Request for Information Regarding Potential Regulatory Changes to the Remittance Rule

 
CONTENT
Federal Register, Volume 84 Issue 82 (Monday, April 29, 2019)
[Federal Register Volume 84, Number 82 (Monday, April 29, 2019)]
[Proposed Rules]
[Pages 17971-17977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08455]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1005
[Docket No.: CFPB-2019-0018]
Request for Information Regarding Potential Regulatory Changes to
the Remittance Rule
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Request for information.
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SUMMARY: The Electronic Fund Transfers Act (EFTA), as amended by the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank
Act), establishes certain protections for consumers sending
international money transfers, or remittance transfers. The Bureau of
Consumer Financial Protection's (Bureau) remittance rules (Remittance
Rule or Rule) implement these protections. This document seeks
information and evidence that may inform possible changes to the Rule
that would not eliminate, but would mitigate the effects of the
expiration of a statutory exception for certain financial institutions.
EFTA expressly limits the length of the temporary exception to July 21,
2020 and does not authorize the Bureau to extend this term. Therefore,
the exception will expire on July 21, 2020 unless Congress changes the
law. In addition, the Bureau seeks information and evidence related to
the scope of coverage of the Rule, including whether to change a safe
harbor threshold in the Rule that determines whether a person makes
remittance transfers in the normal course of its business, and whether
an exception for small financial institutions may be appropriate.
DATES: Comments must be received on or before June 28, 2019.
ADDRESSES: You may submit responsive information and other comments,
identified by Docket No. CFPB-2019-0018, by any of the following
methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments.
     Email: [email protected]. Include Docket
No. CFPB-2019-0018 in the subject line of the message.
     Mail: Comment Intake, Bureau of Consumer Financial
Protection, 1700 G St. NW, Washington, DC 20552.
     Hand Delivery/Courier: Comment Intake, Bureau of Consumer
Financial Protection, 1700 G Street NW, Washington, DC 20552.
    Instructions: Please note the number associated with any question
to which you are responding at the top of each response. You are not
required to answer all questions to receive consideration of your
comments. The Bureau encourages the early submission of comments. All
submissions must include the document title and docket number. Because
paper mail in the Washington, DC area and at the Bureau is subject to
delay, commenters are encouraged to submit comments electronically. In
general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public
inspection and copying at 1700 G St. NW, Washington, DC 20552, on
official business days between the hours of 10 a.m. and 5 p.m. Eastern
Standard Time. You can make an appointment to inspect the documents by
telephoning (202) 435-7275.
    All submissions, including attachments and other supporting
materials, will become part of the public record and subject to public
disclosure. Please do not include in your submissions sensitive
personal information, such as account numbers or Social Security
numbers, or names of other individuals, or other information that you
would not ordinarily make public, such as trade secrets or confidential
commercial information. Submissions will not be edited to remove any
identifying or contact information, or other information that you would
not ordinarily make public. If you wish to submit trade secret or
confidential commercial information, please contact the individuals
listed in the FOR FURTHER INFORMATION CONTACT section below.
Information submitted to the Bureau will be treated in accordance with
the Bureau's Rule on the Disclosure of Records and Information, 12 CFR
part 1070 et seq.
FOR FURTHER INFORMATION CONTACT: Jane Raso, Senior Counsel; Yaritza
Velez, Counsel; Office of Regulations, at (202) 435-7309. If you
require this document in alternative electronic format, please contact
CFPB_Accessibility.cfpb.gov.
SUPPLEMENTARY INFORMATION:
I. Background
    Consumers in the United States send ``remittance transfers'' \1\ in
the billions of dollars to recipients in foreign countries each year.
The funds that consumers send abroad are commonly referred to as
remittances, and consumers send remittances (often for a fee) in a
variety of ways, including by using banks, credit unions, or money
services businesses (MSBs). The term ``remittance transfers'' is
sometimes limited to describing consumer-to-consumer transfers of small
amounts of money, often made by immigrants supporting friends and
relatives in other countries. But ``remittance transfers'' may also
include payments of larger dollar amounts to pay, for instance, bills,
tuition, or other expenses.
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    \1\ The definition of ``remittance transfer'' in the Remittance
Rule is described below.
