Actions speak louder than words. Previously, the Consumer Financial Protection Bureau touted its proposed remittance rule as an example of its efforts to reduce regulatory burden on community banks. Unfortunately, the Bureau’s final electronic fund transfer rule creates new disclosures and risks of fraud that motivate community banks to discontinue or reduce transfer services for their customers, according to the Independent Community Bankers of America.
Most community banks provide a single international wire transfer service. It gives customers the ability to send emergency transfers to friends and family traveling abroad, worker remittances, bill payments, purchases, investments and wealth management to accounts outside the United States, the ICBA said in a letter to the Federal Reserve on July 22. The majority of community banks do not offer the service for foreign-born U.S. residents to send funds to family members abroad. The service is not a big money maker for these banks. Consumers receive it for a single, flat fee and competitive exchange rate, the ICBA wrote.
For these reasons, the Bureau made an attempt to aim over the heads of community banks. The final rule adds disclosures and servicing responsibilities to transfers only for banks with more than 100 transfers per year. Approximately 60 percent of community banks fall under this threshold and are not required to comply with the new disclosure and servicing requirements.
However, while the Bureau tipped its hat to small banks, the rule still motivates these banks to discontinue or limit international transfers. In particular, banks that cross the threshold are liable for incorrect account information provided by the customer. Under the final rule, the Bureau has done more than protect consumers against banks; it has made banks liable for consumer mistakes.
The banks’ liability for incorrect account information also encourages fraud. The final rule establishes a 180 day period, after the transaction, in which the customer can claim an error. Suppose the customer returns, three months after the transaction, saying payment was never received. When the banker produces the account number given, the customer realizes they gave the wrong information. Now, the bank must try to recover the funds from the receiving bank. And, if the account at the receiving bank happens to have been closed, then the sending bank is out the money. It’s not hard to imagine a fraud scheme with the same story line.
The final rule also adds a slew of disclosures; in particular it requires banks to provide a pre-transaction disclosure with a calculation for the national, district and local taxes that will be associated with the remittance transfer. Since there is no global list of national, provincial or municipal taxes for a community bank to reference, it will be difficult for them to comply.
ICBA estimates that nearly 50 percent of community banks will discontinue international transfers once they reach the threshold. The rule motivates banks to either manage transactions to remain under the threshold or discontinue the service altogether, according the association’s research.
These and other shortcomings in the final rule motivated ICBA and other industry advocates meet with Richard Cordray, director of the CFPB, in August. The advocates encouraged the Bureau to provide more time to implement the rule, eliminate requirements that make banks liable for incorrect account information provided by consumers, and not require sending banks to calculate the national, district and local taxes associated with the remittance transfer. The ICBA also released a three part video to illustrate the challenges created by the final rule on August 28. Here are parts one, two and three