The Dodd-Frank Act and the Consumer Financial Protection Bureau might end up denying crucial funds to nations emerging from war, a new study says.

New rules that the CFPB hopes will protect consumers could choke off remittances needed to rebuild countries after a crisis, according to an essay by Raymond Natter published in a Boston University study of remittances and post-conflict states released Tuesday. The heavy regulatory burden and unrealistically stringent disclosures the new rules require could encourage remittance providers to leave the field once the rule takes effect on Oct. 28, writes Natter, a former deputy chief counsel for the Office of the Comptroller of the Currency and senior staffer with the Senate Banking Committee.

The Dodd-Frank Act created regulations to protect consumers sending remittances, or payments a person sends from abroad to his or her country of origin. The rules are intended to promote fee transparency and prevent overcharging, by requiring remittance-transfer providers to report any fees charged on the transfer, including those charged by third parties. The CFPB released the revised final rule on remittance payments in May.

Post-conflict zones often lack the stable financial institutions and infrastructure needed to track remittance payments with the precision that the CFPB's rules require, the report says. Additionally, the strict penalties it imposes for even accidental or inadvertent noncompliance may raise the cost of remittances or encourage more payment processors to stop providing remittances to countries emerging from violent conflict — a harmful unintended consequence, since these payments can be crucial to a country's recovery, Natter says.

"The legislation and regulations were designed for a model in which the remittance transfers are subject to known rules and regulations, where all fees can be determined beforehand, and where exchange rates and timing can be predicted with near certainty," Natter writes. "This model does not exist for remittances sent to many post-conflict countries."

The CFPB's final rule creates many practical problems for remittance providers, especially those in post-crisis countries, says Natter. For payments sent through intermediary financial institutions, for instance, it may not be possible to determine third-party fees. In some cultures, these fees will be subject to negotiation, or the fees may vary depending on local economic conditions, especially in countries without strong regulatory systems.

"The U.S. regulatory requirement for advance notice and/or publication of consumer fees is certainly not the norm in many parts of the post-conflict world, and the regulatory language does not take that into account," Natter writes.

The CFPB carved out an exemption for thee fee-disclosure rule for remittances sent to certain bank accounts. But three-fourths of the world's poor don't have bank accounts, Natter writes, which limits the applicability of this exemption. Natter recommends that the CFPB expand the exemption to include transfers made to cards and mobile phones.

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