remittance transfer rule: depository institution exemption

Remittance Transfer

Rule: Depository

Institution

Exemption

Ted Teruo Kitada

Senior Company Counsel

Emerging Payment Systems

American Conference Institute

Washington Plaza Hotel

September 22-23, 2014

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Background

On April 15, 2014, the Consumer Financial

Protection Bureau issued a press release in

connection with a proposed change to the

remittance transfer rule (the “Rule,” Regulation E,

subpart B) to extend the insured depository

institution temporary exemption to July 21, 2020.

79 Fed.Reg. 23234 (April 25, 2014).

The Bureau additionally proposed several

amendments and technical corrections to the

Rule.

On August 22, 2014, the Bureau issued the final

amendments to the Rule.

Temporary insured depository institution

exemption

The Rule generally requires that prepayment,

receipt, and combined disclosures must provide,

among other things, the Transfer Amount;

Transfer Fees and Transfer Taxes; Total;

Exchange Rate; Transfer Amount; Other Fees

(covered third party fees); and Total to Recipient.

Regulation E §§ 1005.31(b)(1)(i)-(vii).

Under a temporary exemption under §

1005.32(a), as to the Exchange Rate, an estimate

may be provided by a remittance transfer

provider if:

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Temporary insured depository institution

exemption

A provider cannot determine an exact amount for

reasons beyond its control;

A provider is an insured institution; and

The remittance transfer is sent from the sender’s

account with the institution.

“Insured institution” means an insured depository

institution.

This exemption expires on July 21, 2015.

The final rule extends the sunset date to July 21,

2020.

4

Broker-dealer as an insured institution

Staff of the Securities and Exchange Commission

(“SEC”) issued a no-action letter on December 14,

2012, concluding it will not recommend

enforcement actions to the SEC under Regulation

E if a broker-dealer provides disclosures as

though the broker-dealer were an insured

institution for purposes of the temporary

exception. The letter is available at:

http://www.sec.gov/divisions/marketreg/mr-

noaction/2012/financial-information-forum-

121412-rege.pdf

5

http://www.sec.gov/divisions/marketreg/mr-noaction/2012/financial-information-forum-121412-rege.pdf











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Clarifying and technical

changes

U.S. military installations abroad

The Rule applies only when a sender located in a “state”

sends funds to a designated recipient at a location in a

“foreign country.” §§ 1005.30(c) and (g).

Receipt of funds at a location in a foreign country depends

on whether the funds are received at a location physically

outside of any state. Comment 30(c)-2.i.

In the case of a remittance transfer to or from an account,

the Rule looks to the location of the account rather than an

account owner’s physical location at the time of transfer.

Comments 30(e)-2.ii (regarding the definition of

“designated recipient”) and 30(g)-1 (regarding the definition

of “sender”).

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As of 2010, the U.S. had 662 military installations in 90

foreign countries.

Many of these installations host financial institutions

(depository institutions, credit unions, and agents of

nonbank a money transmission business) that provide

services, including electronic transfer of funds.

Depending on whether the financial institution is deemed to

be at a location in a “foreign country” or a “state,” the Rule

may or may not apply. How should we treat a financial

institution located on these foreign installations under the

Rule?

There may be a question as to whether the Rule applies

when a transfer is sent from an account in the U.S. to an

account located at a military installation abroad.

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There may be a question whether a cash transfer from a

consumer on a foreign military installation to a recipient in

the surrounding country would be covered by the Rule.

If a location on an installation is treated as located in a state

for purposes of the Rule, those sending a remittance

transfer from the U.S. to a location on an installation would

not receive the consumer protections of the Rule.

On the other hand, those sending funds from a location on

an installation to the surrounding foreign country would

receive these protections.

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Of course, if a location on an installation is treated as

located within a foreign country, the reverse would be true:

a transfer from the U.S. would be covered, but transfers to

the surrounding foreign country would not be.

