks. Over
[[Page 34898]]
the years, banks, credit unions, and their trade associations suggested
that there could still exist difficulties for certain large banks to
provide exact exchange rates to specific countries. However, they did
not provide examples or data on the number of large banks or transfers
for which providing the exact exchange rate would be difficult.
Accordingly, the analysis assumes that a substantial majority of the
remittance transfers and institutions using the temporary exception are
using it exclusively for covered third-party fees. In the 2019
Proposal, the Bureau requested data and other information on the share
of remittance transfers that rely on the temporary exception to
estimate exchange rates alone, covered third-party fees alone, and both
exchange rates and covered third-party fees, but did not receive
relevant information.
Permanent Exception for Estimation of the Exchange Rate by an Insured
Institution
This final rule provides a permanent exception that allows insured
institutions to estimate the exchange rate (and other disclosure
information that depend on the exchange rate) under certain conditions
when sending to a country. Principally, these conditions are that the
designated recipient of the remittance transfer will receive funds in
the country's local currency and (a) the insured institution made 1,000
or fewer transfers in the prior calendar year to that country where the
designated recipients received funds in the country's local currency,
and (b) the insured institution cannot determine the exact exchange
rate for that particular transfer at the time it must provide the
applicable disclosures.
The information available to the Bureau indicates that insured
institutions primarily use the temporary exception to estimate covered
third-party fees. However, as discussed below, the Bureau understands
that certain insured institutions may incur additional costs in order
to disclose exact exchange rates. Further, these costs, as well as the
willingness to incur them, may differ across insured institutions.
Thus, under the second baseline (i.e., baseline in which the temporary
exception expires and the Bureau raises the normal course of business
safe harbor threshold to 500 transfers), it is possible that the
requirement to disclose exact exchange rates may cause some insured
institutions to cease providing transfers to certain countries to the
extent that these institutions will not qualify for the normal course
of business safe harbor threshold, as amended, and do not qualify for
the new permanent exception that allows insured institutions to
estimate the exchange rate under certain conditions. The permanent
exception for estimating the exchange rate would tend to mitigate the
cost increases and reductions in the provision of remittance transfers
at insured institutions that would otherwise occur.
Benefits and Costs to Insured Institutions
Under the second baseline, insured institutions that will continue
to be covered by the Rule (because they send remittance transfers in
excess of the 500-transfer threshold in the normal course of their
business) and that have been using the temporary exception to estimate
exchange rates will either need to provide exact exchange rate
disclosures or stop sending those transfers. To provide exact exchange
rate disclosures, these insured institutions will incur certain costs.
An insured institution may need to establish and maintain currency-
trading desk capabilities and risk management policies and practices
related to the foreign currency and country at issue or to use service
providers, correspondent institutions, or persons that act as the
insured institution's agent. These additional costs may also differ
across insured institutions, due to differences in existing
arrangements with service providers or correspondent institutions, the
ability to negotiate changes in those arrangements, the expertise of
existing staff, and the likely volume of transfers. Insured
institutions may also differ in the level of commitment to sending
remittance transfers to particular countries, based on the needs of
their customers, and thus their willingness to incur additional costs.
Overall, the requirement to disclose exact exchange rates under the
second baseline could cause some insured institutions to cease
providing transfers to certain countries. These effects would likely
differ across insured institutions.
The Bureau determines that adopting the permanent exception for
estimating the exchange rate will tend to mitigate these costs and
impacts. The Bureau asked for information in its 2019 Proposal about
the percentage of transfers by recipient country that rely on the
temporary exception for exchange rates and the portion of those
transfers that could rely on the permanent exception being proposed. It
did not receive this information. However, the Bureau understands that
insured institutions predominantly use the temporary exception to
estimate covered third-party fees, rather than exchange rates. Thus,
the Bureau concludes that the additional costs under the second
baseline would be relatively modest overall, and adopting the permanent
exception will mitigate most of the increase that would otherwise
occur. Further, as noted in the 2019 Proposal, it is the Bureau's
understanding from discussion with some large banks and a trade
association representing a number of the largest banks that providing
exact exchange rates is not generally difficult for very large banks.
However, several trade association commenters asserted, in response to
the 2019 Proposal, that large banks may have difficulties providing
exact exchange rates in certain circumstances. Thus, to the extent that
very large banks would have an advantage under the second baseline in
providing transfers to particular countries, the permanent exception
for the exchange rate will mitigate this advantage by allowing smaller
institutions to continue to estimate exchange rates in disclosures for
certain remittance transfers.
As discussed above, in the 2019 Proposal, the Bureau requested data
and other information about the share of remittance transfers that
relied on the temporary exception to estimate exchange rates alone, and
both exchange rates and covered third-party fees. The Bureau did not
receive such information.
Further, the Bureau recognizes that the magnitudes of the effects
of the expiration of the temporary exception to estimate the exchange
rate and the mitigating effects of the permanent exception for
estimating the exchange rate are uncertain. Thus, the potential
additional costs under the second baseline from the inability to
estimate exchange rates by certain insured institutions may be larger
than the Bureau has assumed. As a result, the permanent exception to
estimate exchange rates may not mitigate all of the impact of the
expiration of the temporary exception.
For reasons discussed in the section-by-section analysis of Sec.
1005.32(b)(4), under this final rule, if an insured institution in the
prior calendar year did not exceed the 1,000-transfer threshold to a
particular country, but does exceed the 1,000-transfer threshold in the
current calendar year, the insured institution will have a reasonable
amount of time after exceeding the 1,000-transfer threshold to begin
providing the exact exchange rate (assuming it cannot rely on another
exception in Sec. 1005.32 to estimate the exchange rate). This final
rule provides
[[Page 34899]]
that the reasonable amount of time must not exceed the later of six
months after exceeding the 1,000-transfer threshold in the current
calendar year or January 1 of the next year.
The transition period may benefit insured institutions by giving
them some additional time in which to provide remittance transfers
while also establishing additional agreements with correspondent
institutions or third-party service providers, or develop their own
systems to provide exact exchange rates. The transition period also
ensures that an insured institution that estimates exchange rates and
inadvertently exceeds the 1,000-transfer threshold will not violate the
Rule during the transition period. The Bureau does not have information
on how frequently institutions are below 1,000 transfers to a
particular country in one year and exceed the 1,000-transfer threshold
in a subsequent year or how common it is for an insured institution to
exceed the 1,000-transfer threshold by a large number of transfers. The
Bureau understands that relatively few insured institutions provide
most of the remittance transfers that insured institutions provide. In
addition, while some insured institutions provide remittance transfers
to many countries on their customers' behalf, some countries are the
destination of far more remittance transfers than others.\94\ Thus, the
Bureau understands that the number of remittance transfers that most
insured institutions provide to an individual country likely stays
consistently above or below 1,000 transfers. It is not possible,
however, to determine from these facts how many insured institutions
will rely on the transition period.
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\94\ See Assessment Report at 60, 77.
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Benefits and Costs to Consumers
Under the second baseline, in which the temporary exception expires
and the Bureau raises the normal course of business safe harbor
threshold from 100 transfers annually to 500 transfers annually, the
preferred insured institution for some consumers might not be able to
provide an exact exchange rate disclosure for transfers to certain
countries, for reasons discussed above. Some consumers, therefore,
would need to seek out an alternate remittance transfer provider to
send transfers to those countries. The Bureau understands that to the
extent that a consumer's preferred insured institution cannot provide
the exact exchange rate, there would likely be a less preferred insured
institution that could provide the exact exchange rate and send the
transfer.\95\
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\95\ These consumers may also consider using an MSB to send
transfers if it is too difficult or expensive to find an insured
institution that can send the transfer. MSBs are generally able to
provide exact exchange rate information for the reasons discussed in
part II above. Some MSBs compete with insured institutions for high-
value transfers in some corridors. However, MSBs generally provide a
somewhat different service than banks and credit unions to meet
different consumer demands, as reflected in the differences in the
average transfer amount for MSBs ($381) and banks and credit unions
($6,500) (Assessment Report at 68, 73). The Bureau therefore
considers that there would be relatively few consumers, under the
second baseline, who use an MSB because they find it too difficult
or expensive to use an insured institution.
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Under this final rule, due to the adoption of the permanent
exception for estimating the exchange rate, more consumers will be able
to continue to use their preferred insured institution to send
transfers. These consumers may also be able to do so at lower prices
under the Rule if, without the Rule and under the second baseline, an
insured institution would pass on the higher costs incurred to obtain
exact exchange rate information.
The cost to these consumers is that they will receive estimated
disclosures. Disclosures that include exact exchange rate information
make it easier for a consumer to know whether a designated recipient is
going to receive an intended sum of money, or the amount in U.S.
dollars that the consumer must send to deliver a specific amount of
foreign currency to a designated recipient. Requiring the disclosure of
exact exchange rates may also make it easier for consumers to compare
prices across providers. The permanent exception for estimating
exchange rates may therefore impose a cost on certain consumers in the
form of these foregone benefits. However, these costs may not be large
to the extent that there is not a great difference between the
estimated amounts and the actual amounts. In addition, the estimated
amount may turn out to be the actual amount. If the estimated and
actual amounts are frequently the same, the costs to consumers will be
low.
