WASHINGTON The Consumer Financial Protection Bureau has revised its final rule on remittances to make it less burdensome for financial institutions, but it still will have a significant though unclear impact on international money transfers, according to analysts.
FI execs said the new rule, coupled with global efforts to reduce transfer fees, will require them to update their automated systems and likely rework their fee structure, among other major changes. Though there are residual concerns about the regulation, many in the industry see it as necessary given the rising costs of international money transfers and the difficulty of comparing bank fees, according to American Banker, an affiliate of Credit Union Journal.
At issue is a rule first issued in February 2012 that requires FIs to provide more disclosures about international remittances. After complaints from the industry that it was nearly impossible to comply with, late last month the CFPB issued a revised final rule designed to make it easier for banks to comply with the regulation. But a key question remains how the new rule, which takes effect Oct. 28, will affect consumers, including whether remittance fees will go up or down.
“Certainly costs have gone up and how an institution chooses to pass on those costs remains to be determined,” said Mark Erhardt, senior vice president of retail products at Fifth Third Bank, in an interview with American Banker. “It will depend ultimately on how many financial institutions stay in the business ... if a large number continue to stay, you will see a very competitive marketplace.”
The global average cost for sending remittances was 9% in the first quarter and has remained somewhat stable in the last year, according to the World Bank. But that percentage equals roughly an $18 charge per $200 transfer, which has raised concerns for World Bank’s Massimo Cirasino, who heads the payment system development group.
Cirasino recently cautioned global lawmakers about “leaks” in international money transfers generating excessive fees for consumers, particularly migrant workers who sent $400 billion in U.S. dollars to their families in 2012. Financial institutions received roughly $36 billion in fees from migrant workers alone last year, based on the global percentage average.
Cirasino estimates migrants could save about $16 billion annually if lawmakers reduce global remittance prices down to 5% by 2014. The CFPB’s remittance rule should help with that by requiring banks to disclose certain fees and tax estimates to consumers up front. It also requires the provider to “attempt” to recover any funds deposited into the wrong account when a sender provided incorrect information.
