Compliance Blog

Written by Shereefat Balogun, Regulatory Compliance Counsel

The Second Issue 2016 of the Federal Reserve's Consumer Compliance Outlook is now available.  This issue provides an overview of the Regulation E requirements for foreign remittance transfers. The publication also contains revised interagency questions and answers regarding community reinvestment, regulatory updates, and federal court opinions.  This post will focus on the article's overview of the Regulation E requirements for Foreign Remittance Transfers, as we receive a lot of compliance questions relating to these transactions. 

As way of background, the CFPB published a final rule regarding remittance transfers in February 2012, which became effective on February 7, 2013.  Since the rule's enactment in 2012 however, it has been amended several times. The article provides an excellent summary of the rule's requirements, incorporating the changes that have been made.  Some of the most material changes noted in the article include:

Coverage

• Clarification that U.S. military installations in foreign countries are located in a U.S. state for purposes of the rule. The general definition of a remittance transfer is the electronic transfer of funds requested by a sender in the United Stated to a designated recipient in a foreign country by a remittance transfer provider. See, 12 C.F.R. §1005.30. The rule and commentary provide guidance as to when a recipient is located in a foreign county so as to trigger the rule's coverage. In 2014, the CFPB clarified that a designated recipient does not include a transfer to persons at U.S. military installations in foreign countries because they are treated by the rule as being on U.S. soil. What this means is that if the credit union receives a request from a member specifying that the funds will be received at a location on a U.S. military installation that is located in a foreign country, the transfer will be received on U.S. soil, i.e. in a state, and would not be considered a remittance transfer under the rule.  However, a transfer from a U.S. military installation abroad to a recipient in a foreign county is covered by the rule.  See, 12 C.F.R. 1005, Supp. I, comments 1005.30(c).

• Providing Guidance on how a provider can determine if a sender is making a remittance transfer primarily for personal, family, or household purposes. A remittance transfer covered by the rule is one requested by a consumer primarily for personal, family, or household purposes.  See, 12 C.F.R. §1005.30 (e), (g). A credit union can determine if a transfer is for personal, family, or household purposes by examining the type of account from which the transfer is being made. If the account is used for personal, family, or household purposes, the credit union can assume the transfer is for that purpose, unless the credit union has specific information that suggest otherwise. See, 12 C.F.R. 1005, Supp. I, comments 1005.30(g).  Similarly, a credit union can assume a transfer requested from a business account is not primarily for personal, family, or household purposes.  See, 12 C.F.R. 1005, Supp. I, comments 1005.30(g).

Disclosures

• New disclosures to the prepayment form, when third-party fees and taxes may apply, stating that third-party fees or taxes may apply to the remittance transfer, which could result in the designated recipient receiving less than the amount disclosed. When a sender requests a remittance transfer, the credit union must deliver prepayment disclosures listing critical terms of the transactions. These disclosures can be found in 12 C.F.R. §1005. 31.  As part of the mandatory disclosures, a credit union must disclose any covered third-party fees imposed on the remittance transfer by a person other than the credit union.  Moreover, the credit union must also provide a statement that noncovered third-party fees or taxes may apply to the remittance transfer and result in the designated recipient receiving less than the amount disclosed.  This statement is only required to the extent that these fees or taxes do or may apply to the transaction. For compliance purposes, credit unions may use Model Forms A-30(a)-(c), contained in Appendix A to the rule.

Use of Estimates

• Extension of the sunset date for temporary provision allowing credit unions to rely on estimates until July 21, 2020. Generally, disclosures must be accurate when the sender makes a payment.  However, because there are circumstances where credit unions may not always be able to determine all of the transaction terms with full accuracy, the rule provides some exceptions. One exception allows credit unions to rely on estimates that are reasonably accurate when the exact amounts cannot be determined for reasons beyond their control.  See, 12 C.F.R. §1005.32(a).  This exception applies only to the exchange rate fees and taxes imposed by other persons.  Note that this exception is temporary and was scheduled to sunset on July 21, 2015 pursuant to the statute; however, the CFPB extended the temporary exception until July 21, 2020.
   

• Publishing a safe-harbor list of recipient countries qualifying for the permanent exception for the use of estimates. In addition to the temporary exception, credit unions may take advantage of two other exceptions. These exceptions are permanent and permit estimates if: (1) a credit union cannot determine the exact amounts because of a recipient nation's laws, or (2) the methods by which transfers are made to a recipient nation do not permit the credit union to know the amount of currency to be received.  See, 12 C.F.R. §1005.32(b)(1).  For compliance purposes, the CFPB established a safe-harbor list of countries that qualify for the second exception. Currently, five countries are on the list- Aruba, Brazil, China, Ethiopia, and Libya. While a credit union can still use estimates for a country not on the list if the exception applies, the credit union would not obtain a safe harbor.  See, 12 C.F.R. §1005.32(b)(1)(ii).

The rule's commentary provides helpful guidance for determining if either of the two exceptions apply. 

Error Resolution

• Explaining that when a transfer is delayed because the provider or third party was investigating suspicious, blocked, or prohibited activity that could not have been reasonably foreseen, the delay is not an error. The error resolution procedures for remittance transfers are distinct from the regular error resolution procedures for electronic funds transfers, and are contained in 12 C.F.R. §1005.33. Section 1005.33 specifies what errors are subject to the error resolution procedures, and also provides certain exceptions.  For instance, delays resulting from the credit union's screening procedures or in accordance with the BSA, OFAC, or similar laws are not considered errors. See, 12 C.F.R. §1005.33(a)(1)(iv)(B). The CFPB clarified in a later amendment that this includes a credit union's investigation of potentially suspicious, blocked, or prohibited activity that could not have been reasonably foreseen.  See, 12 C.F.R. 1005, Supp. I, comments 1005.33(a) 7.

• Clarifying that when a credit union makes a refund because a sender provided incorrect or insufficient information that prevented the transfer from being completed as requested, any taxes collected and fees imposed by an intermediary may be deducted from the refund, except for the fees the intermediary will refund to the credit union. See, 12 C.F.R. 1005, Supp. I, comments 1005.33(c) 12.

In light of all the changes made since 2012, the article concludes by reminding credit unions the importance of having procedures in place to monitor and implement regulatory changes, to test internal controls to ensure the changes are implemented properly, and to provide adequate training to staff.

Fun Fact: The article notes that the World Bank estimates that the global market for foreign remittance transfers was $581.6 billion in 2015. The U.S. ranked as the top transmitter, sending $56.3 billion in transfers to recipients in foreign countries in 2014.

Compliance Resources: There are a number of resources available to assist credit unions in compliance with the remittance transfer requirements. The National Credit Union Administration Regulatory Alert 13-RA-06 provides a useful overview of the requirements.

Here are some other resources that can help a credit union evaluate the remittance transfer requirements:

• • The CFPB's Main Remittance Regulation page;
  • Subpart B of Regulation E containing the regulatory text for the Requirements for Remittance Transfers (12 C.F.R. § 1005.30 1005.36).
  • Small Entity Compliance Guide (updated in August 2014 to reflect recent technical amendments to the remittances rule);
  • Safe Harbor Countries List;
  • The CFPB's August 2013 Webinar on the remittances requirements and the slides from that presentation;
  • The CFPB's (unofficial) consolidated regulatory text and commentary for the various final rules;
  • The remittance transfer examination procedures that will be used by the CFPB to examine entities that provide remittance transfers; and
  • The CFPB's eRegulations tool for the remittance transfer rule on eRegulations;

Compliance Trivia: What are the safe harbor requirements for the remittance transfer rule?