WASHINGTON – CUNA and NAFCU joined a broad coalition of banking groups urging the Federal Reserve to trim a proposal that would require broad disclosures and new liability for providers of international wire transfers, including person-to-person remittances.
The group, which earlier this year teamed in an unsuccessful effort to defeat caps on debit fees, called on the Fed to limit the scope of the proposal to cover only closed-end payments companies, such as Western Union, Vigo and MoneyGram, and to traditional wage remittances, which they say is the intention of the provision of last year’s Dodd-Frank Act, which requires the proposed rule.
Joining CUNA and NAFCU are the American Bankers Association, Independent Community Bankers of America, Consumer Bankers Association, The Financial Services Roundtable, NACHA and The Clearing House.
The group told the Fed in a joint comment letter the proposal requiring a variety of disclosures on fees and exchange rates and assessing liability to originators of wire transfers will have unintended consequences on them and the consumers it is meant to benefit. The proposed rule will implement the Dodd-Frank provisions by amending Regulation E, which implements the Electronic Funds Transfer Act.
The Fed’s proposal would require disclosures of all fees charged in connection with a remittance, including by non-affiliated third-party providers in a foreign country, as well as the applicable exchange rate, and make an originator, including U.S. credit unions or banks, liable for circumstances, such as a late or faulty payment.
“If final rules are not strictly focused on the types of transactions that Congress intended, remittance transfer payments could become too costly, both for consumers and providers,” said the group. “Furthermore, certain aspects of the Proposed Rule could cause a financial institution to delay the transmission of remittance transfers, which would harm consumers in situations where immediate payment is required.”
The group noted the original intent of the Dodd-Frank provision was to protect immigrants who send a substantial portion of their wages to family members abroad. But as written, the proposal would affect a broad range of international money transfers that are not part of that scheme, said the group.
The group said the proposal would cause a significant disruption in wire transfer services by “superimposing rules that will inevitably cause delays in the execution of international wire transfers due to (A) the likely decision of most institutions to hold transfers until the cancellation period has passed and (b) the time it will take to obtain information from unaffiliated parties that is necessary to make the prepayment and receipt disclosures.”
It will expose depository institutions that provide remittance transfer services to increased liability risk in regard to wire and ACH transfers as a result of disclosure and error resolution rules that make these institutions responsible for matters “that are beyond their control,” said the group.
They predicted an increase in costs of wire and ACH transfer services due “to system and operational enhancements needed to achieve compliance and manage increased risk.”
The credit unions and banks told the Fed they believe the Dodd-Frank provisions were intended for closed-end wire transfer systems and not open-ended systems used by financial depositories. They recommended the Fed either exempt open-ended systems from the proposal or tailor new rules that address the operational aspects of open-ended systems.
They also urged the Fed to limit the definition of remittance transfer to the generally accepted meaning of worker remittances.
And they recommended that the Fed exempt all ACH and wire transfers under $1,000 from the proposed rule. They chose the $1,000 figure because they say it is consistent with the general understanding that the average remittance transfer is $400 and it includes a cushion to cover remittances that may be over that.