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    Prior to the Dodd-Frank Act, remittance transfers fell largely
outside of the scope of Federal consumer protection laws. Section 1073
of the Dodd-Frank Act amended EFTA by adding a new section 919 to EFTA
to create a comprehensive system for consumer protection for remittance
transfers sent by consumers in the United States to individuals and
businesses in foreign countries.\2\ EFTA applies broadly in terms of
the types of ``remittance transfers'' it covers and persons and
financial institutions subject to it. 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
[[Page 17972]]
initiated by a remittance transfer provider; only small dollar
transactions are excluded from this definition.\3\ EFTA section
919(g)(3) defines ``remittance transfer provider'' to be a person or
financial institution providing remittance transfers in the ``normal
course of its business.'' The Rule provides that whether a person
conducts transfers in the ``normal course of business'' generally
depends on the ``facts and circumstances.'' \4\ However, the Rule also
contains a safe harbor whereby a person that provides 100 or fewer
remittance transfers in the previous and current calendar years would
be deemed not to meet the normal course of business definition, and
therefore be outside of the Rule's coverage.\5\ As noted above,
remittance transfer services may be provided by banks, credit unions,
and MSBs. In its recent assessment of the Remittance Rule, the Bureau
found that in 2017, MSBs conducted 95.6 percent of all remittance
transfers, banks made up 4.2 percent of remittance transfers, and
credit unions conducted 0.2 percent of remittance transfers.\6\ Note
that, because the average transfer size for banks is much larger than
for MSBs, banks share of dollars transferred is greater than their
share of number of transfers made.\7\
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    \2\ 15 U.S.C. 1693 et seq. EFTA section 919 is codified at
1693o-1.
    \3\ 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 the following
transfers: (1) Transfer amounts of $15 or less; and (2) certain
securities and commodities transfers. 12 CFR 1005.30(e).
    \4\ Comment 30(f)(2)-i.
    \5\ 12 CFR 1005.30(f)(2)(i).
    \6\ Bureau of Consumer Fin. Prot., Remittance Rule Assessment
Report, at 4 (2018) (hereinafter Assessment Report), available at
https://www.consumerfinance.gov/documents/6963/bcfp_remittance-rule-assessment_report.pdf. Section 1022(d) of the Dodd-Frank Act
requires the Bureau to conduct an assessment of each of its
significant rules and orders and to publish a report of each
assessment within five years of the effective date of the rule or
order.
    \7\ Assessment Report, at 63-64.
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    An important requirement 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 actual exchange
rate and the amount to be received by the recipient of a remittance
transfer.\8\ EFTA provides two exceptions to this general disclosure
requirement, a ``temporary'' exception and a ``permanent''
exception.\9\
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    \8\ 15 U.S.C. 1693o-1(a)(1) and (2).
    \9\ EFTA section 919(c) permits the Bureau to except remittance
transfer providers from having to provide actual amounts for
transfers to certain nations if the Bureau determines that a
recipient country does not legally allow, or the method by which
transactions are made in the recipient country do not allow, a
remittance transfer provider to know the amount of currency that
will be received by the designated recipient. 15 U.S.C. 1693o-1(c).
Unlike the temporary exception, this exception may be used by any
remittance transfer provider sending to a country that meets the
relevant conditions, not just insured institutions. Also unlike the
temporary exception, this exception has no sunset date and therefore
is permanent.
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    Remittance transfer providers qualify for the temporary exception
in EFTA section 919 if: (i) They are an insured depository institution
or insured credit union (collectively, ``insured institutions'') that
makes a transfer from an account that the sender holds with them; and
(ii) they are unable to know, for reasons beyond their control, the
amount of currency that will be made available to the designated
recipient. If these conditions are met, EFTA's temporary exception
provides that these institutions need not disclose the amount of
currency that will be received by the recipient but rather may disclose
``a reasonably accurate estimate of the foreign currency to be
received.'' \10\ Specifically, under the Rule, insured institutions may
disclose estimates \11\ of the exchange rate (as applicable),\12\
certain third-party fees defined in the Rule as ``covered third-party
fees,'' \13\ the total amount that will be transferred to the recipient
inclusive of covered third-party fees,\14\ and the amount that will be
received by the recipient (after deducting covered third-party
fees).\15\ This exception from disclosing actual amounts is temporary
because EFTA provides a one-time ability for the Bureau to extend the
exception up to five years from the enactment of the Dodd-Frank Act, or
until July 21, 2020, if the Bureau determined that the expiration of
the exception would negatively affect the ability of insured
institutions to send remittances to foreign countries. As EFTA section
919 expressly limits the length of the temporary exception to the term
specified therein, and does not provide the Bureau the authority to
extend this term beyond July 21, 2020, or make it permanent, the
temporary exception will expire on July 21, 2020.
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    \10\ 15 U.S.C. 1693o-1(a)(4).
    \11\ 12 CFR 1005.32(c).
    \12\ 12 CFR 1005.31(b)(1)(iv).
    \13\ 12 CFR 1005.31(b)(1)(vi).
    \14\ 12 CFR 1005.31(b)(1)(v).
    \15\ 12 CFR 1005.31(b)(1)(vii).
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    The Bureau implemented EFTA section 919 (including the temporary
exception) through its remittance rule issued in 2012 which, as
amended, became effective on October 28, 2013.\16\ As noted above, the
Bureau conducted an assessment of its remittance rules as effective as
of November 2014 and in late 2018 published a report of its assessment.
As discussed below, the Assessment Report provided insights into the
effectiveness of the Rule and its provisions, including the temporary
exception. In this RFI, the Bureau is seeking information on the
expiration of the temporary exception on July 21, 2020, and potential
options to mitigate the impact of the expiration. Based on comments and
other feedback from various remittance transfer providers and their
trade associations, as well as its own analysis, the Bureau is
concerned about the potential negative effects of the expiration of the
temporary exception.\17\ The Bureau is also seeking information on
possible changes to the current safe harbor threshold in the Rule's
``normal course of business'' definition \18\ and whether an exception
for ``small financial institutions'' in the Rule may be appropriate.
