ABA’s Letter to the CFPB on the Remittance RFI

Dear Sir or Madam:

The American Bankers Association appreciates the opportunity to comment on the Request for Information (RFI) by the Consumer Financial Protection Bureau (Bureau) regarding the remittance rule (the Rule), which implements section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Rule, which has been amended a number of times, was effective October 2013. The Rule requires consumer disclosures of the amount sent, any fees and charges, the total amount that will be received by the recipient, and the date the transfer will be received. The Rule also provides consumers with a right to cancel the transfer during the first 30 minutes and provides rights when there is an error in the transmittal.

The RFI seeks industry feedback on two issues. First, the Bureau seeks information about the impact of expiration of the ability of depository institutions to estimate certain charges for remittances (Temporary Exception) on July 21, 2020. Second, the Bureau seeks comment on whether to change a safe harbor threshold in the Rule that determines whether an entity makes remittance transfers in the “normal course of its business” and must comply with the Rule. Those entities that make fewer transfers than the threshold are exempt from the rule (the Safe Harbor Threshold).

The Bureau has limited the RFI to these two issues to ensure that it can address issues that may arise from the expiration of the Temporary Exception, which will occur in slightly more than 12 months. The Bureau believes that issues presented by the Safe Harbor Threshold are integrally related to those presented by the Temporary Exception. The Bureau also 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 100 transfers a year, which makes them unable to use the current safe harbor for “normal course of business.” In the past, the Bureau has relied on remittances volume rather than asset-size of the provider since the former is amore reliable benchmark in these circumstances. ABA supports continued use of the volume threshold rather than a threshold based on the asset-size of the remittance transfer provider since volume more readily assesses compliance costs and capabilities of a provider.

1. Summary of the Comment

ABA supports the Bureau’s effort to address proactively the negative impacts to consumers and competition among remittance providers that will occur when the ability to estimate expires next July. The Bureau must act to ensure consumers continue to have access to remittances services through depository institutions. While the percentage of depository institutions providing remittances is small, it is an important service for bank customers. Without action by the Bureau, it is highly likely that depository institutions will cease sending remittances to certain countries. We urge the Bureau to exercise its authority under the Electronic Funds Transfer Act, which grants the Bureau the ability to take appropriate steps to carry out the purpose of the statute to provide special exceptions as a consumer accommodation, in this case, ensuring that consumers continue to have access to remittance services where the lack of ability of providers to estimate fees and exchange rates might become a barrier to the service.

It is equally important that the Bureau take steps to ensure that smaller volume providers, particularly community banks, can continue to offer remittances. Many community banks offer this service as a customer accommodation and not for profit. As the costs of regulatory compliance continue to rise, it becomes increasingly difficult for these banks to continue providing remittance transfer services. Their decision to exit the market will inconvenience bank customers—particularly customers in rural communities that may have to travel significant distances to reach a third-party remittance provider. ABA urges the Bureau to exercise its discretion to increase from 100 to 500 the Safe Harbor Threshold that determines whether an institution is required to comply with the Rule.

2. Expiration of the Temporary Exception would negatively impact large and small volume remittance transfer providers and the customers they serve.

Under the Remittance Rule, there are two exceptions to the general disclosure requirements: a “temporary exception” and a “permanent exception.” As previously noted, the Temporary Exception expires in July 2020, and this RFI seeks information about the impact of that expiration on consumers.

The Temporary Exception is limited to use by depository institutions when funds are transmitted from an account held by the sender at that institution. If, for reasons beyond the institution’s control, it is unable to know the exact amount of currency that will be made available to the recipient, the institution may estimate certain fees, provided the estimate is reasonably accurate. The amounts that may be estimated are: the exchange rate, covered third-party fees, the total amount transmitted, and the total amount received. The Bureau extended the Temporary Exception once but, the Bureau does not believe it has the authority to extend the exception under the statute; therefore, the exception will expire on July 21, 2020 absent Congressional action. In a separate letter, ABA joins with The Clearing House (TCH), BAFT and Consumer Bankers Association to describe the impact on consumers if the Temporary Exception expires next July. This letter focuses specifically on community banks and their ability to serve their customers.

