Re: Request for Information Regarding Potential Regulatory Changes to the RemittanceRule, Docket No. CFPB-2019-0018
Dear Sir or Madam:
The American Bankers Association appreciates the opportunity to comment on the Request forInformation (RFI) by the Consumer Financial Protection Bureau (Bureau) regarding theremittance rule (the Rule), which implements section 1073 of the Dodd-Frank Wall StreetReform 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, anyfees and charges, the total amount that will be received by the recipient, and the date thetransfer will be received. The Rule also provides consumers with a right to cancel the transferduring 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 theimpact of expiration of the ability of depository institutions to estimate certain charges forremittances (Temporary Exception) on July 21, 2020. Second, the Bureau seeks comment onwhether to change a safe harbor threshold in the Rule that determines whether an entity makesremittance 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 SafeHarbor Threshold).
The Bureau has limited the RFI to these two issues to ensure that it can address issues thatmay arise from the expiration of the Temporary Exception, which will occur in slightly more than12 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 concernedabout the Rule's effects on certain remittance transfer providers that account for a small numberof remittance transfers overall, but nonetheless fall within the Rule's coverage because thenumber of remittance transfers they provide exceed 100 transfers a year, which makes themunable to use the current safe harbor for “normal course of business.” In the past, the Bureauhas 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 volumethreshold rather than a threshold based on the asset-size of the remittance transfer providersince volume more readily assesses compliance costs and capabilities of a provider.
ABA supports the Bureau’s effort to address proactively the negative impacts to consumers andcompetition among remittance providers that will occur when the ability to estimate expires nextJuly. The Bureau must act to ensure consumers continue to have access to remittancesservices through depository institutions. While the percentage of depository institutionsproviding remittances is small, it is an important service for bank customers. Without action bythe Bureau, it is highly likely that depository institutions will cease sending remittances to certaincountries. We urge the Bureau to exercise its authority under the Electronic Funds TransferAct, which grants the Bureau the ability to take appropriate steps to carry out the purpose ofthe statute to provide special exceptions as a consumer accommodation, in this case, ensuringthat consumers continue to have access to remittance services where the lack of ability ofproviders 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 offerthis service as a customer accommodation and not for profit. As the costs of regulatorycompliance continue to rise, it becomes increasingly difficult for these banks to continueproviding remittance transfer services. Their decision to exit the market will inconvenience bankcustomers—particularly customers in rural communities that may have to travel significantdistances to reach a third-party remittance provider. ABA urges the Bureau to exercise itsdiscretion to increase from 100 to 500 the Safe Harbor Threshold that determines whether aninstitution is required to comply with the Rule.
Under the Remittance Rule, there are two exceptions to the general disclosure requirements: a“temporary exception” and a “permanent exception.” As previously noted, the TemporaryException expires in July 2020, and this RFI seeks information about the impact of thatexpiration on consumers.
The Temporary Exception is limited to use by depository institutions when funds are transmittedfrom an account held by the sender at that institution. If, for reasons beyond the institution’scontrol, it is unable to know the exact amount of currency that will be made available to therecipient, the institution may estimate certain fees, provided the estimate is reasonablyaccurate. 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 theTemporary Exception once but, the Bureau does not believe it has the authority to extend theexception under the statute; therefore, the exception will expire on July 21, 2020 absentCongressional action. In a separate letter, ABA joins with The Clearing House (TCH), BAFT andConsumer Bankers Association to describe the impact on consumers if the TemporaryException expires next July. This letter focuses specifically on community banks and their abilityto serve their customers.
According to call report data studied by the Bureau, approximately 886,000 or 6% of bankremittance 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 showsthat only 80 banks used the exception in 2017, although the amount that individual institutionsrelied 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 yearssince the Remittance Rule became effective to provide the mandatory disclosures with theprecision required by the statute. Moreover, while the Bureau’s data confirms that the number ofinstitutions making use of the estimate has been declining, attaining 100% precision is not likelyin the near term. With increased use of new and evolving technologies, estimates are getting farmore precise, but not to the point where depositories can eliminate reliance on the ability toestimate. Without that ability, depositories may not be able to send remittances to certaincountries. Although one solution is to expand the number of jurisdictions covered by thepermanent exception, it is also important to permit institutions to estimate in appropriatecircumstances.
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 notingis that there have been few – if any – consumer complaints involving the use of estimates in thenearly six years since the rule took effect. Similarly, there are no reports of bankers having toresolve errors involving estimates. These factors demonstrate that the current process, whichrelies on estimates, works well for consumers.
One of the questions raised by the Bureau concerns the disparity in Call Report data betweenlarge institutions, which report reliance on the use of estimates for disclosures, and communitybanks, which report lower reliance on the exception. Our members report that the disparity maybe due to the process many community banks use to provide remittance services to theircustomers. Community banks typically provide the service by relying on a larger domesticdepository institution to transmit funds abroad for which they pay a fixed fee to the largerinstitution. Because community banks only pay the correspondent bank’s fixed fee—and usethat fee for their disclosures—community banks may not be aware of the extent of reliance bytheir correspondent banks on estimates.