The Bureau is concerned about the Rule's effects on certain remittance
transfer providers that account for a small number of remittance
transfers overall but nonetheless fall within the Rule's coverage
because the number of remittance transfers they provide exceed
[[Page 17973]]
100 transfers a year, and thus, are not able to use the current safe
harbor for ``normal course of business.''
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    \16\ 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).
    \17\ The Bureau received approximately 40 comments on the
Remittance Rule in response to a RFI it issued in 2017 in connection
with the Assessment Report. Assessment Report, at 149. The Bureau
also received approximately 34 comments on the Remittance Rule from
two RFIs it issued in 2018. One of the 2018 RFIs concerns whether
the Bureau should amend any rules it has issued since its creation
or exercise new rulemaking authorities provided for by the Dodd-
Frank Act. See Bureau of Consumer Fin. Prot., Request for
Information Regarding the Bureau's Adopted Regulations and New
Rulemaking Authorities (2018), available at https://files.consumerfinance.gov/f/documents/cfpb_rfi_adopted-regulations_032018.pdf. The other 2018 RFI concerns whether the
Bureau should amend rules or exercise the rulemaking authorities
that it inherited from other Federal government agencies. See Bureau
of Consumer Fin. Prot., Request for Information Regarding the
Bureau's Inherited Regulations and Inherited Rulemaking Authorities
(2018), available at https://files.consumerfinance.gov/f/documents/cfpb_rfi_inherited-regulations_032018.pdf.
    \18\ As discussed above, the phrase ``normal course of
business'' in the definition of ``remittance transfer provider''
determines whether a person providing remittance transfers is
covered by the Rule. Also as discussed, the Rule contains a safe
harbor that clarifies that certain persons do not provide transfers
in the ``normal course of business'' because the number of transfers
they provide is below 100 transfers a year in the previous and
current calendar years.
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    The Bureau has received a number of other suggestions for changes
to the Remittance Rule to improve its effectiveness in helping
consumers or reduce the burden it may impose. However, in light of the
time sensitivity of the expiration of the temporary exception, this RFI
is limited to seeking information on the two issues described above.
II. Expiration of the Temporary Exception
A. Potential Challenges in Disclosing Actual Amounts
    There are a variety of methods used to send remittance transfers.
Generally, these methods involve either a closed network payment system
or an open network payment system, although hybrids between open and
closed payment systems also exist. In a ``closed network'' payment
system, the remittance transfer provider exerts a high degree of end-
to-end control over a transfer. Although there are many ways a closed
network payment system might be structured, the level of control such a
system affords the remittance transfer provider means, among other
things, that the provider could disclose precise and reliable
information about the terms and costs of transfers (e.g., fees and
exchange rate) before the sender pays for the transfer. Closed network
payment systems are relied on by most MSBs that provide remittance
transfer services.
    The other major type of system, typically referred to as an ``open
network'' payment system, is one in which no one entity necessarily
exerts end-to-end control over a remittance transfer. Open network
payment systems are primarily utilized by banks and credit unions, and
include the system by which consumers send wire transfers \19\ or other
transfers from their deposit accounts to overseas recipients. The
predominant open network payment system model is the correspondent
banking network.\20\ The correspondent banking system lacks a single,
central operator, which distinguishes it from closed network payment
systems. Instead, the correspondent banking network is a decentralized
network of 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 could nonetheless reach a wide number of recipient financial
institutions worldwide even if the institution does not have control
over, or a relationship with, all of the participants in transmitting a
remittance transfer.
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    \19\ 79 FR 55970, 55971 (Sept. 18, 2014) (``The most common form
of an open payment network remittance transfer is a wire transfer,
an electronically transmitted order that directs a receiving
institution to deposit funds into an identified beneficiary's
account.'').
    \20\ Generally speaking, a correspondent banking network is made
up of individual correspondent banking relationships, which describe
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
International Settlements, Correspondent Banking, at 9 (2016),
available at https://www.bis.org/cpmi/publ/d147.pdf.
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    Because a sending institution does not necessarily have a
relationship with, or control over, all the participants in
transmitting a remittance transfer in an open network payment system, a
sending institution using an open network payment system may face
greater difficulty in determining and disclosing the exact amounts
required by the Rule, compared to remittance transfer providers
operating within a closed network payment system. For example, with
respect to fees charged by intermediary institutions, absent a
correspondent banking relationship or other arrangement with an
intermediary institution in the transmittal chain, a sending
institution may not know with certainty the amount of fees that
institution may impose on the remittance transfer. Likewise, if the
sending institution does not conduct any necessary currency exchange,
any institution through which the funds pass could potentially perform
the currency exchange before the recipient's institution deposits the
funds into the recipient's account. Again, absent a correspondent
banking or other arrangement with the institution that performs the
currency exchange, the sending institution may not know the applicable
exchange rate with certainty.