Overall, however, the evidence available to the Bureau suggests
that the costs to consumers of allowing insured institutions to use the
permanent exception to estimate the exchange rate are not likely to be
significant. Further, the Bureau believes the permanent exception for
estimating the exchange rate will be used for only a small portion of
all remittance transfers sent by insured institutions. As such, the
potential negative impact on comparison shopping noted above may be
small. Lastly, as discussed in the Assessment Report and noted above,
the Bureau reviewed evidence from its consumer complaints database and
did not find evidence of significant consumer complaints regarding the
use of estimates for exchange rates or for covered third-party
fees.\96\
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\96\ Assessment Report at 113-16. The Assessment Report
categorizes complaints into the type of complaint and estimates for
exchange rates or for covered third-party fees were not an important
source of complaint by themselves. However, 7 percent of complaints
were for the ``Wrong amount charged or received'' and 0.5 percent
for ``Unexpected or other fees'' which may contain complaints
related to inaccurate estimates.
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As discussed above, this final rule provides that if an insured
institution in the prior calendar year did not exceed the 1,000-
transfer threshold to a particular country but does exceed the 1,000
transfer threshold in the current calendar year, the insured
institution has a reasonable amount of time after exceeding the 1,000-
transfer threshold to begin providing exact exchange rates in
disclosures (assuming that it cannot rely on another exception in Sec.
1005.32 to estimate the exchange rate). While the Bureau does not have
information on how many transfers might be affected, it expects the
number of transfers to be relatively small and, as such, the costs to
consumers of receiving estimates for additional transfers is likely to
be limited. Further, by allowing providers additional flexibility, the
transition period adopted in this final rule may help reduce costs. In
turn, these cost savings may be passed on to consumers, and help to
maintain consumer access to the extent that the extra flexibility the
transition period will provide make it less likely that insured
institutions would stop providing remittance transfers to stay below
the 1,000-transfer threshold.
Permanent Exception for Estimation of Covered Third-Party Fees by an
Insured Institution
As noted above, under the second baseline (i.e., the baseline in
which the temporary exception expires and the Bureau raises the normal
course of business safe harbor threshold to 500 transfers), the Bureau
estimates that approximately 70 insured institutions would need to stop
providing estimated disclosures for approximately 822,000 transfers.
Based on its analysis of available information, the Bureau expects that
many of these insured institutions could form additional relationships
or set up new systems to disclose exact covered third-party fees for a
large portion of the transfers currently using the temporary exception
[[Page 34900]]
to estimate covered third-party fees. As described in detail in the
2019 Proposal, in formulating the proposed permanent exception for
covered third-party fees, the Bureau held discussions with banks and a
trade association representing a number of the largest banks, reviewed
comments from the 2019 RFI, and analyzed Call Reports from banks that
have reduced their reliance on the temporary exception. Based on the
information received from these sources, the Bureau was preliminarily
persuaded that banks would be willing to set up the relationships or
establish other systems (such as international ACH) necessary to their
ability to disclose exact covered third-party fees and reduce their
reliance on estimates to around half of the number of transfers for
which they used the temporary exception in 2018. The Bureau has no
information that would suggest a different conclusion for credit
unions. Based on the limited information available, the Bureau
determines that insured institutions will implement these operational
changes and provide exact disclosures for around half of the number of
transfers for which they used the temporary exception in 2018, and
their customers will gain the benefit of receiving exact disclosures.
However, implementing these operational changes is likely to come at
some cost to insured institutions, and some of these costs could be
passed on to consumers. Note that these costs are not costs of this
final rule; they are costs incurred under the baseline in which the
temporary exception expires and the Bureau increases the normal course
of business safe harbor threshold from 100 transfers annually to 500
transfers annually.
There are a limited number of outcomes for the remaining half of
transfers for which insured institutions used the temporary exception
in 2018 and which could not be sent with estimated disclosures under
the second baseline. Consumers requesting these transfers would need to
find an alternative remittance transfer provider. The alternative
remittance transfer provider would most likely be an insured
institution that provides enough remittance transfers to the designated
recipient's institution that the sending insured institution either has
relationships or would form additional relationships or set up new
systems to provide exact covered third-party fee disclosures. The
alternative provider might also be an MSB. As discussed above, however,
MSBs provide a somewhat different service than banks and credit unions
to meet different consumer demands. This would tend to reduce any
substitution from insured institutions to MSBs. In either case,
consumers would lose the convenience and other benefits of transferring
with their preferred bank or credit union. Finally, it is also possible
that no insured institution or MSB (or combination of MSBs), at any
price, could send to certain designated recipient's institutions. This
would occur if no insured institution is able to provide exact
disclosures and no MSB (or combination of MSBs) is able to transfer
high enough amounts to certain designated recipient's institutions.
The Bureau does not have the information necessary to quantify how
many transfers would fall into each category. For purposes of the
analysis below, the Bureau assumes that under the second baseline,
customers of an insured institution that would no longer send
remittance transfers to a designated recipient's institution would
generally search for and find a different insured institution that
would send the transfer. The Bureau considers it unlikely that no
insured institution or MSB (or combination of MSBs), at any price,
could send the desired amount of funds to a designated recipient's
institution. In response to the 2019 Proposal, a group of trade
association commenters representing large banks noted that the Bureau
may be overly optimistic in this assumption that other remittance
transfer providers would still be able to send transfers and that the
costs of switching remittance transfer providers may be high for
consumers. Note again that these are all costs incurred under the
baseline in which the temporary exception expires without the new
exception. If the costs under the baseline would be larger than the
Bureau predicts, the mitigation of these costs by the new permanent
exception for estimating covered third-party fees would also be larger.
Transfers that are actually provided under the second baseline will
fall into three main categories relative to covered third-party fees:
(1) Transfers that are below the threshold for covered third-party
fees, and therefore disclose estimates, but under the second baseline
would have been provided with exact disclosures at a higher price or by
a remittance transfer provider other than the consumer's first choice;
(2) transfers that are above the threshold for covered third-party
fees, and so will be provided with exact disclosures for such fees
under both this final rule and the second baseline; or (3) transfers
that do not receive exact disclosures because a United States Federal
statute or regulation prohibits the insured institution from being able
to determine the exact covered third-party fees and the insured
institution cannot determine the exact covered third-party fees for
that particular transfer at the time it must provide the applicable
disclosures. Relative to the baseline, in which all bank or credit
union transfers that take place would have to provide exact
disclosures, only (1) and (3) represent a change considered for the
costs or benefits of the permanent exception for estimating covered
third-party fees because (2) represents no impacts relative to the
second baseline.
The Bureau has no evidence that any United States Federal statute
or regulation prohibits an insured institution from being able to
determine exact covered third-party fees for any remittance transfer.
Thus, to the best of the Bureau's knowledge, no transfers fall into
category (3) above. To the extent there are transfers that fall under
this provision, there are benefits to both insured institutions and
consumers from the added flexibility. Insured institutions benefit by
still being able to provide transfers that they could not otherwise
provide. Consumers benefit by maintaining access to remittance
transfers at their preferred institution that might not take place
otherwise.
Benefits and Costs to Insured Institutions
As stated above, under the baseline in which the temporary
exception expires and the Bureau raises the normal course of business
safe harbor threshold to 500 transfers, the Bureau estimates that
approximately 70 insured institutions would need to stop providing
estimated disclosures for approximately 822,000 transfers. While the
Bureau does not have market-wide information, the information provided
by certain large banks suggests that there are few designated
recipient's institutions to which these large banks individually send
more than 500 transfers in a year and with which these large banks
would not be able or willing to set up a relationship sufficient to
provide exact disclosures of covered third-party fees. Based on this
information, the Bureau expects that under both the second baseline and
the permanent exception for estimating covered third-party fees, these
70 institutions will form roughly the same number of relationships and
will provide exact disclosures for about half of these transfers.
Forming these relationships comes at some cost to insured institutions,
and some of these costs could be passed on to consumers. One trade
association commenter representing banks questioned the Bureau's
expressed expectation in the 2019 Proposal that insured institutions
[[Page 34901]]
would form new relationships or contract with service providers to
provide exact disclosures. However, service providers for insured
institutions are often insured institutions themselves making their
correspondent network available to smaller and more regional
institutions.
As explained above, under the second baseline, the other half of
the remittance transfers for which estimated disclosures are currently
provided would no longer be provided by the insured institutions that
currently send them but would be sent by different insured
institutions.\97\ Based on the information available from certain large
banks, under the permanent exception for estimating covered third-party
fees, the Bureau expects that the insured institutions that currently
send these transfers would continue to send them. In response to the
2019 Proposal, one large credit union commenter estimated that two-
thirds of its current remittance transfers would be covered under the
new permanent exception. Based on the information provided in its
comment letter, it appears that the credit union had not yet sought to
contract with a large bank, join the SWIFT network to be eligible to
form RMAs, or otherwise form correspondent relationships, as would be
necessary under the expiration of the temporary exception if it wished
to continue to provide remittance transfer at its current levels.
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\97\ At least one commenter on the 2019 Proposal noted the large
cost of this dislocation.
---------------------------------------------------------------------------
For transfers under category (1) above, insured institutions can
provide estimated disclosures under the permanent exception concerning
covered third-party fees, so these insured institutions would not need
to form additional relationships. These insured institutions would
benefit from not turning away potential customers and by being able to
continue providing a valuable service to their customers. These
benefits might be significant, although they are difficult to quantify.