Comment 30(c)-2(i), “Designated Recipient,” now provides

in part: “If it is specified that the funds will be received at a

location on a U.S. military installation that is physically

located in a foreign country, the transfer will be received in

a State.”

Comment 30(c)-2(ii), “Designated Recipient,” now provides

in part: “Accounts that are located on a U.S. military

installation that is physically located in a foreign country are

located in a State.”

10


Comment 30(g)-1, “Sender,” now provides in

part: “A sender located on a U.S. military

installation that is physically located in a foreign

country is located in a State.”

Further, in the same comment: “Accounts that are

located on a U.S. military installation that is

physically located in a foreign country are located

in a State.”

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In short, the Bureau determined “…that transfers

to individuals and accounts located on U.S.

military installation located abroad, as well as

transfers from individuals and their accounts

located on U.S. military installations abroad to

designated recipients in the United States, should

be excluded from the Remittance Rule’s

application.” Supplementary information at page

28.

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Non-consumer accounts

The Rule only applies when the remittance transfer is requested by

a consumer primarily for personal, family, or household purposes.

See §§ 1005.30(e) and (g).

For a transfer funded from an account, is the purpose of a transfer

determined by the purpose for which the account was established?

Comment (30)(g)-2 explains that for a transfer from an account

that was established for personal, family, or household purposes, a

remittance transfer provider may generally deem that the transfer

is requested for personal, family, or household purposes and the

consumer is a sender.

But see supplementary information at 79 Fed.Reg. 23240

suggesting that the Rule covers transfers from an account

primarily used for personal, family, or household purposes, but not

from a non-consumer account.

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Non-consumer accounts

Also, see the following in the supplementary information in

the amended Rule: “Second, the Bureau is clarifying that

whether a remittance transfer from an account is for

personal, family, or household purposes (and thus, whether

the transfer could be a remittance transfer) may be

determined by ascertaining the primary purpose of the

account.” See page 3.

Also, see comment 30(g)-2, “Sender,” providing in part:

“But if the consumer indicates that he or she is requesting

the transfer primarily for other purposes, such as a business

or commercial purposes, then the consumer is not a sender

under § 1005.30(g), even if the consumer is requesting the

transfer from an account that is used primarily for personal,

family, or household purposes.”

Is the converse true?

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An account under a bona fide trust

agreement

Regulation E, subpart A, excludes from coverage

an account held under bona fide trust agreement.

Comment 30(g)-3, in part now provides:

“Additionally, a transfer that is requested to be

sent from an account held by a financial

institution under a bona fide trust agreement

pursuant to § 1005.2(b)(3) is not requested

primarily for personal, family, or household

purposes, and a consumer requesting a transfer

from such an account is therefore not a sender

under § 1005.30(g).”

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Written and electronic disclosures

Except the prepayment disclosure, the disclosures generally under

subpart B must be provided in writing.

If a sender electronically requests the transfer, the prepayment

can be provided electronically without compliance with E-Sign so

long as the sender receives the information in retainable form and

so long as the information is clear and conspicuous. §§

1005.31(a)(1) and (2).

A sender may request a remittance transfer by sending a fax to a

provider. Per an informal guidance by the Bureau, the provider

may send the required prepayment, receipt, or combined

disclosures or disclosures for transfers scheduled before the date

of transfer by a return fax as a return fax generally is in paper

form.

The Bureau is formally adopting this guidance through a new

comment 31(a)-5.

A report of the results of an investigation where no error or a

different error occurred may be faxed. § 1005.33(d)(1).

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Disclosures for oral telephone transactions

Section 1005.31(a)(3) permits providers to make

prepayment disclosures orally if the “transaction is

conducted orally and entirely by telephone” and if certain

other language and disclosure requirements are met. §§

1005.31(a)(3)(ii)-(iv).

A sender may make requests to a provider to send a

remittance transfer in many forms (e.g., fax, email, or

mailed letter or similar written or electronic

communication).

Depending on the nature of the request and the location of

the sender, to communicate with the sender by the same

means of communication may be impractical because the

sender is far away.

