Banks can thank two powerful consumer groups for getting exactly what they wanted from the Consumer Financial Protection Bureau's final rule on international money transfers.
The rule, released Tuesday, was far less onerous to banks than what the CFPB first proposed. Experts say the agency backed away from proposed stiffer requirements after the Center for Responsible Lending and the National Council of La Raza raised fears that they would drive small banks and credit unions out of the $534 billion remittance business.
"I wouldn't call it caving, I'd call it seeing the light," says Jeremy Rosenblum, a partner at Ballard Spahr, who represents banks. "The industry really made a powerful case, and I think this may have been a case where industry groups and consumer advocates took the same position because it was pretty clear that the rule as initially formulated and reformulated, was going to drive a lot of remittance providers out of the market."
The final remittance rule still provides increased consumer protections required under the Dodd-Frank Act. It specifies that consumers sending money transfers must receive a disclosure and a receipt that shows how much money will be received in the foreign country and when it will be available, and if an error occurs the consumer has some recourse.
But there was plenty of jockeying over the final rule, which boiled down to two key issues: whether banks should be required to disclose all fees charged by foreign banks, including fees that may have nothing to do with the money transfer; and whether banks should be held responsible for all errors, particularly if the consumer made the error by providing an incorrect account number. In both cases, the CFPB ultimately sided with banks.
To some, the final remittance rule shows that the CFPB will listen to the industry's concerns, despite the perception that it is anti-bank.
"We appreciate where the CFPB ended up, though it took a lot of steps to get there," says Richard Hunt, the president and chief executive at the Consumer Bankers Association.
Others, though, were surprised that the CFPB gave so much weight to the banks' arguments, given that the remittance business was so lightly regulated.
Margot Saunders, an attorney at the National Consumer Law Center, who has worked on remittance issues for 20 years, says she was especially disappointed that the final rule did not provide incentives for banks to develop more sophisticated technology applications to catch errors.
"The loss to an individual migrant of one remittance can be devastating," says Saunders. "The bank is supposed to develop a system to protect everybody against losses, just like in credit cards. The consumers' negligence is irrelevant."
But Eric Stein, a senior vice president at the Center for Responsible Lending, an affiliate of Self-Help Federal Credit Union, says banks and credit unions were fearful that fraudsters would game the system if banks were responsible for consumer errors. Moreover, he says it is rare for a sender to transpose a bank account number and for the money to wind up in the wrong account.
"This was a huge issue that was clearly going to keep institutions on the sidelines and the actual consumer benefit was very small because so few people fell into the category," Stein says. "Banks and credit unions need to think about risk mitigation and where we can lose money. So we had to strike a balance over how much people are going to be protected."
Janis Bowdler, director of economic policy at the National Council of La Raza, says she worked with the Center for Responsible Lending and the CFPB on a compromise that maintained most of the consumer protections for money transfers while ensuring responsible firms did not leave the market.
"The rule offers some broad protections but if the consumer transposes account numbers, there's no way to check that. Besides, the banks still have a responsibility to try and get the money back," Bowdler says. "Not everybody agreed with us, but we felt it was a small issue to keep credit unions in the game and that was a fair compromise."
Determining foreign bank fees also became a point of contention. Banks successfully argued that it was impossible to track all foreign bank fees and that some fees like ATM charges were not related to money transfers at all. A proposed exception that banks provide "estimates" of foreign bank fees ultimately was shot down by the CFPB out of concern that it "could increase consumer confusion," and make it difficult to comparison shop for the best prices.
"The CFPB bought the fact that banks have no way of determining what the foreign bank fees are," says Stein. "We learned from different parties on both sides and the result the CFPB ended up with is the right result for consumers so money transfers will be widely available and not overpriced."
One indication that the remittance rule was too unwieldy to begin with came in December when the CFPB added an amendment easing the burden on U.S. banks of determining all foreign taxes, including those of regional, provincial, state or other local governments. Banks made the argument that tracking all foreign taxes was just too difficult and estimates would have resulted in higher costs to consumers.
Under the final rule, released last week, banks do not have to bear the cost of a lost money transfer under an exception for sender errors. Banks also will be required only to give disclaimers on disclosure forms indicating that foreign bank fees and foreign taxes "may apply" to money transfers, making the full disclosure of fees optional. That is far less burdensome than what was in the proposed rule, that banks disclose or in some cases estimate all the fees imposed by foreign banks on money transfers.
The CFPB even extended the date of implementation of the 212-page final remittance rule, to Oct. 28, 2013, double the time it previously gave.
"They really came to a great place for us," says David Pommerehn, counsel of legislative and regulatory affairs at the Consumer Bankers Association. "Banks were very concerned about trying to ascertain what the recipient bank fees and local taxes were."