This final rule also provides a transition period for insured
institutions that exceed the 500-transfer normal course of business
safe harbor threshold under Sec. 1005.32(b)(5) in the current calendar
year, which will allow them to continue to provide estimates of covered
third-party fees for a reasonable period of time (i.e., the later of
six months or January 1 of next year) while they come into compliance
with the requirement to provide exact covered third-party fees
(assuming that these institutions cannot rely on another exception in
Sec. 1005.32). The transition period may benefit insured institutions
by giving them some additional time in which to provide remittance
transfers while relying on the permanent exception for covered third-
party fees while also establishing additional agreements with other
institutions or develop systems to provide exact covered third-party
fees. The transition period also ensures that an insured institution
that estimates covered third-party fees and inadvertently exceeds the
500-transfer threshold will not violate the Rule during the transition
period. The Bureau does not have information on how frequently
institutions move from below the threshold in one year to exceeding the
500-transfer threshold in a subsequent year. However, the Bureau
expects that relatively few transfers will be affected because
remittance transfers are generally concentrated in a few corridors and
among relatively few large banks, which will always be above the 500-
transfer threshold.
Benefits and Costs to Consumers
Under category (1) above, certain senders of remittance transfers
would have been provided with exact disclosures under the second
baseline but at a higher price or by a remittance transfer provider
other than the consumer's first choice. As discussed above, the Bureau
expects that the permanent exception for estimating covered third-party
fees if an insured institution makes 500 or fewer transfers to a
designated recipient's institution in the prior calendar year will
mitigate all or almost all of the costs to consumers from the loss of
access to transfers to certain designated recipient's institutions
under the second baseline. These remittance transfers represent the
most important benefit of the permanent exception for estimating
covered third-party fees for consumers. While the Bureau does not have
the information to quantify the number of transfers in this category or
the exact value to consumers, the benefit to consumers of continued
access is potentially large.
Under category (1) above, consumers will receive disclosures
containing estimates. As discussed above in considering the impact of
the permanent exception for the exchange rate, the use of estimates for
covered third-party fees may make it more difficult for consumers to
engage in comparison shopping and impose a cost on consumers by making
disclosures less accurate.
As discussed above, this final rule provides that if an insured
institution in the prior calendar year did not exceed the 500-transfer
threshold to a particular country but does exceed the 500-transfer
threshold in the current calendar year, the insured institution has a
reasonable amount of time after exceeding the 500-transfer threshold to
begin providing exact third-party fees in disclosures. While the Bureau
does not have information on how many transfers might be affected, it
expects the number of transfers to be relatively small and, as such,
the costs to consumers of receiving estimates for additional transfers
to be limited. Further, by allowing providers additional flexibility,
the transition period may help reduce costs, which may be passed on to
consumers, and maintain consumer access to the extent that the extra
flexibility makes it less likely that insured institutions would stop
providing transfers to stay below the threshold.
Alternatives
For purposes of considering the effects of the permanent exceptions
that allow insured institutions to estimate exchange rates and covered
third-party fees under certain circumstances, the Bureau used the
second baseline (i.e., the baseline in which the temporary exception
expires and the Bureau amended the normal course of business safe
harbor threshold from 100 transfers annually to 500 transfers
annually). The Bureau instead considered the effects of these permanent
exceptions relative to the first baseline, under which the temporary
exception expires and the Bureau maintains the existing normal course
of business safe harbor threshold at 100 transfers annually. In this
case, the permanent exceptions that would allow institutions to
estimate exchange rates and covered third-party fees would have effects
on insured institutions that provide between 101 and 500 remittance
transfers per year and the consumers on whose behalf these institutions
send remittance transfers. These effects would be in addition to the
effects on insured institutions that provide more than 500 remittance
transfers per year and the consumers on whose behalf these insured
institutions send remittance transfers.
As discussed above, 414 banks and 247 credit unions provided
between 101 and 500 transfers in either 2017 or 2018, but not more than
500 in either year. In 2018, they respectively sent about 92,600 and
49,300 transfers. These banks and credit unions would remain covered by
the Rule under the first baseline since the normal course of business
safe harbor threshold remains at 100 transfers. However, all of these
insured institutions would necessarily meet the respective 500-transfer
and 1,000-transfer threshold requirements in the permanent exceptions.
Thus, all of
[[Page 34902]]
these insured institutions could continue to disclose estimates for
exchange rates and covered third-party fees to the extent that they
already do so. The ability to disclose estimates under the permanent
exceptions would mitigate costs relative to the first baseline.
The insured institutions providing between 101 and 500 transfers
currently provide error resolution rights and meet the other conditions
of the Rule. These insured institutions would continue to do so under
the first baseline and with the alternative rule considered here, i.e.,
that provided only the permanent exceptions for estimating exchange
rates and covered third-party fees.
D. Potential Specific Impacts of the Final Rule
1. Depository Institutions and Credit Unions With $10 Billion or Less
in Total Assets, as Described in Section 1026
As stated above, based on their Call Reports, 414 banks and 247
credit unions provided between 101 and 500 transfers in either 2017 or
2018, but not more than 500 in either year. Of these, 386 banks and all
247 credit unions had $10 billion or less in total assets in 2018. Some
of these insured institutions currently provide exact disclosures
(based on Call Report data) and all of them would have to provide exact
disclosures under the first baseline (i.e., the no-action baseline).
None of these insured institutions will be covered by the Rule under
the increase in the normal course of business safe harbor threshold
from 100 transfers annually to 500 transfers annually. It follows that
a large majority of the banks and all of the credit unions affected by
the change in the normal course of business safe harbor threshold from
100 transfers annually to 500 transfers annually have $10 billion or
less in assets. Thus, the impacts of the increase in the normal course
of business safe harbor threshold, described above, will also generally
be the specific impacts for depository institutions and credit unions
with $10 billion or less in total assets.
In addition, 190 banks and 142 credit unions with $10 billion or
less in assets in 2018 provided more than 500 transfers in 2017 or
2018. As discussed above, some of these banks and credit unions
currently provide exact disclosures, and all of them will have to
provide exact disclosures under the second baseline. These banks and
credit unions will not be directly affected by the change in the normal
course of business safe harbor threshold. They may be affected,
compared to the second baseline, by the adoption of the permanent
exceptions for estimating the exchange rate and covered third-party
fees in this final rule. According to the bank Call Report data, only
18 of these banks reported using the temporary exception, and they did
so for approximately 66,600 transfers. As discussed above, the Bureau
understands that remittance transfer providers that are smaller
depository institutions and credit unions obtain information about
exchange rates and covered third-party fees from a limited number of
service providers that are either very large insured institutions or
large nonbank service providers. Given this reliance, the impacts of
the permanent exceptions, described above, will also generally be the
specific impacts for depository institutions and credit unions with $10
billion or less in total assets.
2. Impact on Consumers in Rural Areas
Consumers in rural areas may experience different impacts from this
final rule than other consumers. The Bureau has discretion to define
rural areas as appropriate for this impact analysis. For the impact
analysis in this section, the Bureau used its 2018 rural counties
list.\98\ The Bureau compared the address each bank and credit union
reported on its Call Report with this rural county list to determine if
that bank or credit union was located in a rural county. This
comparison is limited to the location listed in the Call Report, which
is generally the headquarters of the bank or credit union. There are
likely rural branches of insured institutions with headquarters located
in non-rural areas, so this comparison captures only a portion of the
impact of this final rule on consumers in rural areas.
---------------------------------------------------------------------------
\98\ See https://www.consumerfinance.gov/policy-compliance/guidance/rural-and-underserved-counties-list/.
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According to the Call Reports, 83 banks provided between 101 and
500 remittance transfers in either 2017 or 2018, but not more than 500
in either year, and were headquartered in rural counties. These banks
provided 17,000 transfers in 2018. Further, 15 credit unions provided
between 101 and 500 remittance transfers in either 2017 or 2018, but
not more than 500 in either year, and were headquartered in rural
counties. These credit unions provided 2,200 transfers. Finally, three
banks provided more than 500 transfers in either 2017 or 2018, were
located in rural areas, and reported relying on the temporary
exception. These banks reported that they relied on the temporary
exception for 2,000 transfers total. Credit unions do not report
reliance on the temporary exception, but assuming reliance on the
temporary exception is similar for credit unions, the four credit
unions that provided more than 500 transfers in either 2017 or 2018 and
were located in rural areas would have used the temporary exception for
approximately 900 transfers.
Consumers in rural areas may have access to fewer remittance
transfers providers and therefore may benefit more than other consumers
from a rule change that keeps more insured institutions in the market
or helps reduce costs to the extent that cost reductions are passed on
to consumers. However, these consumers will also disproportionately
lose consumer protections relative to other consumers, under the second
baseline, to the extent that the banks and credit unions that provide
remittance transfers to these consumers will be disproportionately
excluded from the Rule (due to the increase in the normal course of
safe harbor threshold) or use the permanent exceptions adopted in this
final rule to estimate covered third-party fees and the exchange rate.
As stated above, the 414 banks and 247 credit unions that provided
between 101 and 500 transfers in either 2017 or 2018, but not more than
500 in either year, represent 55 percent of the banks and 62 percent of
the credit unions that provided more than 100 transfers in both years.