    New market entrants may employ business models that make it easier
for them to determine actual amounts. In recent years, new types of
remittance transfer providers, and other businesses that are not
traditional MSBs or financial institutions, have entered the market.
Their business models and product offerings may eventually provide
greater transparency and certainty over the terms and cost of a
remittance transfer. For example, new remittance transfer providers
that have entered the market have adopted variations of the closed
payment network system, and therefore, they can disclose precise and
reliable information about the terms and costs of transfers before the
sender pays for the transfer.\21\
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    \21\ In addition to making it easier to determine actual
amounts, these new business models may increase consumer choice by
providing them with alternatives to traditional MSBs and financial
institutions, such as higher limits on a transfer's transaction size
to compete with transfers provided by financial institutions.
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    Existing market participants may also be engaged in creating new
ways of facilitating cross-border transfers with enhanced transparency
and certainty over certain terms and costs of remittance transfers. The
Society for Worldwide Interbank Financial Telecommunication (SWIFT)'s
``global payments innovation'' (gpi) tracking product is one such
example. SWIFT provides messaging services that support a large share
of all cross-border interbank payments conducted via open network
payment systems. The gpi tracking product could potentially bring
greater transparency and certainty over payment terms to open network
payment transfers because it allows financial institutions to track the
fees charged and the exchange rates applied to a payment along its
transmittal route. The product, however, has not been adopted by all
SWIFT members. But in October 2018, SWIFT released a version of gpi
that provides all banks on the SWIFT network the ability to see and
track their payments, intending to expand gpi adoption.\22\
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    \22\ See Press Release, SWIFT, SWIFT rolls out gpi tracker for
all as usage soars (Oct. 23, 2018), https://www.swift.com/news-events/press-releases/swift-rolls-out-gpi-tracker-for-all-as-usage-soars.
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B. Bureau Action Related to the Temporary Exception
    As discussed above, EFTA section 919 provides that the temporary
exception shall expire five years after the enactment of the Dodd-Frank
Act (i.e., July 21, 2015). It authorizes the Bureau to extend the
exception--but for no more than an additional five years--if the Bureau
determined that the expiration ``would negatively affect the ability of
[covered insured institutions] . . . to send remittances to locations
in foreign countries.'' \23\ In 2014, following a notice-and-comment
rulemaking process, the Bureau made that determination and extended the
temporary exception to July 21, 2020.\24\ The temporary exception will
expire on July 21, 2020. EFTA section 919 expressly limits the length
of the temporary exception to the term specified therein and does not
provide the Bureau authority to extend this term
[[Page 17974]]
beyond July 21, 2020. The Bureau, therefore, will not be extending the
exception or making it permanent unless Congress changes the law.
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    \23\ 15 U.S.C. 1693o-1(a)(4)(B).
    \24\ 79 FR 55970 (Sept. 18, 2014).
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C. Assessment Findings and Additional Analysis
    Based on 2017 bank call report data, it appears that approximately
886,000 remittance transfers (just over six percent of total bank
transfers sent in 2017 and 0.27 percent of all remittance transfers
sent in 2017) relied on the temporary exception.\25\ Credit unions are
not required to report reliance on the temporary exception on credit
union call reports, even though they may use the exception. The Bureau
conducted an analysis in which it assumed that all of the approximately
760,000 remittance transfers sent by credit unions relied on the
temporary exception,\26\ and determined that it would have meant that
approximately an additional 0.22 percent of all remittance transfers
sent in 2017 relied on the temporary exception, making the total
percentage of transfers that rely on the temporary exception
approximately 0.5 percent.
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    \25\ Assessment Report, at 139. Bank call reports provide data
on bank reliance on the temporary exception. Under the Rule, for
purposes of determining whether a bank or credit union may rely on
the temporary exception, an ``insured institution'' means ``insured
depository institutions . . . as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813), and insured credit unions as
defined in section 101 of the Federal Credit Union Act (12 U.S.C.
1752). 12 CFR 1005.32(a)(3). But there is no similar information for
credit union reliance, as credit unions are not required to report
reliance on the temporary exception on credit union call reports.
Further, broker-dealers may rely on the temporary exception pursuant
to a SEC no-action letter. However, the Bureau does not have data on
broker-dealers' use of the exception, but expects that to the extent
they are associated with banks, their reliance should mirror that of
the banks with whom they are associated. Assessment Report, at 141.
    \26\ The Bureau has information that suggests that 100 percent
reliance on the temporary exception by credit unions is unlikely. An
industry survey the Bureau conducted to support the assessment also
asked whether providers are relying on the exception, and if so,
whether they use it to estimate fees, exchange rates, or both. Of
the 41 banks and credit unions that answered the question, six
respondents replied that they used the temporary exception, similar
to the proportion in the bank call reports. Only one of the 17
credit unions that answered the question reported using the
temporary exception. That credit union reported using it for fees
only. However, as the Assessment Report cautioned, the survey is not
statistically representative of the market, even though the Bureau
sent the survey to a representative sample of approximately 200
banks and credit unions, as well as every remittance-sending MSB for
which the Bureau could find contact information.