While that would help to explain the disparity in Call Report data, the disparity underestimatesthe impact that would occur when the ability to estimate expires. If a larger correspondent bankis 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 erroneousto assume that community banks and their customers will not be affected as significantly by theloss of the ability to estimate.
Apart from that, as more fully discussed in our joint comment letter with the other tradeassociations, the Bureau should avoid disruption to the remittance transfer market, byexpanding the list of countries eligible for the permanent exception and exercising its authorityunder the Equal Credit Opportunity Act to adopt regulations to carry out the underlying purposeof the statute.
As noted previously, the Rule defines “remittance transfer provider” to mean a “person orfinancial institution that provides remittance transfers for a consumer in the normal course of itsbusiness.” In 2012, with strong encouragement from the banking industry, the Bureau amendedthe Rule to create a Safe Harbor Threshold that excludes low-volume providers fromcompliance with the Rule's requirements because they do not provide remittance transfers inthe “normal course of business.” Initially, the Bureau set the threshold at 25 remittancetransfers in the previous and current calendar year, but later that year the Bureau increased thethreshold to 100. Without the Safe Harbor Threshold, it is highly likely that many smallerproviders would have discontinued offering remittances due to the compliance costs and otherburdens associated with the Rule.
As discussed at the Bureau’s recent Community Bank Advisory Council (CBAC) meeting onJune 5, it is important to recognize that many community banks do not offer remittancesservices to their customers as a profit-making venture. Instead, community banks offer thisservice 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 keepingthem involved in providing the service for their customers. Anecdotal comments from communitybanks suggest that if they ceased offering the service, their customers would have no otherconvenient option for sending remittances. If a bank customer has to turn to another remittanceservice provider to send funds, the consumer will be unable to send funds from their own bankaccount and will be compelled to withdraw funds and carry them to the alternative provider. Forconsumers located in rural locations, that can mean driving 10, 15 or even 30 or more miles tothe nearest provider.
When the Bureau was considering the Safe Harbor Threshold, ABA and a coalition of tradeassociations 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 sincethey are unable to spread their costs over a large volume of transactions. This has an impact onconsumers; indeed, in the RFI, the Bureau acknowledges that compliance costs have resultedin 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 banksprovide 100 or fewer remittances per year. This finding supports retention of a threshold, since itis likely that many of these banks would have exited the market without it, reducing consumerchoice. Call Report data for credit unions shows that a number of credit unions have exited themarket; however, there is no comparable data for banks. Yet, anecdotal comments, includingthose made at the CBAC meeting on June 5, suggest that community banks have exited themarket as a result of the Rule.
The data show that of the approximately 700 banks subject to the rule, about 400 sent fewerthan 500 remittances per year and approximately 100 sent between 500 and 1,000 remittancesper year. Not surprisingly, the Bureau also found a correlation between asset size and transfervolume—institutions with smaller assets sent fewer remittances per year. We believe thesedata support increasing the threshold to 500 remittances per year, which would have a minimalimpact on consumer protection while promoting competition and ensuring access forconsumers.
It is important for the Bureau to set the threshold at the appropriate level to encourage smallervolume providers to remain in the market, for once a provider has discontinued the service, it isdifficult to get them to resume offering it. The right threshold will ensure that consumerscontinue to have access to remittance transfers from their local community bank. Alleviating theburden on smaller institutions and keeping them in the market helps promote competition aswell as access to remittance services by consumers.
As previously discussed, the Bureau’s data show that low volume remittance providers tend tobe community banks. With a smaller customer base, community banks know their customersand can more readily differentiate between unusual transactions or activity consistent with thatcustomer’s banking patterns. One bank reported that knowledge allowed the bank to detect anunusual wire request that turned out to be elder financial exploitation and prevented a loss tothe bank’s customer. Another community bank has suggested that close customer connectionsallow the bank to stop approximately one instance of fraud every month. Therefore, a thresholdthat encourages smaller institutions to continue providing remittances may also increaseconsumer protection from fraud.
Expanding the threshold does not mean that customers go unprotected, even if the rule doesnot apply. First, as noted above, community banks report they do not receive error claims orother complaints involving remittances, indicating that customers are satisfied with the service.Second, because banks emphasize maintaining positive relationships their customers, mostexempt banks provide as much transparency as possible regarding the costs and feesassociated with a remittance transfer. If a problem does arise, they work with customers toresolve any issues. Our community bank members report that compliance with the rule simplyestablishes 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 significantlydifferent from the customer’s perspective; rather, it requires the bank to take steps to satisfyexaminers and auditors.
Therefore, ABA recommends that the Bureau increase the threshold for determining when aremittance provider makes transfers in the normal course of business to 500 remittancetransfers per year. The increase will not reduce consumer protection, but will ensure thatproviders stay in the business and continue to provide consumers with convenient access to theservice through their depository institution.
ABA appreciates the opportunity to comment. We believe that if the Bureau takes theappropriate steps to keep more providers in the market, it can serve the interests of consumerswhile alleviating burden on the banking industry and promoting competition. We look forward tocontinuing to work with the Bureau to ensure that consumers have safe and convenient accessto remittance transfer services.
Robert G. Rowe, III
Vice President & Counsel, Regulatory Compliance and Policy