In rural areas, the corresponding 83 banks and 15 credit unions
represented 75 percent of the banks and 79 percent of the credit unions
that provided more than 100 transfers in both years in rural areas.
Thus, the increase in the normal course of business safe harbor
threshold will have somewhat larger effects in rural areas in both
preserving access to remittance transfer providers and possibly
reducing the protections provided by the Rule, as described above.
VII. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on small
entities, including small businesses, small governmental units, and
small not-for-profit organizations.\99\ The RFA defines a ``small
business'' as a business that meets the size standard developed by the
Small Business Administration pursuant to the Small
[[Page 34903]]
Business Act.\100\ Potentially affected small entities include insured
institutions that have $600 million or less in assets and that provide
remittance transfers in the normal course of their business.\101\
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\99\ 5 U.S.C. 601 et seq. The Bureau is not aware of any small
governmental units or not-for-profit organizations to which this
final rule would apply.
\100\ 5 U.S.C. 601(3) (the Bureau may establish an alternative
definition after consultation with the Small Business Administration
and an opportunity for public comment).
\101\ Small Bus. Admin., Table of Small Business Size Standards
Matched to North American Industry Classification System Codes,
https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
---------------------------------------------------------------------------
The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities.\102\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small business representatives prior to proposing a rule for which
an IRFA is required.\103\
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\102\ 5 U.S.C. 603 through 605.
\103\ 5 U.S.C. 609.
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At the proposed rule stage, the Bureau determined that an IRFA was
not required because the proposal, if adopted, would not have a
significant economic impact on a substantial number of small entities.
The Bureau did not receive any comments on this analysis. For this
final rule, the Bureau also determines that this determination is
accurate. Under the no-action baseline, the temporary exception
expires, and therefore no remittance transfer providers--including
small entities--will be able to provide estimates using that exception.
Under this final rule, certain small entities that would otherwise be
covered by the Remittance Rule will not be covered by the Rule and
certain other small entities will be able to provide estimates in
certain circumstances. Thus, the Bureau concludes that this final rule
will only reduce burden on small entities relative to the
baseline.\104\
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\104\ In general, given the expiration of the temporary
exception and this final rule, some small entities that currently
provide estimates will be able to continue to provide estimates for
some or all of their remittance transfers and some will need to
begin providing exact disclosures. Using the bank Call Reports,
however, the Bureau finds that only one small bank will need to
begin providing exact disclosures. Specifically, the Bureau finds
that there were 82 banks in 2018 with assets under $600 million
covered by the Rule (because they provided greater than 100
transfers in 2017 or 2018). Of these banks, only 12 send an amount
of transfers that exceeds this final rule's normal course of
business safe harbor threshold of 500 transfers. Further, only one
of these 12 banks currently reports relying on the temporary
exception. Thus, only one small bank will need to begin providing
exact disclosures, even without the exceptions on use of estimates.
Using the credit union Call Reports, the Bureau finds that there
were 133 credit unions with assets under $600 million covered by the
Rule in 2018 (because they provided more than 100 transfers in 2017
or 2018). Of these credit unions, only 30 send an amount of
transfers that exceeds this final rule's normal course of business
safe harbor threshold of 500 transfers. The credit union Call
Reports do not report utilization of the temporary exception.
However, since one of the 12 small banks that are covered by this
final rule uses the temporary exception, the Bureau considers it
reasonable to suppose that approximately two of the 30 small credit
unions that are covered by this final rule use the temporary
exception.
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Accordingly, the Director certifies that this final rule will not
have a significant economic impact on a substantial number of small
entities.
VIII. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\105\ Federal
agencies are generally required to seek approval from the Office of
Management and Budget (OMB) for information collection requirements
prior to implementation. Under the PRA, the Bureau may not conduct or
sponsor, and, notwithstanding any other provision of law, a person is
not required to respond to, an information collection unless the
information collection displays a valid control number assigned by OMB.
---------------------------------------------------------------------------
\105\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
This final rule amends 12 CFR part 1005 (Regulation E), which
implements EFTA. The Bureau's OMB control number for Regulation E is
3170-0014.
Under Regulation E, the Bureau generally accounts for the paperwork
burden for the following respondents pursuant to its administrative
enforcement authority: Federally insured depository institutions with
more than $10 billion in total assets, their depository institution
affiliates, and certain non-depository institutions. The Bureau and the
Federal Trade Commission (FTC) generally both have enforcement
authority over non-depository institutions subject to Regulation E.
Accordingly, the Bureau would generally allocate to itself half of this
final rule's estimated reduction in burden on non-depository financial
institutions subject to Regulation E, but estimates no reduction in
burden on these institutions from this final rule. Other Federal
agencies, including the FTC, are responsible for estimating and
reporting to the Office of Management and Budget (OMB) the paperwork
burden for the institutions for which they have enforcement and/or
supervision authority. They may use the Bureau's burden estimation
methodology, but need not do so.
The Bureau concludes that the overall impact of the increase in the
normal course of business safe harbor threshold from 100 transfers
annually to 500 transfers annually and allowing limited use of
estimates for covered third-party fee and exchange rate disclosures is
small. In addition, the Bureau concludes that this final rule will have
no material change in burden on remittance transfer providers that are
non-depository financial institutions. The Bureau recognizes, however,
that it lacks data with which to determine the precise impact of this
final rule. The Bureau requested comments or data concerning
information that would assist the Bureau with making a determination on
the impact of allowing limited use of estimates in certain disclosures
on the Bureau's current collection of information pursuant to
Regulation E, but received no comments on this aspect of the 2019
Proposal.
Current Total Annual Burden Hours on Bureau Respondents, Regulation
E: 3,445,033.
Current Total Annual Burden Hours on Bureau Respondents, Subpart B
only: 1,471,808.
Estimated Total Annual Burden Hours on Bureau Respondents under the
Rule, Subpart B only: 1,448,938.
Estimated Change in Total Annual Burden Hours on Bureau Respondents
under the Rule: -22,870.
The Bureau has determined that this final rule does not contain any
new or substantively revised information collection requirements as
defined by the PRA and that the burden estimate for the previously
approved information collections should be revised as explained above.
The Bureau will file a request with OMB to adjust the burden as
discussed above. This request will be filed under OMB control number
3170-0014.
IX. Congressional Review Act
Pursuant to the Congressional Review Act,\106\ the Bureau will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States prior to this final rule's published
effective date. The Office of Information and Regulatory Affairs has
designated this rule as not a ``major rule'' as defined by 5 U.S.C.
804(2).
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\106\ [thinsp]5 U.S.C. 801 et seq.
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X. Signing Authority
The Director of the Bureau, having reviewed and approved this
document is delegating the authority to electronically sign this
document to
[[Page 34904]]
Laura Galban, a Bureau Federal Register Liaison, for purposes of
publication in the Federal Register.
List of Subjects in 12 CFR Part 1005
Automated teller machines, Banking, Banks, Consumer protection,
Credit unions, Electronic fund transfers, National banks, Remittance
transfers, Reporting and recordkeeping requirements, Savings
associations.
Authority and Issuance
For the reasons set forth above, the Bureau amends Regulation E, 12
CFR part 1005, as set forth below:
PART 1005--ELECTRONIC FUND TRANSFERS (REGULATION E)
0
1. The authority citation for part 1005 continues to read as follows:
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1693b. Subpart B is
also issued under 12 U.S.C. 5601 and 15 U.S.C. 1693o-1.
Subpart B--Requirements for Remittance Transfers
0
2. Amend Sec. 1005.30 by revising paragraphs (f)(2)(i)(A) and (B) and
(f)(2)(ii), and adding paragraph (f)(2)(iii), to read as follows:
Sec. 1005.30 Remittance transfer definitions.
* * * * *
(f) * * *
(2) * * *
(i) * * *
(A) Provided 500 or fewer remittance transfers in the previous
calendar year; and
(B) Provides 500 or fewer remittance transfers in the current
calendar year.
(ii) Transition period--coming into compliance. Beginning on July
21, 2020, if a person that provided 500 or fewer remittance transfers
in the previous calendar year provides more than 500 remittance
transfers in the current calendar year, and if that person is then
providing remittance transfers for a consumer in the normal course of
its business pursuant to paragraph (f)(1) of this section, the person
has a reasonable period of time, not to exceed six months, to begin
complying with this subpart. Compliance with this subpart will not be
required for any remittance transfers for which payment is made during
that reasonable period of time.
(iii) Transition period--qualifying for the safe harbor. If a
person who previously provided remittance transfers in the normal
course of its business in excess of the safe harbor threshold set forth
in this paragraph (f)(2) determines that, as of a particular date, it
will qualify for the safe harbor, it may cease complying with the
requirements of this subpart with respect to any remittance transfers
for which payment is made after that date. The requirements of the Act
and this part, including those set forth in Sec. Sec. 1005.33 and
1005.34, as well as the requirements set forth in Sec. 1005.13,
continue to apply to transfers for which payment is made prior to that
date.
* * * * *
0
3. Amend Sec. 1005.32 by:
0
A. Adding paragraphs (b)(4) and (5);
0
B. In paragraph (c), removing ``(a) or (b)(1)'' and adding in its place
``(a) or (b)(1), (4), or (5)'';
0
C. In paragraph (c)(4), italicizing the heading ``Amount of currency
that will be received by the designated recipient''.