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    The Assessment Report also found that fewer banks relied on the
temporary exception in 2017 than in 2014, the year banks began
reporting remittance transfer activities on their call reports.\27\ The
decline appears to be the result of both fewer banks relying on the
exception for any transfers, and a reduction in the reported percentage
of transfers for which the temporary exception is used among the banks
that continue to rely on the exception. Based on its analysis of 2017
call report data, the Bureau found that only 80 banks used the
temporary exception. Among these 80 banks, there appears to be
considerable variance in the rate of reliance. For example, while four
of the five top remitting banks use the exception, that reliance ranges
from approximately 0.4 percent to 27 percent of the total number of
remittance transfers they sent.
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    \27\ Bank call report data from 2014 suggest that around nine
percent of transfers sent by banks relied on the temporary
exception. Assessment Report, at 139.
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    While a substantial majority of remittance transfers may not
involve the use of the temporary exception, the Bureau also recognizes
that a large number of remittance transfers, specifically, 886,000 of
them in 2017, could be affected by the expiration of the exception, and
these effects could be particularly significant in some countries or
corridors. In these instances, the Bureau recognizes the value to
consumers of being able to send remittance transfers directly from
their checking account to the account of a recipient in a foreign
country through their bank or credit union. While new types of
remittance transfer providers and new product offerings may be emerging
that offer greater transparency about certain terms and costs of a
remittance transfer, they may not be able to bring such transparency to
certain corridors or specific financial institutions, even if they
become more widely adopted in the near future.
    However, the Bureau does not have specific information as to why
certain insured institutions are able to provide remittance transfers
without relying on the temporary exception while others are not. The
Bureau likewise does not have specific information as to why, among
those using the temporary exception, the rate of usage varies widely.
Lastly, although the Bureau generally believes that institutions rely
more often on the temporary exception to estimate fees than exchange
rates, the Bureau does not have information related to the specific
extent to which institutions that rely on the temporary exception are
doing so to estimate fees, exchange rates, or both.
III. Coverage of Certain Remittance Transfer Providers
A. Persons That Do Not Provide Remittance Transfers in the Normal
Course of Business
    EFTA section 919(g)(3) defines ``remittance transfer provider'' to
mean a ``person or financial institution that provides remittance
transfers for a consumer in the normal course of its business, whether
or not the consumer holds an account with such person or financial
institution.'' \28\ In its first remittance rulemaking, finalized in
February 2012, the Bureau explained that whether a person conducts
transfers in the ``normal course of business'' depends on the facts and
circumstances.\29\
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    \28\ 15 U.S.C. 1693o-1(g)(3).
    \29\ 77 FR 6194, 6213 (Feb. 7, 2012).
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    To develop clearer and more appropriately tailored standards for
determining whether providers of remittance transfer services are
excluded from compliance with the Rule's requirements because they do
not provide remittance transfers in the ``normal course of business,''
the Bureau issued a concurrent proposal in February 2012 that would
have established a safe harbor wherein a person that provided fewer
than 25 remittance transfers in the previous and current calendar years
would be deemed not to meet the normal course of business definition
and therefore, not be covered by the Rule and be excluded from having
to comply with the Rule's requirements.
    The Bureau adopted the safe harbor in August 2012, with changes. In
reviewing the information provided by commenters, including industry
participants, and other sources in response to the proposal, the Bureau
determined in 2012 that the appropriate safe harbor under which a
person is deemed not to be providing remittance transfers for a
consumer in the ``normal course of its business''--thus falling outside
of the Rule's coverage and being exempt from its requirements--is 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.\30\ In setting this threshold at 100, the Bureau
believed that the number was high enough that persons will not risk
exceeding the safe harbor based on the needs of just two or three
customers seeking monthly transfers while low enough to serve as a
reasonable basis for identifying persons who occasionally provide
remittance
[[Page 17975]]
transfers, but not in the normal course of their business.\31\ At the
same time, the Bureau acknowledged that it did not receive data on the
overall distribution and frequency of remittance transfers across
providers ``to support treating any particular number of transactions
as outside the normal course of business.'' \32\ When the Bureau
adopted the normal course of business safe harbor, it also stated that
the Bureau intended to monitor the threshold over time to better
understand business structures and potential consumer protection
concerns.\33\
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    \30\ 12 CFR 1005.30(f)(2)(i).
    \31\ 77 FR 50243, 50251 (Aug. 20, 2012).
    \32\ 77 FR 50243, 50251-52 (Aug. 20, 2012).
    \33\ 77 FR 50243, 50252 (Aug. 20, 2012).
