On August 7, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) published certain updates (“August Updates”) to the remittance transfer rules that it finalized and published in the Federal Register in February (“February Final Rule”). Specifically, the August Updates state that providing remittance transfers “in the normal course of business” means providing at least 100 remittance transfers in a calendar year. The August Updates also address a number of issues regarding preauthorized remittances that had been left open in the February Final Rule. Both updates, along with the rest of the February Final rule, take effect on February 7, 2013.
In the Normal Course of Business?
The February Final Rule, which we summarized in detail here, amended Regulation E to implement provisions of Dodd-Frank that imposed, for the first time, federally mandated disclosure, error resolution and cancellation requirements on “remittance transfer providers,” defined as any person (including a financial or a non-financial institution) that provides remittance transfers for a consumer “in the normal course of its business.
Concurrently with the February Final Rules, the Bureau proposed and requested comment (“February Proposal”) on a possible safe harbor to define what constitutes providing remittance transfers in the “normal course of business.” As we explained in our prior post, under the February Proposal, a person that makes no more than 25 remittance transfers in the previous calendar year would not be providing transfers in the “normal course of business” in the current calendar year, so long as that person does not also make more than 25 remittance transfers in the current calendar year. If, however, the person makes 26 or more remittance transfers in the current calendar year, that person could be considered a remittance transfer provider, depending on certain facts and circumstances.
The August Updates increased the proposed threshold from 25 to 100 remittance transfers. Specifically, the finalized safe harbor states that, if a person provided 100 or fewer remittance transfers in the previous calendar year and provides 100 or fewer remittance transfers in the current calendar year, then that person is deemed not to be providing remittance transfers in the “normal course of its business” and is not a remittance transfer provider.
However, once that person provides more than 100 remittance transfers in the current calendar year, then that person is deemed a “remittance transfer provider,” and is afforded “a reasonable time period,” not to exceed six months, to begin complying with the remittance transfer rules. That is, the person is not required to follow the rules with respect to any remittance transfer made during the “reasonable time period.” This grace period begins to run on the date of the 101st remittance transfer and ends no later than six months from such date.
Transfers Scheduled in Advance
In the February Proposal, the Bureau also solicited comment on several aspects of the rules for remittance transfers scheduled in advance. For example, the Bureau asked whether estimates for disclosures should be permitted for certain advanced transfers and, if so, whether a remittance transfer provider should be required to provide a receipt with accurate information close to the time a transfer is scheduled to occur. The Bureau also solicited comment on cancellation deadlines as applied to advanced transfers, including whether the deadline to cancel an advanced transfer should be more or less than the three business days currently set forth in the February Final Rule; whether the deadline to cancel should be disclosed in a different manner; and whether the cancellation deadline should be disclosed in the pre-payment disclosure for each subsequent transfer, rather than on the receipt.
The August Updates address each of these questions in turn. When a sender schedules a one-time transfer or the first in a series of preauthorized remittance transfers five or more business days before the date of transfer, a remittance transfer provider may estimate certain information in the pre-payment disclosures and on the receipt provided when payment is made. If estimates are provided, the remittance transfer provider generally must give the sender an additional receipt with accurate figures after the transfer is made. With respect to subsequent preauthorized remittance transfers, a remittance transfer provider is not required to mail or deliver a pre-payment disclosure for each subsequent transfer, unless certain information has changed. However, remittance transfer providers must provide accurate receipts after subsequent transfers are made. For remittance transfers scheduled at least three business days before the date of transfer, and for preauthorized remittance transfers, the August Updates generally require disclosure of the date of transfer on the first receipt given at the time of payment and on any subsequent receipts provided with respect to a particular transfer. Disclosure of the transfer date is intended to enable a sender to identify the transfer to which the receipt pertains and, when received prior to the date of the transfer, determine the date on which the right to cancel will expire.
For subsequent preauthorized remittance transfers, the remittance transfer provider must also disclose the date or dates on which the subsequent transfers will occur. The August Updates also permit remittance transfer providers to describe on a receipt both the three-business day and 30-minute cancellation periods and either describe the transfers to which each deadline applies or, alternatively, use a checkbox or other method to designate which cancellation period is applicable to the transfer. The August Updates do not change the three-business day cancellation period for these transfers.
It will be interesting to observe the reaction of smaller institutions as to whether the threshold increase – i.e., from 25 to 100 remittance transfers – is meaningful. The compliance burdens of the remittance rule are considerable, and whether regulatory relief for the first 100 transfers is sufficient to keep institutions with only marginal remittance transfer business in the market remains to be seen. The full impact of these rules on the cost and availability of remittance transfer options will likely be discerned only after a number of development and examination cycles.