The additions read as follows:
Sec. 1005.32 Estimates.
* * * * *
(b) * * *
(4) Permanent exception for estimation of the exchange rate by an
insured institution. (i) Except as provided in paragraph (b)(4)(ii) of
this section, for disclosures described in Sec. Sec. 1005.31(b)(1)
through (3) and 1005.36(a)(1) and (2), estimates may be provided for a
remittance transfer to a particular country in accordance with
paragraph (c) of this section for the amounts required to be disclosed
under Sec. 1005.31(b)(1)(iv) through (vii), if the designated
recipient of the remittance transfer will receive funds in the
country's local currency and all of the following conditions are met:
(A) The remittance transfer provider is an insured institution as
defined in paragraph (a)(3) of this section;
(B) At the time the insured institution must provide, as
applicable, the disclosure required by Sec. 1005.31(b)(1) through (3)
or Sec. 1005.36(a)(1) or (2), the insured institution cannot determine
the exact exchange rate required to be disclosed under Sec.
1005.31(b)(1)(iv) for that remittance transfer;
(C) The insured institution made 1,000 or fewer remittance
transfers in the prior calendar year to the particular country for
which the designated recipients of those transfers received funds in
the country's local currency; and
(D) The remittance transfer is sent from the sender's account with
the insured institution; provided however, for the purposes of this
paragraph, a sender's account does not include a prepaid account,
unless the prepaid account is a payroll card account or a government
benefit account.
(ii) The disclosures in Sec. 1005.31(b)(1)(v) through (vii) may be
estimated under paragraph (b)(4)(i) of this section only if the
exchange rate is permitted to be estimated under paragraph (b)(4)(i) of
this section and the estimated exchange rate affects the amount of such
disclosures.
(5) Permanent exception for estimation of covered third-party fees
by an insured institution. (i) Except as provided in paragraph
(b)(5)(ii) of this section, for disclosures described in Sec. Sec.
1005.31(b)(1) through (3) and 1005.36(a)(1) and (2), estimates may be
provided for a remittance transfer to a particular designated
recipient's institution in accordance with paragraph (c) of this
section for the amounts required to be disclosed under Sec.
1005.31(b)(1)(vi) through (vii), if all of the following conditions are
met:
(A) The remittance transfer provider is an insured institution as
defined in paragraph (a)(3) of this section;
(B) At the time the insured institution must provide, as
applicable, the disclosure required by Sec. 1005.31(b)(1) through (3)
or Sec. 1005.36(a)(1) or (2), the insured institution cannot determine
the exact covered third-party fees required to be disclosed under Sec.
1005.31(b)(1)(vi) for that remittance transfer;
(C) The insured institution made 500 or fewer remittance transfers
in the prior calendar year to that designated recipient's institution,
or a United States Federal statute or regulation prohibits the insured
institution from being able to determine the exact covered third-party
fees required to be disclosed under Sec. 1005.31(b)(1)(vi) for that
remittance transfer; and
(D) The remittance transfer is sent from the sender's account with
the insured institution; provided however, for the purposes of this
paragraph, a sender's account does not include a prepaid account,
unless the prepaid account is a payroll card account or a government
benefit account.
(ii) The disclosure in Sec. 1005.31(b)(1)(vii) may be estimated
under paragraph (b)(5)(i) of this section only if covered third-party
fees are permitted to be estimated under paragraph (b)(5)(i) of this
section and the estimated covered third-party fees affect the amount of
such disclosure.
* * * * *
Sec. 1005.33 [Amended]
0
4. Amend Sec. 1005.33(a)(1)(iii)(A) by removing ``(a), (b)(1) or
(b)(2)'' and adding in its place ``(a) or (b)(1), (2), (4), or (5)''.
Sec. 1005.36 [Amended]
0
5. Amend Sec. 1005.36(b)(3) by removing ``(a) or (b)(1)'' and adding
in its place ``(a) or (b)(1), (4), or (5)''.
[[Page 34905]]
0
6. In supplement I to part 1005:
0
a. Under Section 1005.30--Remittance Transfer Definitions, revise 30(f)
Remittance Transfer Provider.
0
b. Under Section 1005.31--Disclosures, revise 31(b)(1)(viii) Statement
When Additional Fees and Taxes May Apply.
0
c. Under Section 1005.32--Estimates:
0
1. Revise introductory paragraph 1 and 32(b)(1) Permanent Exceptions
for Transfers to Certain Countries;
0
2. Add 32(b)(4) Permanent Exception for Estimation of the Exchange Rate
by an Insured Institution, and 32(b)(5) Permanent Exception for
Estimation of Covered Third-Party Fees by an Insured Institution; and
0
3. Revise 32(c)(3) Covered Third-Party Fees, and 32(d) Bases for
Estimates for Transfers Scheduled Before the Date of Transfer.
0
d. Under Section 1005.36--Transfers Scheduled Before the Date of
Transfer, revise 36(b) Accuracy.
The revisions and additions read as follows:
Supplement I to Part 1005--Official Interpretations
Section 1005.30--Remittance Transfer Definitions
* * * * *
30(f) Remittance Transfer Provider
1. Agents. A person is not deemed to be acting as a remittance
transfer provider when it performs activities as an agent on behalf
of a remittance transfer provider.
2. Normal course of business. i. General. Whether a person
provides remittance transfers in the normal course of business
depends on the facts and circumstances, including the total number
and frequency of remittance transfers sent by the provider. For
example, if a financial institution generally does not make
remittance transfers available to customers, but sends a couple of
such transfers in a given year as an accommodation for a customer,
the institution does not provide remittance transfers in the normal
course of business. In contrast, if a financial institution makes
remittance transfers generally available to customers (whether
described in the institution's deposit account agreement, or in
practice) and makes transfers more frequently than on an occasional
basis, the institution provides remittance transfers in the normal
course of business.
ii. Safe harbor. On July 21, 2020, the safe harbor threshold in
Sec. 1005.30(f)(2)(i) changed from 100 remittance transfers to 500
remittance transfers. Under Sec. 1005.30(f)(2)(i), beginning on
July 21, 2020, a person that provided 500 or fewer remittance
transfers in the previous calendar year and provides 500 or fewer
remittance transfers in the current calendar year is deemed not to
be providing remittance transfers in the normal course of its
business. Accordingly, a person that qualifies for the safe harbor
in Sec. 1005.30(f)(2)(i) is not a ``remittance transfer provider''
and is not subject to the requirements of subpart B. For purposes of
determining whether a person qualifies for the safe harbor under
Sec. 1005.30(f)(2)(i), the number of remittance transfers provided
includes any transfers excluded from the definition of ``remittance
transfer'' due simply to the safe harbor. In contrast, the number of
remittance transfers provided does not include any transfers that
are excluded from the definition of ``remittance transfer'' for
reasons other than the safe harbor, such as small value transactions
or securities and commodities transfers that are excluded from the
definition of ``remittance transfer'' by Sec. 1005.30(e)(2).
iii. Transition period. A person may cease to satisfy the
requirements of the safe harbor described in Sec. 1005.30(f)(2)(i)
if, beginning on July 21, 2020, the person provides in excess of 500
remittance transfers in a calendar year. For example, if a person
that provided 500 or fewer remittance transfers in the previous
calendar year provides more than 500 remittance transfers in the
current calendar year, the safe harbor applies to the first 500
remittance transfers that the person provides in the current
calendar year. For any additional remittance transfers provided in
the current calendar year and for any remittance transfers provided
in the subsequent calendar year, whether the person provides
remittance transfers for a consumer in the normal course of its
business, as defined in Sec. 1005.30(f)(1), and is thus a
remittance transfer provider for those additional transfers, depends
on the facts and circumstances. Section 1005.30(f)(2)(ii) provides a
reasonable period of time, not to exceed six months, for such a
person to begin complying with subpart B, if that person is then
providing remittance transfers in the normal course of its business.
At the end of that reasonable period of time, such person would be
required to comply with subpart B unless, based on the facts and
circumstances, the person is not a remittance transfer provider.
iv. Examples. A. Example of safe harbor and transition period
for 100-transfer safe harbor threshold effective prior to July 21,
2020. Assume that a person provided 90 remittance transfers in 2012
and 90 such transfers in 2013. The safe harbor applied to the
person's transfers in 2013, as well as the person's first 100
remittance transfers in 2014. However, if the person provided a
101st transfer on September 5, 2014, the facts and circumstances
determine whether the person provided remittance transfers in the
normal course of business and was thus a remittance transfer
provider for the 101st and any subsequent remittance transfers that
it provided in 2014. Furthermore, the person would not have
qualified for the safe harbor described in Sec. 1005.30(f)(2)(i) in
2015 because the person did not provide 100 or fewer remittance
transfers in 2014. However, for the 101st remittance transfer
provided in 2014, as well as additional remittance transfers
provided thereafter in 2014 and 2015, if that person was then
providing remittance transfers for a consumer in the normal course
of business, the person had a reasonable period of time, not to
exceed six months, to come into compliance with subpart B. Assume
that in this case, a reasonable period of time is six months. Thus,
compliance with subpart B was not required for remittance transfers
made on or before March 5, 2015 (i.e., six months after September 5,
2014). After March 5, 2015, the person was required to comply with
subpart B if, based on the facts and circumstances, the person
provided remittance transfers in the normal course of business and
was thus a remittance transfer provider.