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    Additionally, although the Remittance Rule does not have a small
entity exception, the Bureau notes that EFTA section 904(c) contains a
``small financial institution'' exception, which permits the Bureau to
modify EFTA's statutory requirements for such institutions if the
Bureau determines that ``such modifications are necessary to alleviate
any undue compliance burden on small financial institutions and such
modifications are consistent with the purpose and objective of
[EFTA].'' \34\ Over the years and in comment letters responding to the
RFIs discussed above, a number of industry commenters have suggested
compliance costs associated with the Rule caused an increase in prices,
an exodus of credit unions from the market, and a reduction in services
offered to consumers in order to stay within the safe harbor
threshold.\35\ Given this, the Bureau is considering whether the
threshold in the normal course of business safe harbor should be raised
and whether an exception for small financial institutions may be
appropriate.
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    \34\ 15 U.S.C. 1963b(c).
    \35\ See e.g., Assessment Report, at 154.
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B. Assessment Findings
    The Assessment Report found that of the banks and credit unions
that offer remittance transfers, approximately 80 percent of banks and
75 percent of credit unions provide 100 or fewer remittance transfers
in any given year, and accordingly are not covered by the
Rule.36 37 With respect to market exit, the Assessment
Report found that data from the call reports were inconsistent with the
assertion that there has been a notable decrease in credit unions
offering remittance transfers since the Rule took effect. There is no
comparable available evidence with respect to the number of banks
offering remittance transfers since the Rule took effect.\38\ Lastly,
with respect to reducing the number of transfers they make to stay
within the safe harbor threshold, the available evidence from the
Assessment Report does not indicate that banks or credit unions are
putting a ceiling on the number of remittance transfers they provide to
avoid making more than 100 transfers and thereby not be subject to the
Rule.
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    \36\ Assessment Report, at 134.
    \37\ While the Bureau does not have sufficiently complete
evidence to make a conclusive determination, available evidence
strongly suggests that very few, if any, MSBs send 100 or fewer
remittances in any given year. See also 77 FR 50243, 50252 (Aug. 20,
2012) (``[The data sets available] regarding state-licensed money
transmitters did not show that any licensees that recorded some
transaction volume also recorded 100 or fewer transfers per year
nationally.'').
    \38\ Note that since the Rule took effect the share of credit
unions offering remittance transfers has increased while the share
of banks initially declined but has been increasing.
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    Nonetheless, the Assessment Report also found that the Rule covers
a large number of bank and credit union providers whose number of
remittance transfers provided exceed the safe harbor threshold, but
still account for a relatively small number of remittance transfers
overall. Of the roughly 700 banks within the scope of the Rule, around
400 sent fewer than 500 remittance transfers a year and some 100 sent
between 500 and 1,000 remittance transfers per year from 2014 to
2017.\39\ Similarly, of approximately 300 credit unions that are
remittance transfer providers under the Rule, around 200 sent fewer
than 500 remittance transfers per year from 2014 to 2017 and some 50
sent between 500 and 1,000 remittance transfers per year over the same
time period.\40\ Further, the Assessment Report noted the following
relationship between the asset size of a bank or credit union and the
number of remittance transfers it provides: The smaller the asset size
of a financial institution, the fewer total number of remittance
transfers it offers on average.\41\
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    \39\ Assessment Report, at 75-76.
    \40\ Assessment Report, at 82-83.
    \41\ For example, banks that make more than 100 remittance
transfers per year have substantially larger asset sizes than banks
that transfer 100 or fewer. A similar relationship exists for credit
unions. Assessment Report, at 74 and 81.
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    Overall, remittance transfer providers that provide relatively
small numbers of remittance transfers have fewer transactions to
produce revenues through which to recover the fixed compliance costs
associated with the Rule. Additionally, a number of credit unions and
banks have described how the cost of providing remittance transfers has
gone up since the Rule took effect. For example, a number of them have
reported that they have contracted with a corporate credit union or a
large bank to handle their wire transfers.\42\ According to these
institutions, the amounts charged by these larger corporate entities
for transfers are higher than their costs for wire transfers before the
Rule took effect. Accordingly, the Bureau believes it is appropriate to
seek information and evidence regarding whether the Rule's current
definition of ``normal course of business'' is appropriate and whether
creating a ``small financial institution'' exception in the Rule is
appropriate.
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    \42\ The Bureau also understands that service providers can
include nonbanks that offer specialized international fund transfer
services, which in turn may rely on other entities to generate the
information required on the disclosures, such as lifting fees and
exchange rates.
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IV. Request for Information
    The Bureau seeks information from the general public, including but
not necessarily limited to consumer groups, individual consumers, banks
and credit unions, broker-dealers, MSBs, and other businesses that
offer remittance transfer services.
A. Questions Related to the Expiration of the Temporary Exception
    Based on comments responding to the Bureau's RFIs on the Assessment
Report and its adopted and inherited regulations, outreach the Bureau
has done, and the Bureau's internal analysis, the Bureau recognizes
that the expiration of the temporary exception could have negative
consequences if insured institutions that rely on the exception respond
to its expiration by reducing or curtailing services to certain
destinations. The Bureau believes that any disruption will be small in
terms of the overall remittance transfer market, but recognizes that a
large number of transfers are currently made using the exception and
that to the extent that the temporary exception's expiration causes
disruption, it may impact open network transfers, particularly wire
transfers, which could restrict consumer choices. Additionally,
consumers may not have readily-available substitutes should insured
institutions that rely on the temporary exception decide to respond by
reducing or curtailing service.
