WASHINGTON — With concerns still rampant that regulations by the Consumer Financial Protection Bureau will unduly harm community banks, the agency took a step Tuesday toward giving smaller institutions relief in a key area: remittances.
But whether bankers will be satisfied is another question.
The CFPB said institutions with fewer than 100 remittances a year are freed from new fee-disclosure requirements. The final rule, which updated a February regulation on remittances, appeared aimed at soothing concerns by community banks and others that the fee requirements harmed low-volume providers.
It also may impact a Texas banker's court challenge to the CFPB, which specifically cited the remittance rule as a reason why the agency should be abolished.
"This is an area where you have to balance the benefits and costs of the regulation, and I think the CFPB was sensitive to the idea that some providers don't have the sophistication and resources to comply with all the technical aspects of the" disclosure requirements, said Kevin Petrasic, a partner with the law firm Paul, Hastings, Janofsky & Walker.
Under the Dodd-Frank Act, the CFPB was required to write a rule that enacted mandatory disclosure of fees, exchange rates and how much a recipient would receive in an international money transfer. The agency finalized a rule in February implementing the provision early this year, but at the time also sought comment on options for providing safe harbors.
The CFPB originally proposed a 25-transfer limit for not having to comply, but the final rule announced Tuesday raised that to 100. The bureau said institutions that consistently fall under that threshold do not offer transfers "in the normal course of business."
The final rule also provides a six-month transition period to comply with the new restrictions for institutions that had less than 100 remittances in the previous year but subsequently crossed the threshold. Additionally, the rule allows some flexibility for remittance transfers that are scheduled in advance of the actual transfer. (Both the original remittance rule, and the update announced Tuesday, will take effect in February 2013.)
"We recognize that in regulations, one size does not necessarily fit all," CFPB Director Richard Cordray said in a press release. "The final remittance rule will protect the overwhelming majority of consumers while making the process easier for community banks, credit unions, and other small providers that do not send many remittance transfers."
Cordray earlier this year said the CFPB would consider cases where a regulation could be tailored to reflect the specific needs of smaller institutions, and said the bureau would follow certain rules with adjustments to provide flexibility. He cited the remittance regulation as an example.
"What I have said is there are different institutions at different levels of sophistication and that's something that we should very much take into account as we go about writing regulations for the broader market," he said in March.
But it is not clear bankers will be satisfied with the changes.
"It's an improvement but it doesn't do anything. It's still too low," said Robert Rowe, vice president and senior counsel for the American Bankers Association. "Even some of the small banks say they often send 100 to 125 a month. … Part of it was how they defined a remittance: it's any consumer-related wire transfer. We had originally suggested a hundred a month, or narrow the definition to what people more traditionally call a remittance."
Rowe said that some banks "are already leaving the business" as a result of the earlier rule.
L. Cary Whaley 3rd, a vice president for the Independent Community Bankers of America, also said the group was disappointed with the final rule.
"Our concern is that, with a safe harbor set as low as 100 transactions, what happens when you reach 101?" he said. "Institutions that then hit that ceiling will cease offering consumer initiated international payments. We would have like to have seen a threshold that was little more sustainable. That way it would encourage community banks to grow their volume to the point that the income sustains the expense."
A spokeswoman for the CFPB said the new threshold "provides a reasonable basis for identifying entities that do not provide remittance transfers in the normal course of business."
"For purposes of the safe harbor, we focused on finding a standard that would be easy and consistent for all entities to apply," she said. "Based on the limited data available, we expect that a large number of financial institutions, particularly small community banks and credit unions, will qualify for the safe harbor."
But she added that the CFPB will continue to monitor implementation of the rule and "will look closely at the threshold and its impact on consumers, businesses, and the growth of the remittance transfer market."
It's also not clear what impact — if any — the new final rule will have on a court case filed by Texas-based State National Bank of Big Spring. The bank argued that the remittance rule released in February caused it to stop offering remittance services altogether, hurting the bank and its customers. The impact of the rule is a critical part of the bank's claim that it has been damaged by the CFPB, giving it legal standing to challenge the constitutionality of the agency's creation.
Petrasic said it's clear the new rule is an improvement.
"It does improve it from the perspective that there are a lot of technical aspects of the remittance rule. There was considerable confusion that has not been entirely cleared up about all the different types of remittances that could fall under the rule" he said.
But he added that there is a fine line between needing to comply with the new requirements, and being exempt.
"If you engage in 101 remittance transfers in a year you're subject to the rule. There are certainly plenty of small providers out there — probably the vast majority of them - that will still have to comply with the restrictions," Petrasic said.
"The 100-remittance-per-year threshold establishes that you should either have the programs in place to ensure compliance with the requirements of the rule, or ensure that you are monitoring remittance activity to ensure that you are not going over the threshold."
Margot Freeman Saunders, of counsel for the National Consumer Law Center, said the added flexibility for smaller banks did not undercut the new restrictions.
"The bureau has been under tremendous pressure to exempt financial institutions from much of the law and to postpone the implementation date of the remittance protections," she said. "Expanding the exemptions for an institution who provides fewer than 100 remittances a year will not hurt many consumers. Instead, the bureau has held the line on the important provisions, making the regulation applicable immediately and to all but the smallest providers."