According to call report data studied by the Bureau, approximately 886,000 or 6% of bank remittance transfers (0.27% of all remittance transfers) used the Temporary Exception in 2017. Significantly, fewer banks relied on the Exception in 2017 than in 2014. Further analysis shows that only 80 banks used the exception in 2017, although the amount that individual institutions relied on the exception varied (one bank relied on the exception for 27% of its transfers).

The Bureau’s data demonstrates that the banking industry has been making strides in the years since the Remittance Rule became effective to provide the mandatory disclosures with the precision required by the statute. Moreover, while the Bureau’s data confirms that the number of institutions making use of the estimate has been declining, attaining 100% precision is not likely in the near term. With increased use of new and evolving technologies, estimates are getting far more precise, but not to the point where depositories can eliminate reliance on the ability to estimate. Without that ability, depositories may not be able to send remittances to certain countries. Although one solution is to expand the number of jurisdictions covered by the permanent exception, it is also important to permit institutions to estimate in appropriate circumstances.

While precise disclosures are the goal, as the Bureau has noted in the RFI and elsewhere, achieving that goal is not always possible. From the consumer perspective what is worth noting is that there have been few – if any – consumer complaints involving the use of estimates in the nearly six years since the rule took effect. Similarly, there are no reports of bankers having to resolve errors involving estimates. These factors demonstrate that the current process, which relies on estimates, works well for consumers.

One of the questions raised by the Bureau concerns the disparity in Call Report data between large institutions, which report reliance on the use of estimates for disclosures, and community banks, which report lower reliance on the exception. Our members report that the disparity may be due to the process many community banks use to provide remittance services to their customers. Community banks typically provide the service by relying on a larger domestic depository institution to transmit funds abroad for which they pay a fixed fee to the larger institution. Because community banks only pay the correspondent bank’s fixed fee—and use that fee for their disclosures—community banks may not be aware of the extent of reliance by their correspondent banks on estimates.

While that would help to explain the disparity in Call Report data, the disparity underestimates the impact that would occur when the ability to estimate expires. If a larger correspondent bank is unable to estimate the fees for transfers to certain jurisdictions, it may discontinue the service, which will in turn affect community banks and their customers. Therefore, it would be erroneous to assume that community banks and their customers will not be affected as significantly by the loss of the ability to estimate.

Apart from that, as more fully discussed in our joint comment letter with the other trade associations, the Bureau should avoid disruption to the remittance transfer market, by expanding the list of countries eligible for the permanent exception and exercising its authority under the Equal Credit Opportunity Act to adopt regulations to carry out the underlying purpose of the statute.

3. The Bureau should increase the Safe Threshold to ensure that depository institutions stay in the business and continue to provide consumers with convenient access to the service.

As noted previously, the Rule 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.” In 2012, with strong encouragement from the banking industry, the Bureau amended the Rule to create a Safe Harbor Threshold that excludes low-volume providers from compliance with the Rule's requirements because they do not provide remittance transfers in the “normal course of business.” Initially, the Bureau set the threshold at 25 remittance transfers in the previous and current calendar year, but later that year the Bureau increased the threshold to 100. Without the Safe Harbor Threshold, it is highly likely that many smaller providers would have discontinued offering remittances due to the compliance costs and other burdens associated with the Rule.

As discussed at the Bureau’s recent Community Bank Advisory Council (CBAC) meeting on June 5, it is important to recognize that many community banks do not offer remittances services to their customers as a profit-making venture. Instead, community banks offer this service as an accommodation to customers, often at break-even pricing or even a small loss. Therefore, ensuring that community banks minimize costs and burdens is important to keeping them involved in providing the service for their customers. Anecdotal comments from community banks suggest that if they ceased offering the service, their customers would have no other convenient option for sending remittances. If a bank customer has to turn to another remittance service provider to send funds, the consumer will be unable to send funds from their own bank account and will be compelled to withdraw funds and carry them to the alternative provider. For consumers located in rural locations, that can mean driving 10, 15 or even 30 or more miles to the nearest provider.

