United States

CFPB grants five-year extension for remittance rule exception


The Consumer Financial Protection Bureau (CFPB) has granted a five-year extension to a temporary exception in its remittance rule that allows financial institutions on the sending side of an international funds transfer to estimate fees charged by the receiving institution. The original exception provision would have expired in July 21, 2015; now, the exception will last until July 21, 2020.

The remittance rule is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The purpose of the exception is to make it easier for financial institutions to comply with the remittance rule, which requires the sending institution to disclose to the sender the fees charged by the recipient institution and other third parties, as well as the exchange rate. The exception allows banks and credit unions to estimate these charges and rates when they cannot determine the exact amount for reasons beyond their control. However, banks and credit unions may only use the exception in this instance, and it is intended to be a temporary solution only.

The purpose of the remittance rule, as defined by the Dodd-Frank Act, is to make it easier and safer for consumers to transfer money internationally. In addition to the disclosure of fees provision, the remittance rule provides the account holder with error resolution and cancellation rights. It also provides parameters for applying the rule to U.S. military installations located abroad and for treatment of nonconsumer accounts. By and large, the rule is intended to function as a "comprehensive consumer protection regime for international money transfers," according to the CFPB.

Nevertheless, complying with the rule could present some financial institutions with major challenges under current market conditions and to certain parts of the world. If the temporary exception had expired in July 2015, some financial institutions would have been unable to comply due to process limitations; i.e., an incapacity to ascertain the fees. As a result, they would not be able to process those transfers for the sender. 

This problem is primarily limited to banks or credit unions sending open-network transfers, like wire transfers. In an open network, the financial institution often does not have an existing relationship with the receiving institution or entity. Consequently, it has difficulty ascertaining the required information. On the other hand, closed-network providers (which are usually not banks or credit unions) send money to recipients through agents; this allows them to know the transfer terms in advance, including the amount of fees and exchange rates.

The CFPB believes the additional five years will give financial institutions sufficient time to develop an alternative method of determining fees for open-network transfers and for all parts of the world. Banks and credit unions affected by this issue should take steps to develop sustainable solutions during the extension period, since the CFPB states that it cannot extend the temporary exception beyond July 21, 2020.

The final rule, dated Aug. 21, 2014, is available for review.  Additionally, the CFPB has released a revised version of its compliance guide, entitled, International Fund Transfers – Small Entity Compliance Guide to reflect these changes.