E.g., replying by letter to a mailed request for a transfer

may impact disclosed Exchange Rate. 17

Disclosures for oral telephone transactions

Under informal guidance, the Bureau had indicated that disclosures

may be provided orally by telephone in cases where a transfer is

first initiated by fax, mail, or email, if the disclosures for oral

transactions are met. § 1005.31(a)(3).

The Bureau is providing through comment 31(a)(3)-2 that a

remittance transfer provider may treat a written or electronic

communication as an inquiry when it believes that treating the

communication as a request would be impractical.

The initial communication is treated merely as an inquiry.

Conforming edits are made to comments 31(a)(3)-2 and 31(e)-1.

What if a provider authenticates a sender at a retail location prior

to referring the sender to a telephone to conduct the transfer?

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Disclosure requirements-receipt

At Electronic Fund Transfer Act §

919(a)(2)(B)(ii)(II)(bb), appropriate contact

information of the Bureau, including its website,

must be include on a receipt.

The Bureau is in the process of creating a single

page containing resources relevant to

international money transfers at:

www.consumerfinance.gov/sending-money.

The new above website may be disclosed in lieu of

the Bureau’s website: www.consumerfinance.gov.

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Definition of error

One error under the Rule is the failure to make funds

available to a designated recipient by the date of availability

stated in the receipt or combined disclosure, unless the

failure occurs due to certain enumerated reasons. §

1005.33(a)(1)(iv).

One of the listed reasons is for delays related to the

remittance transfer provider’s fraud screening procedures or

in accordance with the Bank Secrecy Act or Office of Foreign

Asset Control, or similar laws or requirements.

Section 1005.33(a)(1)(iv)(B) is amended so that this reason

would only apply to delays related to an individualized

investigation or other special action by the provider or third

party as required by the provider’s or third party’s fraud

procedures or in accordance with the above laws.

20

Definition of error

A new comment 33(a)-7 has been added.

A failure by a remittance transfer provider to

deliver funds by a disclosed date of availability is

not an error if such delay is related to a

provider’s or any third party’s investigation

necessary to address potentially suspicious,

blocked, or prohibited activity, and the provider

did not and could not have reasonably foreseen

the delay so as to enable it to timely disclose an

accurate date of availability when providing the

sender with a receipt or combined disclosure, the

exception would not apply. 21

Time limits and extent of investigation

Where an identified error is for failure to make funds

available to a designated recipient by the disclosed date of

availability, § 1005.33(c)(2)(ii) grants the following remedy:

(1) permits a sender to choose either

(a) to obtain a refund of Transfer Amount, or an amount

appropriate to resolve the error, or

(b) making available to the designated recipient the amount

appropriate to resolve the error, at no additional cost to the

sender or the designated recipient and

(2) a refund of any fees imposed and, to the extent not

prohibited by law, taxes collected on the remittance

transfer.

22


If the error resulted from the sender giving the provider incorrect

or insufficient information, under the first sentence of §

1005.33(c)(2)(iii) (as amended at 78 Fed.Reg. 49365, August 14,

2013), as a remedy, the provider must within three business days

upon providing a report of investigation (1) refund the Transfer

Amount, or an amount appropriate to resolve the error, and (2)

any fees imposed, and to the extent not prohibited by law, taxes

collected on the transfer.

The provider may agree to the sender’s request that the funds be

applied towards a new remittance transfer, if the provider has not

yet processed a refund. The provider may deduct from the

amount refunded or applied towards a new transfer any fees

actually imposed on or, to the extent not prohibited by law, taxes

actually collected on the remittance transfer as part of the first

unsuccessful remittance transfer attempt.

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However, in the final sentence of §

1005.33(c)(2)(iii), a provider is permitted to

deduct its own fees if a refund or a new transfer is

provided.

Under the rule, § 1005.33(c)(2)(iii) is amended to

prohibit a provider from deducting its own fees.

A provider is permitted to deduct third party fees.

Comment 33(c)-12.i.

