WASHINGTON — Banks are scrambling to prepare for new regulations governing remittance transfers that take effect in February, while pushing the Consumer Financial Protection Bureau to change a rule they say is unworkable.
The bureau finalized a rule last January expanding remittance disclosures, and revised it in August to exempt institutions with fewer than 100 remittances a year. But industry groups are still asking the bureau to relax certain requirements, or at the very least give them more time to comply.
"It’s one of those 'you can’t get there from here’ regulations,” said Gene Elerding, a partner with Manatt, Phelps & Phillips in Los Angeles. "You can’t comply with it in some cases. It’s impossible.”
The rule requires remittance transfer providers to disclose the total amount of money that a recipient would receive through a transfer, factoring in the exchange rate, and any fees or foreign taxes, as well as the date that the money will be available.
Providers must disclose the information when the customer first requests the transfer, and again when the payment is made. Consumers will generally have 30 minutes after the payment is made to cancel a transaction.
The rule takes effect on Feb. 7.
The problem, banks say, is that they simply don’t have easy access to the tax information that the new rule requires them to disclose.
"It is important that you understand that a database of all worldwide taxes and their related exemptions and exclusions that are applicable to international transfers and available in real time simply does not exist today,” industry groups said in an Oct. 17 letter to the agency.
In many cases, the sending bank would have to call the beneficiary bank to obtain the information, which presents its own set of practical challenges, Elerding said.
"There are a half-dozen to a dozen questions you have to ask to figure out, 'Is there going to be a tax?’” he said. "That bank is going to have to pick up the phone and call somebody that, hopefully, is there because of the different time zones. You’re calling Vietnam now, and hopefully you can get someone who speaks English. And you’re asking somebody who is probably the lowest-paid person at the bank to tell you what the tax laws of Vietnam are.”
"Good luck,” he said.
Banks in general have started focusing more on remittances as a source of revenue.
Leading the charge is Wells Fargo & Co. (WFC), whose transaction volume grew at a record pace of 27% in 2011 over 2010, partly because of its growth on the East Coast, where it has mostly finalized its conversions of former Wachovia branches.
Remittances sent to Latin America from the U.S. in 2011 exceeded pre-recession levels and more money was remitted through banks than other methods, according to a May report from Inter-American Dialogue.
Richard Hunt, the president and chief executive of the Consumer Bankers Association, said one of the group’s members — a regional bank with more than $75 billion of assets — currently handles remittances to 147 countries. Of those, they are able to provide accurate information required under the new rule for just 13 of those nations.
"The bank’s going to do one of two things,” Hunt said. "Either they’re going to eliminate the [other] 134 countries and only serve those 13, or try to help out the customers transferring money over. And that’s where we need to have a give and take with the CFPB.”
The agency has offered some relief for remittance providers. In August, CFPB announced that institutions with fewer than 100 transfers do not have to comply with the rule. They also provided a list of countries for which providers may use estimated disclosures.
Still, the industry is concerned it’s not enough.
"The exception is too small to be workable, even for credit unions that do even a small amount of remittances,” said Carrie Hunt, the vice president for regulatory affairs and general counsel at the National Association of Federal Credit Unions. "It just doesn’t provide any meaningful relief.”
Hunt said credit unions have made some headway coming up with business solutions to comply with the rule. Some larger banks are looking to "farm out” their compliance infrastructure to smaller institutions, she said, while others could partner with Western Union, which is already established in many underdeveloped countries.
Still, NAFCU is pushing for a broader exemption that would allow for streamlined disclosures for smaller entities.
"Certainly, at a minimum, a delayed compliance date would be helpful until some of the other business solutions are built out a little bit more,” Hunt said.
The Oct. 17 letter, which was signed by The Clearing House, American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America and the NACHA, the electronic payments association, proposed a phased in implementation. It would require banks to disclose what they know, but give more time to build out the systems they need to disclose information to which they don’t currently have access.
Hunt said that despite the letter, he does not expect CFPB to push back the compliance date, but he was hopeful that the bureau would "exercise common sense” when implementing the rule.
"We want to serve our customers, we want to have compliance,” he said. "It’s just not a perfect science.”
The industry appears to have made more headway on the issue of lender liability when there is a remittance error.
Banks have complained that the rule imposes strict liability on lenders for errors, even if the sender provided the wrong account or routing information. Even unauthorized electronic funds transfers impose some shared liability on the customer, they argued — for example, a borrower has a responsibility to report a lost or stolen debit card.
In an Oct. 16 webinar on the new rule, CFPB Director Richard Corday said he agreed with the concerns.
"In those circumstances, though we think the provider should be responsible for trying to remedy the situation, if the money was properly transmitted in accordance with the sender’s instructions and cannot be recovered, we share concerns about liability resting on the provider," he said. "We expect to take action shortly to address this issue."