B. Example of safe harbor for a person that provided 500 or
fewer transfers in 2019 and provides 500 or fewer transfers in 2020.
On July 21, 2020, the safe harbor threshold in Sec.
1005.30(f)(2)(i) changed from 100 remittance transfers to 500
remittance transfers. Thus, beginning on July 21, 2020, pursuant to
Sec. 1005.30(f)(2)(i), a person is deemed not to be providing
remittance transfers for a consumer in the normal course of its
business if the person provided 500 or fewer remittance transfers in
the previous calendar year and provides 500 or fewer remittance
transfers in the current calendar year. If a person provided 500 or
fewer transfers in 2019 and provides 500 or fewer remittance
transfers in 2020, that person qualifies for the safe harbor
threshold in 2020. For example, assume that a person provided 200
remittance transfers in 2019 and 400 remittance transfers in 2020.
The safe harbor will apply to the person's transfers in 2020
beginning on July 21, 2020, as well as the person's first 500
transfers in 2021. See comment 30(f)-2.iv.C for an example regarding
the transition period if the 500-transfer safe harbor is exceeded.
C. Example of safe harbor and transition period for the 500-
transfer safe harbor threshold beginning on July 21, 2020. Assume
that a person provided 490 remittance transfers in 2020 and 490 such
transfers in 2021. The safe harbor will apply to the person's
transfers in 2021, as well as the person's first 500 remittance
transfers in 2022. However, if the person provides a 501st transfer
on September 5, 2022, the facts and circumstances determine whether
the person provides remittance transfers in the normal course of
business and is thus a remittance transfer provider for the 501st
and any subsequent remittance transfers that it provides in 2022.
Furthermore, the person would not qualify for the safe harbor
described in Sec. 1005.30(f)(2)(i) in 2023 because the person did
not provide 500 or fewer remittance transfers in 2022. However, for
the 501st remittance transfer provided in 2022, as well as
additional remittance transfers provided thereafter in 2022 and
2023, if that person is then providing remittance transfers for a
consumer in the normal course of business, the person will have a
reasonable period of time, not to exceed six months, to come into
compliance with subpart B of Regulation E. Assume that in this case,
a reasonable period of time is six months. Thus, compliance with
subpart B is not required for remittance transfers made on or before
March 5, 2023 (i.e., six months after September 5, 2022). After
March 5, 2023, the person is required to comply with subpart B if,
based on the facts and circumstances, the person provides remittance
transfers in the normal course of business and is thus a remittance
transfer provider.
[[Page 34906]]
v. Continued compliance for transfers for which payment was made
before a person qualifies for the safe harbor. Section
1005.30(f)(2)(iii) addresses situations where a person who
previously was required to comply with subpart B of Regulation E
newly qualifies for the safe harbor in Sec. 1005.30(f)(2)(i). That
section states that the requirements of EFTA and Regulation E,
including those set forth in Sec. Sec. 1005.33 and 1005.34 (which
address procedures for resolving errors and procedures for
cancellation and refund of remittance transfers, respectively), as
well as the requirements set forth in Sec. 1005.13 (which, in part,
governs record retention), continue to apply to transfers for which
payment is made prior to the date the person qualifies for the safe
harbor in Sec. 1005.30(f)(2)(i). Qualifying for the safe harbor in
Sec. 1005.30(f)(2)(i) likewise does not excuse compliance with any
other applicable law or regulation. For example, if a remittance
transfer is also an electronic fund transfer, any requirements in
subpart A of Regulation E that apply to the transfer continue to
apply, regardless of whether the person must comply with subpart B.
Relevant requirements in subpart A may include, but are not limited
to, those relating to initial disclosures, change-in-terms notices,
liability of consumers for unauthorized transfers, and procedures
for resolving errors.
3. Multiple remittance transfer providers. If the remittance
transfer involves more than one remittance transfer provider, only
one set of disclosures must be given, and the remittance transfer
providers must agree among themselves which provider must take the
actions necessary to comply with the requirements that subpart B
imposes on any or all of them. Even though the providers must
designate one provider to take the actions necessary to comply with
the requirements that subpart B imposes on any or all of them, all
remittance transfer providers involved in the remittance transfer
remain responsible for compliance with the applicable provisions of
the EFTA and Regulation E.
Section 1005.31--Disclosures
* * * * *
31(b) Disclosure Requirements
* * * * *
31(b)(1)(viii) Statement When Additional Fees and Taxes May
Apply Required disclaimer when non-covered third-party fees and
taxes collected by a person other than the provider may apply. If
non-covered third-party fees or taxes collected by a person other
than the provider apply to a particular remittance transfer or if a
provider does not know if such fees or taxes may apply to a
particular remittance transfer, Sec. 1005.31(b)(1)(viii) requires
the provider to include the disclaimer with respect to such fees and
taxes. Required disclosures under Sec. 1005.31(b)(1)(viii) may only
be provided to the extent applicable. For example, if the designated
recipient's institution is an agent of the provider and thus, non-
covered third-party fees cannot apply to the transfer, the provider
must disclose all fees imposed on the remittance transfer and may
not provide the disclaimer regarding non-covered third-party fees.
In this scenario, the provider may only provide the disclaimer
regarding taxes collected on the remittance transfer by a person
other than the provider, as applicable. See Model Form A-30(c).
2. Optional disclosure of non-covered third-party fees and taxes
collected by a person other than the provider. When a remittance
transfer provider knows the non-covered third-party fees or taxes
collected on the remittance transfer by a person other than the
provider that will apply to a particular transaction, Sec.
1005.31(b)(1)(viii) permits the provider to disclose the amount of
such fees and taxes. Section 1005.32(b)(3) additionally permits a
provider to disclose an estimate of such fees and taxes, provided
any estimates are based on reasonable source of information. See
comment 32(b)(3)-1. For example, a provider may know that the
designated recipient's institution imposes an incoming wire fee for
receiving a transfer. Alternatively, a provider may know that
foreign taxes will be collected on the remittance transfer by a
person other than the remittance transfer provider. In these
examples, the provider may choose, at its option, to disclose the
amounts of the relevant recipient institution fee and tax as part of
the information disclosed pursuant to Sec. 1005.31(b)(1)(viii). The
provider must not include that fee or tax in the amount disclosed
pursuant to Sec. 1005.31(b)(1)(vi) or (b)(1)(vii). Fees and taxes
disclosed under Sec. 1005.31(b)(1)(viii) must be disclosed in the
currency in which the funds will be received. See comment
31(b)(1)(vi)-1. Estimates of any non-covered third-party fees and
any taxes collected on the remittance transfer by a person other
than the provider must be disclosed in accordance with Sec.
1005.32(b)(3).
* * * * *
Section 1005.32--Estimates
1. Disclosures where estimates can be used. Sections 1005.32(a)
and (b)(1), (b)(4), and (b)(5) permit estimates to be used in
certain circumstances for disclosures described in Sec. Sec.
1005.31(b)(1) through (3) and 1005.36(a)(1) and (2). To the extent
permitted in Sec. 1005.32(a) and (b)(1), (b)(4), and (b)(5),
estimates may be used in the pre-payment disclosure described in
Sec. 1005.31(b)(1), the receipt disclosure described in Sec.
1005.31(b)(2), the combined disclosure described in Sec.
1005.31(b)(3), and the pre-payment disclosures and receipt
disclosures for both first and subsequent preauthorized remittance
transfers described in Sec. 1005.36(a)(1) and (2). Section
1005.32(b)(2) permits estimates to be used for certain information
if the remittance transfer is scheduled by a sender five or more
business days before the date of the transfer, for disclosures
described in Sec. 1005.36(a)(1)(i) and (a)(2)(i).
* * * * *
32(b) Permanent Exceptions
32(b)(1) Permanent Exceptions for Transfers to Certain Countries
1. Laws of the recipient country. The laws of the recipient
country do not permit a remittance transfer provider to determine
exact amounts required to be disclosed when a law or regulation of
the recipient country requires the person making funds directly
available to the designated recipient to apply an exchange rate that
is:
i. Set by the government of the recipient country after the
remittance transfer provider sends the remittance transfer or
ii. Set when the designated recipient receives the funds.
2. Example illustrating when exact amounts can and cannot be
determined because of the laws of the recipient country.
i. The laws of the recipient country do not permit a remittance
transfer provider to determine the exact exchange rate required to
be disclosed under Sec. 1005.31(b)(1)(iv) when, for example, the
government of the recipient country, on a daily basis, sets the
exchange rate that must, by law, apply to funds received and the
funds are made available to the designated recipient in the local
currency the day after the remittance transfer provider sends the
remittance transfer.
ii. In contrast, the laws of the recipient country permit a
remittance transfer provider to determine the exact exchange rate
required to be disclosed under Sec. 1005.31(b)(1)(iv) when, for
example, the government of the recipient country ties the value of
its currency to the U.S. dollar.
3. Method by which transactions are made in the recipient
country. The method by which transactions are made in the recipient
country does not permit a remittance transfer provider to determine
exact amounts required to be disclosed when transactions are sent
via international ACH on terms negotiated between the United States
government and the recipient country's government, under which the
exchange rate is a rate set by the recipient country's central bank
or other governmental authority after the provider sends the
remittance transfer.
