[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]


=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \1\ The definition of ``remittance transfer'' in the Remittance 
Rule is described below.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.''
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 1693o-1(a)(4)(B).
    \24\ 79 FR 55970 (Sept. 18, 2014).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 1693o-1(g)(3).
    \29\ 77 FR 6194, 6213 (Feb. 7, 2012).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 1963b(c).
    \35\ See e.g., Assessment Report, at 154.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \43\ 79 FR 55970, 55982 (Sept. 18, 2014).
---------------------------------------------------------------------------

    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:
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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