Financial Institutions and Money Transmitters are Effected by Recent Amendments to the Electronic Fund Transfer Act (“EFTA”)

The scope of the EFTA has been expanded and applies to financial institutions and money transmitters alike.

Amendments to the EFTA provide new protections including disclosures,error resolution, and cancellation rights to consumers who send remittance transfers to other consumers or businesses in a foreign country.

Consumers transfer tens of billions of dollars from the United States to other countries each year. In the past, these transactions were generally excluded from existing Federal consumer protection regulations in the United States. However, in 2012, the Dodd-Frank Act expanded the scope of the Electronic Fund Transfer Act (“EFTA”) to provide for greater consumer protection. As a result, the Bureau of Consumer Financial Protection (“CFPB”) amended Regulation E, Electronic Funds Transfer (“EFT”) ( 12 CFR Part 1005). The final rule, which was issued on January 23, 2012, provides new protection including: specific disclosures; error resolution practices; and cancellation rights to consumers who send remittance transfers to other consumers or businesses in a foreign country . The amendments also broaden the definition of “remittance transfers” and “remittance transfer providers”. The effective date of the rule is January 1, 2013, with a mandatory compliance date of February 7, 2013.

EFTA 1978

The EFTA was enacted in 1978 to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer (“EFT”) systems. As implemented by Regulation E (12 CFR Part 1005), the EFTA governs transactions such as transfers initiated through automated teller machines, point-of-sale terminals, automated clearing house systems, telephone bill-payment plans, or remote banking services. The EFTA excluded wire transfers, and tansfers sent by money transmitters. In 1978, the EFTA only applied to financial institutions.

EFTA 2012

Remittance Transfer-The Dodd-Frank Act defines “remittance transfer” to include most electronic transfers of funds sent by consumers in the United States to recipients in other countries. The term “remittance transfer” has been used in other contexts to describe consumer-to-consumer transfers of low monetary value, often made via non-depository companies known as “money transmitters”. Remittance transfers can be sent abroad by any consumer in the United States. In addition to using money transmitters, consumers can transfer funds to recipients in foreign countries through banks or credit unions, through wire transfers or automated clearing house (“ACH”) transactions, or foreign exchange companies. Consumers in the United States may transfer funds to businesses as well as to individuals in foreign countries, for instance to pay bills, tuition, or other expenses.
Remittance Transfer Provider-Under the Dodd-Frank Act, a “remittance transfer provider” is defined as a company providing remittance transfers in the “normal course of its business.” Specifically, EFTA Section 919(g)(3) defines a remittance transfer provider as “any person that provides remittance transfers for a consumer in the normal course of its business, whether or not the consumer holds an account with such person” (emphasis added).

Section 1005.3(a) of the EFTA was revised to state that the requirements of subpart B apply to remittance transfer providers. The revision reflects the fact that the scope of the Dodd-Frank Act’s remittance transfer provision is not limited to financial institutions. As a result of the changes, Subpart B applies to non-bank financial institutions, such as non-bank money transmitters, that send remittance transfers.

The Dodd-Frank Act creates a comprehensive system of consumer protections across various types of remittance transfers. The statute:

The requirements apply broadly and the only exceptions are for very small dollar transfers.

Sunset Provision

A sunset provision was made in recognition of the fact some banks would need time to improve communications with foreign financial institutions that conduct currency exchanges or impose fees on certain open network transactions. Once the temporary exception expires on July 21, 2015, the statute will require all remittance transfer providers to disclose the actual amounts to be received by designated recipients.

Errors

The statute mandates remittance transfer providers investigate and remedy errors reported by the sender within 180 days of the promised date of delivery. The mandate applies specifically to situations in which the amount of currency designated in the disclosures was not the amount made available to the designated recipient in the foreign country. Under the statute, senders may designate whether funds should be refunded to them or made available to the designated recipient at no additional cost, or any other remedy determined by the CFPB.

The CFPB is also directed by the statute to issue rules concerning appropriate cancellation and refund policies, as well as appropriate standards or conditions of liability for providers with regard to the acts of agents and authorized delegates.

Disclosures

EFTA section 919(a) (3) (A) states that disclosures must be clear and conspicuous in written form that the sender can keep. The final rule also incorporates other requirements including: grouping, proximity, prominence, size and segregation. The grouping requirement ensures that the disclosures present, in logical order, the computations that lead from the amount of domestic currency paid by the sender to the amount of foreign currency received by the recipient. The other requirements ensure that senders see important information and are not overloaded or diverted by less critical information. The final rule provides model forms that meet these requirements. These forms were consumer-tested for effectiveness.

Disclosures are to be provided in English and in each of the foreign languages principally used by the remittance transfer provider to advertise, solicit, or market remittance transfer services at a particular office.

A remittance transfer provider must provide two sets of disclosures.

A remittance transfer provider is allowed to give senders a single written disclosure prior to payment containing all of the information required on the receipt, so long as the provider also provides proof of payment such as a stamp or other indicator on the pre-payment disclosure.

Disclosure for Preauthorized Remittance Transfers

Disclosures for preauthorized remittance transfers (transfers authorized in advance to recur at substantially regular intervals) are the same as for single remittance transfers, for subsequent transfers in a series of preauthorized remittance transfers, a provider must provide a pre-payment disclosure within a reasonable time prior to the scheduled date of the transfer. The receipt for each subsequent transfer generally must be provided no later than one business day after the date on which the transfer is made.

The final rule permits providers, at their option, to provide pre-payment disclosures orally or via mobile application or text message for transactions conducted entirely by telephone via mobile application or text message. The content of oral disclosures must be delivered in keeping with written disclosure requirements.

Error Resolution Procedures

The error resolution procedures for remittance transfers are similar to those that currently apply to banks under Regulation E with respect to errors involving electronic fund transfers. However; the CFPB is adopting modifications to the error resolution provisions including:

In addition, the CFPB reduced the cancellation period from one business day to 30 minutes and for transfers scheduled in advance, senders may generally cancel the transfer as long as the request to cancel is received by the provider at least three business days before the scheduled date of the remittance transfer.

The Bureau notes that because transfers of $15 or less are not “remittance transfers” under Sec. 1005.30(e)(2), such transfers are not covered under the remittance transfer provisions in subpart B.

Effects on financial institutions and Non-bank Remittance Transfer Providers

The revisions and amendments to the EFTA will have potential impact on financial instiutions as “Open Network” providers. Open Network providers generally do not have direct relationships with all disbursing entities. Thus, to the extent providers that use open networks are required to disclose information about fees or taxes, financial instutions may find it difficult to obtain information that must be provided in the disclosures.

Providers that use closed network systems, through the terms of their contractual relationships, usually have some ability and authority to obtain the information needed for the disclosures from their agents or other network partners.The disclosure requirements will likely impose some costs on closed network providers (and potentially some of their business partners), to the extent that such institutions need to update systems, revise contracts, and change communication protocols and/or business practices in order to receive the necessary information to comply with the disclosure requirements. Furthermore, closed network providers that currently offer “floating rate” products will need to adjust their business processes and relationships for setting exchange rates, and change the way they manage foreign exchange rate risk.

The changes will require updates to policies, procdures,operating practices, disclosures and marketing material. In addition, employees will require training on the disclosure requirements and error resolution processing.

Please contact Chartwell Compliance , 1.800.541.6744, for assistance with developing your remittance transfer program or for comprehensive review of your current remittance transfers program.

Source: Federal Register, Volume 77 Issue 25 (Tuesday, February 7, 2012)


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