4. Example illustrating when exact amounts can and cannot be
determined because of the method by which transactions are made in
the recipient country.
i. The method by which transactions are made in the recipient
country does not permit a remittance transfer provider to determine
the exact exchange rate required to be disclosed under Sec.
1005.31(b)(1)(iv) when the provider sends a remittance transfer via
international ACH on terms negotiated between the United States
government and the recipient country's government, under which the
exchange rate is a rate set by the recipient country's central bank
on the business day after the provider has sent the remittance
transfer.
ii. In contrast, a remittance transfer provider would not
qualify for the Sec. 1005.32(b)(1)(i)(B) methods exception if it
sends a remittance transfer via international ACH on terms
negotiated between the United States government and a private-sector
entity or entities in the recipient country, under which the
exchange rate is set by the institution acting as the entry point to
the recipient country's payments system on the next business day.
However, a remittance transfer provider sending a remittance
transfer using such a method may qualify for the Sec. 1005.32(a)
temporary exception or the exception set forth in Sec.
1005.32(b)(4).
iii. A remittance transfer provider would not qualify for the
Sec. 1005.32(b)(1)(i)(B)
[[Page 34907]]
methods exception if, for example, it sends a remittance transfer
via international ACH on terms negotiated between the United States
government and the recipient country's government, under which the
exchange rate is set by the recipient country's central bank or
other governmental authority before the sender requests a transfer.
5. Safe harbor list. If a country is included on a safe harbor
list published by the Bureau under Sec. 1005.32(b)(1)(ii), a
remittance transfer provider may provide estimates of the amounts to
be disclosed under Sec. 1005.31(b)(1)(iv) through (vii). If a
country does not appear on the Bureau's list, a remittance transfer
provider may provide estimates under Sec. 1005.32(b)(1)(i) if the
provider determines that the recipient country does not legally
permit or the method by which transactions are conducted in that
country does not permit the provider to determine exact disclosure
amounts.
6. Reliance on Bureau list of countries. A remittance transfer
provider may rely on the list of countries published by the Bureau
to determine whether the laws of a recipient country do not permit
the remittance transfer provider to determine exact amounts required
to be disclosed under Sec. 1005.31(b)(1)(iv) through (vii). Thus,
if a country is on the Bureau's list, the provider may give
estimates under this section, unless a remittance transfer provider
has information that a country on the Bureau's list legally permits
the provider to determine exact disclosure amounts.
7. Change in laws of recipient country.
i. If the laws of a recipient country change such that a
remittance transfer provider can determine exact amounts, the
remittance transfer provider must begin providing exact amounts for
the required disclosures as soon as reasonably practicable if the
provider has information that the country legally permits the
provider to determine exact disclosure amounts.
ii. If the laws of a recipient country change such that a
remittance transfer provider cannot determine exact disclosure
amounts, the remittance transfer provider may provide estimates
under Sec. 1005.32(b)(1)(i), even if that country does not appear
on the list published by the Bureau.
* * * * *
32(b)(4) Permanent Exception for Estimation of the Exchange Rate by an
Insured Institution
1. Determining the exact exchange rate. For purposes of Sec.
1005.32(b)(4)(i)(B), an insured institution cannot determine, at the
time it must provide the applicable disclosures, the exact exchange
rate required to be disclosed under Sec. 1005.31(b)(1)(iv) for a
remittance transfer to a particular country where the designated
recipient of the transfer will receive funds in the country's local
currency if a person other than the insured institution sets the
exchange rate for that transfer, except where that person has a
correspondent relationship with the insured institution, that person
is a service provider for the insured institution, or that person
acts as an agent of the insured institution.
i. Example where an insured institution cannot determine the
exact exchange rate. The following example illustrates when an
insured institution cannot determine an exact exchange rate under
Sec. 1005.32(b)(4)(i)(B) for a remittance transfer:
A. An insured institution or its service provider does not set
the exchange rate required to be disclosed under Sec.
1005.31(b)(1)(iv), and the rate is set when the funds are deposited
into the recipient's account by the designated recipient's
institution that does not have a correspondent relationship with,
and does not act as an agent of, the insured institution.
ii. Examples where an insured institution can determine the
exact exchange rate. The following examples illustrate when an
insured institution can determine an exact exchange rate under Sec.
1005.32(b)(4)(i)(B) for a remittance transfer, and thus the insured
institution may not use the exception in Sec. 1005.32(b)(4) to
estimate the disclosures required under Sec. 1005.31(b)(1)(iv)
through (vii) for the remittance transfer:
A. An insured institution has a correspondent relationship with
an intermediary financial institution (or the intermediary financial
institution acts as an agent of the insured institution) and that
intermediary financial institution sets the exchange rate required
to be disclosed under Sec. 1005.31(b)(1)(iv) for a remittance
transfer.
B. An insured institution or its service provider converts the
funds into the local currency to be received by the designated
recipient for a remittance transfer using an exchange rate that the
insured institution or its service provider sets. The insured
institution can determine the exact exchange rate for purposes of
Sec. 1005.32(b)(4)(i)(B) for the remittance transfer even if the
insured institution does not have a correspondent relationship with
an intermediary financial institution in the transmittal route or
the designated recipient's institution, and an intermediary
financial institution in the transmittal route or the designed
recipient's institution does not act as an agent of the insured
institution.
2. Threshold. For purposes of determining whether an insured
institution made 1,000 or fewer remittance transfers in the prior
calendar year to a particular country pursuant to Sec.
1005.32(b)(4)(i)(C):
i. The number of remittance transfers provided includes
transfers in the prior calendar year to that country when the
designated recipients of those transfers received funds in the
country's local currency regardless of whether the exchange rate was
estimated for those transfers. For example, an insured institution
exceeds the 1,000-transfer threshold in the prior calendar year if
the insured institution provided 700 remittance transfers to a
country in the prior calendar year when the designated recipients of
those transfers received funds in the country's local currency when
the exchange rate was estimated for those transfers and also sends
400 remittance transfers to the same country in the prior calendar
year when the designated recipients of those transfers received
funds in the country's local currency and the exchange rate for
those transfers was not estimated.
ii. The number of remittance transfers does not include
remittance transfers to a country in the prior calendar year when
the designated recipients of those transfers did not receive the
funds in the country's local currency. For example, an insured
institution does not exceed the 1,000-transfer threshold in the
prior calendar year if the insured institution provides 700
remittance transfers to a country in the prior calendar year when
the designated recipients of those transfers received funds in the
country's local currency and also sends 400 remittance transfers to
the same country in the prior calendar year when the designated
recipients of those transfers did not receive funds in the country's
local currency.
3. Transition period. If an insured institution in the prior
calendar year did not exceed the 1,000-transfer threshold to a
particular country pursuant to Sec. 1005.32(b)(4)(i)(C), but does
exceed the 1,000-transfer threshold in the current calendar year,
the insured institution has a reasonable amount of time after
exceeding the 1,000-transfer threshold to begin providing exact
exchange rates in disclosures (assuming it cannot rely on another
exception in Sec. 1005.32 to estimate the exchange rate). The
reasonable amount of time must not exceed the later of six months
after exceeding the 1,000-transfer threshold in the current calendar
year or January 1 of the next year. For example, assume an insured
institution did not exceed the 1,000-transfer threshold to a
particular country pursuant to Sec. 1005.32(b)(4)(i)(C) in 2020,
but does exceed the 1,000-transfer threshold on December 1, 2021.
The insured institution would have a reasonable amount of time after
December 1, 2021 to begin providing exact exchange rates in
disclosures (assuming it cannot rely on another exception in Sec.
1005.32 to estimate the exchange rate). In this case, the reasonable
amount of time must not exceed June 1, 2022 (which is six months
after the insured institution exceeds the 1,000-transfer threshold
in the previous year).
32(b)(5) Permanent Exception for Estimation of Covered Third-Party Fees
by an Insured Institution
1. Insured institution cannot determine the exact covered third-
party fees. For purposes of Sec. 1005.32(b)(5)(i)(B), an insured
institution cannot determine, at the time it must provide the
applicable disclosures, the exact covered third-party fees required
to be disclosed under Sec. 1005.31(b)(1)(vi) for a remittance
transfer to a designated recipient's institution when all of the
following conditions are met:
i. The insured institution does not have a correspondent
relationship with the designated recipient's institution;
ii. The designated recipient's institution does not act as an
agent of the insured institution;
iii. The insured institution does not have an agreement with the
designated recipient's institution with respect to the imposition of
covered third-party fees on the remittance transfer (e.g., an
agreement whereby the designated recipient's institution agrees to
charge back any covered third-party fees to the insured institution
rather than impose the fees on the remittance transfer); and
iv. The insured institution does not know at the time the
disclosures are given that the
[[Page 34908]]
only intermediary financial institutions that will impose covered
third-party fees on the transfer are those institutions that have a
correspondent relationship with or act as an agent for the insured
institution, or have otherwise agreed upon the covered third-party
fees with the insured institution.