When the Bureau was considering the Safe Harbor Threshold, ABA and a coalition of trade associations recommended that the Bureau adopt a threshold of 100 transfers per month. We noted that the impact of compliance costs on smaller providers is especially significant since they are unable to spread their costs over a large volume of transactions. This has an impact on consumers; indeed, in the RFI, the Bureau acknowledges that compliance costs have resulted in increased prices for consumers as well as an exit by a number of providers from the market.

In its recent assessment of the market, the Bureau determined that approximately 80% of banks provide 100 or fewer remittances per year. This finding supports retention of a threshold, since it is likely that many of these banks would have exited the market without it, reducing consumer choice. Call Report data for credit unions shows that a number of credit unions have exited the market; however, there is no comparable data for banks. Yet, anecdotal comments, including those made at the CBAC meeting on June 5, suggest that community banks have exited the market as a result of the Rule.

The data show that of the approximately 700 banks subject to the rule, about 400 sent fewer than 500 remittances per year and approximately 100 sent between 500 and 1,000 remittances per year. Not surprisingly, the Bureau also found a correlation between asset size and transfer volume—institutions with smaller assets sent fewer remittances per year. We believe these data support increasing the threshold to 500 remittances per year, which would have a minimal impact on consumer protection while promoting competition and ensuring access for consumers.

It is important for the Bureau to set the threshold at the appropriate level to encourage smaller volume providers to remain in the market, for once a provider has discontinued the service, it is difficult to get them to resume offering it. The right threshold will ensure that consumers continue to have access to remittance transfers from their local community bank. Alleviating the burden on smaller institutions and keeping them in the market helps promote competition as well as access to remittance services by consumers.

As previously discussed, the Bureau’s data show that low volume remittance providers tend to be community banks. With a smaller customer base, community banks know their customers and can more readily differentiate between unusual transactions or activity consistent with that customer’s banking patterns. One bank reported that knowledge allowed the bank to detect an unusual wire request that turned out to be elder financial exploitation and prevented a loss to the bank’s customer. Another community bank has suggested that close customer connections allow the bank to stop approximately one instance of fraud every month. Therefore, a threshold that encourages smaller institutions to continue providing remittances may also increase consumer protection from fraud.

Expanding the threshold does not mean that customers go unprotected, even if the rule does not apply. First, as noted above, community banks report they do not receive error claims or other complaints involving remittances, indicating that customers are satisfied with the service. Second, because banks emphasize maintaining positive relationships their customers, most exempt banks provide as much transparency as possible regarding the costs and fees associated with a remittance transfer. If a problem does arise, they work with customers to resolve any issues. Our community bank members report that compliance with the rule simply establishes an inflexible set of checklists that the bank must put in place, subject to compliance review, audits and examination. It does not mean that the bank would do anything significantly different from the customer’s perspective; rather, it requires the bank to take steps to satisfy examiners and auditors.

Therefore, ABA recommends that the Bureau increase the threshold for determining when a remittance provider makes transfers in the normal course of business to 500 remittance transfers per year. The increase will not reduce consumer protection, but will ensure that providers stay in the business and continue to provide consumers with convenient access to the service through their depository institution.

4. Conclusion

ABA appreciates the opportunity to comment. We believe that if the Bureau takes the appropriate steps to keep more providers in the market, it can serve the interests of consumers while alleviating burden on the banking industry and promoting competition. We look forward to continuing to work with the Bureau to ensure that consumers have safe and convenient access to remittance transfer services.

Sincerely,

Robert G. Rowe, III
Vice President & Counsel, Regulatory Compliance and Policy