WASHINGTON—While industry observers brace to see whether the cost of international wire transfers will skyrocket after the new Consumer Financial Protection rule went in effect on Oct. 28, early indications from credit unions are that prices will rise and some may exit the market entirely because of the increased compliance burden.
The rule applies to credit unions, banks and other companies that offer international transfers to consumers. Companies consistently handling 100 or fewer remittance transfers a year are exempt, as are all transfers less than $15.
In Birmingham, Ala., the $1.3 billion America's First FCU plans to leave the remittance business.
"When we get remotely close to the 100-transaction threshold, we will stop the program," said Alan Stabler, SVP and general counsel, who noted the CU typically does not do a great deal of international wire transfers. "We do not want to even try to comply with the new rules-there is more compliance burden and just a lot more details you face when you top 100 transactions."
Alabama CU, in Tuscaloosa, Ala., has decided to increase its prices. The $606 million CU currently charges $45 for an international wire, but will bump that up Jan. 1, explained COO Kayce Bell, who acknowledged the new remittance rules make this business more challenging to run.
"After the disclosure period, we'll probably charge $50 or so for a wire that's under $10,000, and a higher fee-maybe $100-for a wire that's over the $10,000 threshold," said Bell. "That's because we're going to send a test wire on the larger transactions to ensure it's received by the correct recipient and we won't be dragged into error resolution land. It's definitely a cost we must pass on to the member, although we hate to do that."
Prices Rise At Border FCU
Maria Martinez, CEO of the $117 million Border FCU in Del Rio, Texas, said her CU will also be raising remittance prices. BFCU offers remittances via Directo a Mexico, as well as through Catalyst Corporate FCU, and will raise fees for both. The fee for Directo a Mexico, for example, will increase from $3 to $5.
"If we were to stop offering remittances, we would be closing the doors on our members who rely on a safe and secure method of getting funds to loved ones," said Martinez. "However, in order for us to continue providing the service, our members will have to share in the cost."
To date, the average cost of sending money overseas has remained relatively stable in recent years. The World Bank reported last month that the global average cost of sending $200 was 8.93% in the third quarter, slightly up from the 8.85% in the previous quarter but down from the 8.96% a year earlier. However, the World Bank added that commercial banks were the most expensive means of sending money, averaging a 12.9% cost in the third quarter.
But the overall impact of the new rule remains unknown.
"Overall, [financial institutions] are ready ... but there's some of them that just don't understand the rule and unfortunately, there's going to be some turmoil," said Michael Rockouski, senior vice president of the financial institutions practice at global payments provider, Cambridge Mercantile Group.
Not everyone agrees, however. Consumer advocates and the CFPB have argued that by requiring a provider to release a cost estimate and give the consumer a short period of time to shop, it will force institutions to offer competitive rates.
"We expect the market to become more cost-driven so providers can decide where to put their price point but then consumers can decide to shop," said Annette LoVoi, director of financial access and asset building at the Appleseed, a nonprofit network of public interest justice centers. "Because of this, we're looking to see pricing trend downward."
LoVoi also argued that it will be hard for institutions to turn away from the billions of dollars that flow out of the country per year. According to the World Bank, the migrant outflow of money from the U.S. to other countries came to a halt in 2009 and remained stagnant for three years, hovering around $50.5 billion until 2012 when remittance outflows picked up to nearly $51.1 billion.
"We believe that the remittance volume is huge and will continue to grow and this will be a favorable market for financial institutions that want to treat their customers fairly," LoVoi said.
CFPB Will Monitor Market
As with any rule, the CFPB plans to monitor market trends and has the ability to alter its rule if it finds that consumers are being harmed more than helped. Michelle Person, a CFPB spokeswoman, said in a statement that the costs of new disclosure and error resolution standards are already a part of the credit and debit card markets.
"We expect that the protections will help promote competitive pricing by helping consumers to compare prices and get the services they are promised," Person said.
The CFPB has also already extended the effective date of the remittance rule and amended it to relieve some of the paperwork burden. However, the agency only released exam procedures shortly before the rule took effect on Oct. 28, which may create some challenges for compliance, according to Tim Burniston, a former Federal Reserve regulator who now heads the U.S. consulting practice at Wolters Kluwer Financial Services.
"The CFPB has been pretty good about keeping the industry up to date with what they've been doing on this regulation... but the exam procedures really didn't come out until the other day and it's a fairly thick package," Burniston said. "To absorb that and understand what the examiners are focusing on is going to be challenging."
Alabama CU's Bell said that despite the new red tape, the credit union is committed to offering products members need. "So we'll keep going. It is frustrating. I saw nothing that convinced me this was a piece of financial services land that needed fixing. The trend is for all consumer financial institutions to 'protect consumers from themselves.' That's certainly getting harder to do, and in this case, it's, unfortunately, going to increase the cost to our members."
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