    In particular, the Bureau is interested in whether reliance on the
temporary exception is necessary for certain countries or destinations
in certain countries (collectively, ``specific destinations'') due to
some characteristic or characteristics specific to that destination.
For example, the Bureau has been told that there are currencies for
which a fixed exchange
[[Page 17976]]
rate applicable to a remittance transfer cannot be provided at the time
a consumer requests the transfer because foreign laws may bar the
purchase of that currency in the United States.\43\ The Bureau is
interested in learning more information about which currencies fall
into this category. Such information may point to a challenge for
remittance transfer providers regardless of whether they are insured
institutions. On the other hand, if the reason for the inability to
provide accurate information for transfers to a specific destination is
due to an insured institution's lack of correspondent banking or other
contractual relationships, this may be because it is an inherent
characteristic of an open network payment system or because there are
specific reasons that the establishment of correspondent banking or
contractual relationships to such destinations infeasible. Lastly, the
Bureau is interested in learning more about the specific impacts of the
expiration of the temporary exception on smaller financial
institutions.
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    \43\ 79 FR 55970, 55982 (Sept. 18, 2014).
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    The information requested will enable the Bureau to evaluate
possible changes to the Rule to mitigate (but not eliminate) the
effects of the temporary exception's expiration on July 21, 2020. The
questions are as follows and are grouped into six categories:
General Questions
    1. As applicable, please describe or list:
    a. The characteristics of transactions for which insured
institutions are relying on the temporary exception. For example, does
the dollar value of the transfer relate to whether or not the temporary
exception will be used? Does the type of transaction relate to whether
or not the temporary exception will be used (e.g., wire transfer versus
some other type of open network transfer; USD wire versus foreign
currency wire)?
    b. Circumstances under which insured institutions are consistently
able to provide exact amounts. For example, are there certain corridors
for which at least some insured institutions can always provide exact
amounts in disclosures? Why are these institutions able to provide
exact amounts while other remittance transfer providers cannot?
    c. Currencies for which a specific exchange rate applicable to a
remittance transfer cannot be provided at the time a consumer requests
a remittance transfer because foreign laws or other obstacles bar the
purchase of that currency in the United States. What factors preclude
the purchase of such currency?
    d. Specific destinations for which insured institutions cannot
disclose fees charged by third parties because of a lack of
correspondent banking or other contractual relationships with financial
institutions in those destinations. What factors preclude the
development of such relationships in those specific destinations?
    e. Foreign financial institutions to which remittance transfers are
directed for which insured institutions have found it necessary to rely
on the temporary exception because these foreign financial institutions
cannot, or will not, provide information about the fees they impose on
a remittance transfer. In what corridors are these institutions found?
What factors contribute to their inability or unwillingness to provide
such information?
    f. Challenges to the further reduction or elimination of need to
provide estimates rather than actual amounts in disclosures.
    2. Some insured institutions report minimal or no reliance on the
temporary exception. Please describe the characteristics and business
practices of these institutions that do not rely on the temporary
exception at all or rely on it to a minimal extent. For example, are
these institutions generally able to send most types of transactions to
most corridors without the need to estimate? Are they restricting or
limiting their services in certain ways in order to avoid relying on
estimates? Do some such institutions have few or no customers who send
transactions that tend to entail the need to estimate?
    3. For insured institutions that rely on estimates, how do such
institutions obtain the information on which they base estimates? How
accurate do they believe these estimates to be? Please describe whether
there are any differences between the error rate of remittance
transfers for which the temporary exception is not relied upon and
remittance transfers for which the exception is relied upon. How large
are differences in absolute terms between the estimates provided to
consumers and the actual amounts (e.g., for an estimated fee of $3.00
is the actual fee consumers incur $2.75, 3.05 or $3.50)?
Remaining Reliance
    4. To the extent that reliance on the temporary exception can be
eliminated or further reduced by July 21, 2020:
    a. What methods (products, services, or innovations) could insured
institutions put in place to avoid relying on estimates by the time
that the temporary exception expires on July 21, 2020?
    b. What would be the cost (one-time and ongoing) of putting those
methods in place?
    5. Are there specific types of transactions for which elimination
of reliance on the temporary exception is not feasible for the
foreseeable future? If so, for which categories of transaction and why
(e.g., cost-prohibitive, lack of alternative methods of transmission)?
Corridors and Other Destination Issues
    6. Are there certain market ``niches'' served only by insured
institutions? For example, are there types of remittance transfer
services offered by insured institutions that are not offered by MSBs
(e.g., transactions over a certain transfer amount)? Are there specific
destinations that insured institutions can service that MSBs do not or
cannot? Are these destinations also niches where the ability to
estimate is necessary to continue services? If so, why?