2. Insured institution can determine the exact covered third-
party fees. For purposes of Sec. 1005.32(b)(5)(i)(B), an insured
institution can determine, at the time it must provide the
applicable disclosures, exact covered third-party fees, and thus the
insured institution may not use the exception in Sec. 1005.32(b)(5)
to estimate the disclosures required under Sec. 1005.31(b)(1)(vi)
or (vii) for the transfer, if any of the following conditions are
met:
i. An insured institution has a correspondent relationship with
the designated recipient's institution;
ii. The designated recipient's institution acts as an agent of
the insured institution;
iii. An insured institution has an agreement with the designated
recipient's institution with respect to the imposition of covered
third-party fees on the remittance transfer; or
iv. An insured institution knows at the time the disclosures are
given that the only intermediary financial institutions that will
impose covered third-party fees on the transfer are those
institutions that have a correspondent relationship with or act as
an agent for the insured institution, or have otherwise agreed upon
the covered third-party fees with the insured institution.
3. Threshold. For purposes of determining whether an insured
institution made 500 or fewer remittance transfers in the prior
calendar year to a particular designated recipient's institution
pursuant to Sec. 1005.32(b)(5)(i)(C):
i. The number of remittance transfers provided includes
remittance transfers in the prior calendar year to that designated
recipient's institution regardless of whether the covered third-
party fees were estimated for those transfers. For example, an
insured institution exceeds the 500-transfer threshold in the prior
calendar year if an insured institution provides 300 remittance
transfers to the designated recipient's institution in the prior
calendar year when the covered third-party fees were estimated for
those transfers and also sends 400 remittance transfers to the
designated recipient's institution in the prior calendar year and
the covered third-party fees for those transfers were not estimated.
ii. The number of remittance transfers includes remittance
transfers provided to the designated recipient's institution in the
prior calendar year regardless of whether the designated recipients
received the funds in the country's local currency or in another
currency. For example, an insured institution exceeds the 500-
transfer threshold in the prior calendar year if the insured
institution provides 300 remittance transfers to the designated
recipient's institution in the prior calendar year when the
designated recipients of those transfers received funds in the
country's local currency and also sends 400 remittance transfers to
the same designated recipient's institution in the prior calendar
year when the designated recipients of those transfers did not
receive funds in the country's local currency.
iii. The number of remittance transfers includes remittance
transfers provided to the designated recipient's institution and any
of its branches in the country to which the particular transfer
described in Sec. 1005.32(b)(5) is being sent. For example, if the
particular remittance transfer described in Sec. 1005.32(b)(5) is
being sent to the designated recipient's institution Bank XYZ in
Nigeria, the number of remittance transfers for purposes of the 500-
transfer threshold would include remittances transfers in the
previous calendar year that were sent to Bank XYZ, or to its
branches, in Nigeria. The 500-transfer threshold would not include
remittance transfers that were sent to branches of Bank XYZ that
were located in any country other than Nigeria.
4. United States Federal statute or regulation. An insured
institution can still use Sec. 1005.32(b)(5) to provide estimates
of covered third-party fees for a remittance transfer sent to a
particular designated recipient's institution even if the insured
institution sent more than 500 transfers to the designated
recipient's institution in the prior calendar year if a United
States Federal statute or regulation prohibits the insured
institution from being able to determine the exact covered third-
party fees required to be disclosed under Sec. 1005.31(b)(1)(vi)
for the remittance transfer and the insured institution meets the
other conditions set forth in Sec. 1005.32(b)(5). A United States
Federal statute or regulation specifically prohibits the insured
institution from being able to determine the exact covered third-
party fees for the remittance transfer if the United States Federal
statute or regulation:
i. Prohibits the insured institution from disclosing exact
covered third-party fees in disclosures for transfers to a
designated recipient's institution; or
ii. Makes it infeasible for the insured institution to form a
relationship with the designated recipient's institution and that
relationship is necessary for the insured institution to be able to
determine, at the time it must provide the applicable disclosures,
exact covered third-party fees.
5. Transition period. If an insured institution in the prior
calendar year did not exceed the 500-transfer threshold to a
particular designated recipient's institution pursuant to Sec.
1005.32(b)(5)(i)(C), but does exceed the 500-transfer threshold in
the current calendar year, the insured institution has a reasonable
amount of time after exceeding the 500-transfer threshold to begin
providing exact covered third-party fees in disclosures (assuming
that a United States Federal statute or regulation does not prohibit
the insured institution from being able to determine the exact
covered third-party fees, or the insured institution cannot rely on
another exception in Sec. 1005.32 to estimate covered third-party
fees). The reasonable amount of time must not exceed the later of
six months after exceeding the 500-transfer threshold in the current
calendar year or January 1 of the next year. For example, assume an
insured institution did not exceed the 500-transfer threshold to a
particular designated recipient's institution pursuant to Sec.
1005.32(b)(5)(i)(C) in 2020, but does exceed the 500-transfer
threshold on December 1, 2021. The insured institution would have a
reasonable amount of time after December 1, 2021 to begin providing
exact covered third-party fees in disclosures (assuming that a
United States Federal statute or regulation does not prohibit the
insured institution from being able to determine the exact covered
third-party fees, or the insured institution cannot rely on another
exception in Sec. 1005.32 to estimate covered third-party fees). In
this case, the reasonable amount of time must not exceed June 1,
2022 (which is six months after the insured institution exceeds the
500-transfer threshold in the previous year).
* * * * *
32(c) Bases for Estimates
* * * * *
32(c)(3) Covered Third-Party Fees
1. Potential transmittal routes. A remittance transfer from the
sender's account at an insured institution to the designated
recipient's institution may take several routes, depending on the
correspondent relationships each institution in the transmittal
route has with other institutions. In providing an estimate of the
fees required to be disclosed under Sec. 1005.31(b)(1)(vi) pursuant
to the Sec. 1005.32(a) temporary exception or the exception under
Sec. 1005.32(b)(5), an insured institution may rely upon the
representations of the designated recipient's institution and the
institutions that act as intermediaries in any one of the potential
transmittal routes that it reasonably believes a requested
remittance transfer may travel.
32(d) Bases for Estimates for Transfers Scheduled Before the Date of
Transfer
1. In general. When providing an estimate pursuant to Sec.
1005.32(b)(2), Sec. 1005.32(d) requires that a remittance transfer
provider's estimated exchange rate must be the exchange rate (or
estimated exchange rate) that the remittance transfer 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.
If, for the same-day remittance transfer, the provider could utilize
an exception permitting the provision of estimates in Sec.
1005.32(a) or (b)(1), or (4), the provider may provide estimates
based on a methodology permitted under Sec. 1005.32(c). For
example, if, on February 1, the sender schedules a remittance
transfer to occur on February 10, the provider should disclose the
exchange rate as if the sender was requesting the transfer be sent
on February 1. However, if at the time payment is made for the
requested transfer, the remittance transfer provider could not send
any remittance transfer until the next day (for reasons such as the
provider's deadline for the batching of transfers), the remittance
transfer provider can use the rate (or estimated exchange rate) that
the remittance transfer provider would have used or did use in
providing disclosures that day with respect to a remittance transfer
requested that day that could not be sent until the following day.
* * * * *
[[Page 34909]]
Section 1005.36--Transfers Scheduled Before the Date of Transfer
* * * * *
36(b) Accuracy
1. Use of estimates. In providing the disclosures described in
Sec. 1005.36(a)(1)(i) or (a)(2)(i), remittance transfer providers
may use estimates to the extent permitted by any of the exceptions
in Sec. 1005.32. When estimates are permitted, however, they must
be disclosed in accordance with Sec. 1005.31(d).
2. Subsequent preauthorized remittance transfers. For a
subsequent transfer in a series of preauthorized remittance
transfers, the receipt provided pursuant to Sec. 1005.36(a)(1)(i),
except for the temporal disclosures in that receipt required by
Sec. 1005.31(b)(2)(ii) (Date Available) and (b)(2)(vii) (Transfer
Date), applies to each subsequent preauthorized remittance transfer
unless and until it is superseded by a receipt provided pursuant to
Sec. 1005.36(a)(2)(i). For each subsequent preauthorized remittance
transfer, only the most recent receipt provided pursuant to Sec.
1005.36(a)(1)(i) or (a)(2)(i) must be accurate as of the date each
subsequent transfer is made.
3. Receipts. A receipt required by Sec. 1005.36(a)(1)(ii) or
(a)(2)(ii) must accurately reflect the details of the transfer to
which it pertains and may not contain estimates pursuant to Sec.
1005.32(b)(2). However, the remittance transfer provider may
continue to disclose estimates to the extent permitted by Sec.
1005.32(a) or (b)(1), (4), or (5). In providing receipts pursuant to
Sec. 1005.36(a)(1)(ii) or (a)(2)(ii), Sec. 1005.36(b)(2) and (3)
do not allow a remittance transfer provider to change figures
previously disclosed on a receipt provided pursuant to Sec.
1005.36(a)(1)(i) or (a)(2)(i), unless a figure was an estimate or
based on an estimate disclosed pursuant to Sec. 1005.32. Thus, for
example, if a provider disclosed its fee as $10 in a receipt
provided pursuant to Sec. 1005.36(a)(1)(i) and that receipt
contained an estimate of the exchange rate pursuant to Sec.
1005.32(b)(2), the second receipt provided pursuant to Sec.
1005.36(a)(1)(ii) must also disclose the fee as $10.
* * * * *
Dated: May 6, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-10278 Filed 6-4-20; 8:45 am]
BILLING CODE 4810-AM-P