Landmark federal consumer protections will soon be available to immigrants sending money abroad. Starting later this month, the Consumer Financial Protection Bureau will require remittance transfer providers to give consumers clear information up front about price and delivery, as well as remedies if the transmission goes wrong.
Recently, American Banker published an article referring to a paper by Raymond Natter, an attorney at a firm that represents financial institutions, that raises the concern that the new rule will hamper remittance flows to war-torn countries. Although Natter's precise solutions are a little unclear, he seems concerned that because such countries lack stable financial institutions, remittance sending companies should not be responsible for the disclosures required by Congress and the CFPB or held accountable for delivering the amount promised.
Getting money into the right hands during or after a conflict is critical. Donors and family members open their hearts and wallets to people who are suffering; meanwhile, predators and exploiters may try to skim any lifeline funds coming into the country. Rebels or government officials may take family money and buy arms or feed their troops. Delivering money to post-conflict countries is a dangerous business, fraught with uncertainty and peril. The question is, Who should be responsible for making sure the money gets to the right hands: the company offering the service, or the immigrant in the U.S. who entrusted the company with sending the money?
In choosing how to modernize the remittance industry and make it fairer to consumers, Congress determined that the best way was to provide transparency in pricing and remedies when transactions go awry. Some members of Congress suggested capping the "spread" companies could charge but Congress rejected that approach, in part from a recognition that it is more expensive to deliver money to countries torn by war, rebellion or disasters. Under the rule, companies may charge high prices to deliver money to recipients in fragile states: they just need to tell the consumer what it will cost them.
The rule provides further safeguards for money transmitters: the CFPB recognized that remittance companies might be unable to give consumers precise disclosures as to the amount available for pickup in certain countries, and thus the rule allows for estimations when precise disclosure is legally impossible. The safe harbor list of countries that qualify for the exception is not static, and the CFPB intends to revise the list as needed.
Natter points to the relationship between the formal and informal ways people send money abroad, and speculates about unintended negative consequences of the rule, contending that it will drive money underground. This is a somewhat surprising conjecture. The intent of the rule and its likely effect is that consumers will have more confidence in the formal system of money transfers, once they are given clear information about how much money will actually be available on the receiving end. Estimates are that perhaps half the funds remitted around the world now move informally, through channels that may be very dangerous and risky. Transparency and accountability should attract money from the underground economy and the rule should end up helping money reach people whose governments are unstable.
Let's hold our fire on the new rule for now and ask the question if not this rule, then what? Appleseed suggests that lack of federal regulation offered up a different set of problems: Option One: let consumers send money and hope for the best, that some of it will arrive, more or less when and where expected, and if it doesn't, "too bad, so sad." Option Two: the consumer could send funds with someone travelling to the home country in a boot, in a package, stitched in a coat, and hope it's not stolen, seized or siphoned off en route.
The beauty of the new regulation is that the CFPB has the regulatory authority to adapt to unanticipated circumstances. Yes, there's a cost to companies to comply with the new rule, but the cost of failed transactions has hitherto been borne in silence and pain by consumers. For now, let us celebrate a huge victory for workers who send money back home. They will be able to compare providers, know how much will arrive, and have errors resolved.
Companies doing business in post-conflict states should do their very best to assure the safe delivery of vital funds to families there. The rule won't force any companies out: their managers may decide to leave or to continue providing crucial lifeline services.
Betsy Cavendish is the president of the Appleseed Foundation, a nonprofit in Washington.