    7. What specific destinations or other factors that impact the
ability of insured institutions to provide precise disclosures when
sending remittance transfers also impact MSBs that provide remittance
transfer services?
Correspondent Banking and Market Structure
    8. To the extent that small-to-midsize insured institutions often
rely on large correspondent banks in the United States to execute
remittance transfers, how and why do efforts made by those large
correspondent banks that reduce their own reliance on the temporary
exception also allow smaller institutions that use their correspondent
services to provide actual cost information?
    9. To the extent an insured institution maintains correspondent
banking, or other contractual or informal, arrangements that reduce
their reliance on the temporary exception, what are the possibilities
(including the costs) for that insured institution to facilitate
remittance transfers being sent by other banks whose own arrangements
do not overlap with its arrangement?
    10. Do insured institutions generally use the same methods,
systems, partners, and vendors to execute international commercial
payments as they use for remittance transfers? If so, do they rely on
estimation more, less, or about the same for such commercial transfers
as they do for remittance transfers? Do other aspects of the patterns
of reliance on estimation differ between commercial and remittance
transfers? Do new business arrangements, practices, or technologies
[[Page 17977]]
that impact one generally impact the other?
Countries List
    11. In connection with the Remittance Rule, the Bureau has
published a safe harbor countries list containing five countries
(Aruba, Brazil, China, Ethiopia, and Libya) where the laws of those
countries do not permit the determination of exact amounts at the time
the pre-payment disclosure must be provided. What other countries, if
any, should be added to this list because their laws do not permit the
determination of exact amounts at the time the pre-payment disclosure
must be provided? Please describe how the relevant laws prevent such
determination. Are these countries for which remittance transfer
services are not currently being provided, or where providers are
relying on estimates?
Miscellaneous
    12. Is there any other information that will help inform the Bureau
as it considers whether to mitigate the impact of the expiration of the
temporary exception on July 21, 2020?
B. Questions Related to Coverage of Certain Remittance Transfer
Providers
    As discussed above, the Bureau is interested in obtaining
information and evidence to determine whether to address coverage of
certain remittance transfer providers that provide remittance transfers
``in the normal course of business'' even though they account for a
relatively small number of transfers overall. Also as discussed above,
the Bureau found that the smaller the asset size of a financial
institution, the fewer total number of remittance transfers it provides
on average. Accordingly, the Bureau seeks information on the following:
    13. For remittance transfer providers that provide more than 100
remittance transfers per year but account for a relatively small number
of remittance transfers overall,\44\ what are the economics of offering
remittance transfers? For example:
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    \44\ For example, in 2017, banks that provided more than 100 but
fewer than 1,001 remittance transfers accounted for less than 0.063
percent of the total remittance transfers that year. In the same
year, credit unions that provided more than 100 but fewer than 1,001
remittance transfers accounted for less than 0.03 percent of total
remittance transfers.
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    a. What are the fixed costs and variable costs (e.g., how costly is
it to send the 201st transfer compared to the 200th?) of offering
remittance transfers in compliance with the Rule?
    b. Has it become necessary for these remittance transfer providers
to contract with a service provider to provide or support all or a
portion of their remittance transfers covered by the Rule? If so, what
aspects of the Rule require contracting with a service provider?
    c. For these remittance transfer providers that contract with a
service provider to provide remittance transfers, what are the per-
transfer costs charged by the service provider?
    d. How does anticipated volume factor into the decision to provide
remittance transfer services?
    e. Please describe whether and how the Rule's costs are being
passed on to consumers (directly, indirectly, or both).
    f. Please describe costs not related to compliance with the
Remittance Rule (e.g., compliance with the requirements under the Bank
Secrecy Act, with applicable State laws) that remittance transfer
providers incur in sending transfers. Approximately how much are these
costs? How are they structured (e.g., what portion of the cost is
attributable to fixed cost, variable cost)?
    14. With respect to remittance transfer providers that provide more
than 100 remittance transfers per year but account for a relatively
small number of transfers overall, many times per year does the typical
remittance customer send a remittance transfer? How often does the
typical remittance customer cancel or assert an error?
    15. For how many remittance transfers per year is it necessary to
have the equivalent of one full-time staff member supporting a
remittance transfer provider's remittance transfer services? How many
transfers necessitate two ``full time equivalent'' staff?
    16. In addition to the total number and frequency of remittance
transfers provided, what other factors should the Bureau consider in
determining whether a person is providing remittance transfers ``in the
normal course of its business''?
    17. Please describe the asset size of financial institutions that
provide more than 100 remittance transfers per year but account for a
relatively small number of remittance transfers overall.
    18. Is there any other information that could help inform the
Bureau as it considers the burden of the Rule on providers that provide
more than 100 remittance transfers per year but account for a
relatively small number of remittance transfers overall?
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-08455 Filed 4-26-19; 8:45 am]
 BILLING CODE 4810-AM-P