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The Bureau also clarified what should happen when an error

occurs (for any reason) pursuant to § 1005.33(a)(1)(iv)

[date of availability], but the funds are ultimately delivered

to the designated recipient before the remedy is

determined.

If the funds ultimately have been delivered, the remedies at

§ 1005.33(c)(2)(ii) detailed above should not be available:

no refund and no new transfer as the funds have been

delivered. Comment 33(c)-5.

When the designated recipient receives the “Total to

Recipient” belatedly, the amount appropriate to resolve the

error is a refund of fees and taxes.

25

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Questions?

Remittance Transfer

Rule: Depository

Institution

Exemption

Ted Teruo Kitada

Senior Company Counsel

© 2014 Wells Fargo Bank, N.A. All rights reserved. For public use.

Emerging Payments System – Balancing Innovation with

Consumer Protections – The CFPB Accepts Complaints

About Bitcoin and other Virtual Payments

Keith J. Barnett - Partner

September 22, 2014

©2014 Sutherland Asbill & Brennan LLP

August 2014 CFPB Announcement

Concerning Virtual Currencies

• Risks Highlighted by the CFPB

Hackers – Access to Your Computer Versus Access to a

Large Network of Transactions

Scams – New Ponzi Schemes versus Traditional Ponzi

Schemes

Costs – Understanding the costs

Fewer Protections – FDIC and chargebacks to the

Merchant versus Possible Less Certainty


Consumers, Merchants, and

Transaction Fees


The CFPB Virtual Currency

Complaint Database


Are Enough Consumers Using Bitcoin/Virtual

Currencies Sufficient to Warrant the CFPB’s

Attention?


Reported Bitcoin Usage

• Overstock – Bitcoin accounts for .25% of sales

($12,000 to $15,000 per day) according to the New

York Times.

• Expedia – Bitcoin accounts for less than 1% of sales

according to the New York Times.


Bitcoins in Circulation and

Consumers


Bitcoin Transactions and Consumers


Questions?

• Keith J. Barnett - Partner

404-853-8384

[email protected]

www.cfpaguide.com

mailto:[email protected]

#ACIPayments

ACI’s 8th National Forum on Balancing Innovation with Consumer Protection in

Emerging Payment Systems

Heidi Wicker

Schwartz & Ballen LLP

Update on the CFPB and Emerging Payment Systems

September 22-23, 2014

Tweeting about this conference?

#ACIPayments

Continued Expansion of CFPB’s Scope of Scrutiny

•Mobile Financial Services

•General Purpose Reloadable (GPR) Prepaid Cards

•Privacy Disclosures

•What’s Next?

#ACIPayments

Mobile Financial Services

• CFPB launched a Request for Information (RFI) from the public on mobile financial services in June 2014

• Information was requested on opportunities and challenges associated with use of mobile financial services • Including: access for the underserved, real-time money

management, customer service, privacy concerns and data security

• The RFI focuses on mobile banking-like services. • Specifically excludes payments at the point of sale.

• CFPB held hearing in New Orleans in June 2014.

#ACIPayments

Mobile Financial Services, cont’d

• This CFPB initiative overlaps with Federal Trade Commission (FTC) initiatives on mobile services, including mobile payments, more generally. • The FTC commented on the RFI in September 2014. Issues of concern

include: • Liability protections for consumers for mobile transactions involving prepaid or

stored value accounts and dispute resolution procedures • Unauthorized charges due to cramming (third party billing directly to consumer’s

carrier’s bill) • Privacy and security (e.g., practices by data brokers which buy/sell consumer data

and misstatements about how they collect and use consumer data)

• The FTCs’ recent initiatives in the mobile payments and m-commerce space, include: • Enforcement orders against Apple, Amazon and Google related to in-app payments

by minors • Report on mobile shopping apps • Guidance for mobile app developers

#ACIPayments

General Purpose Reloadable (GPR) Prepaid Cards

• CFPB issued an advance notice of proposed rulemaking (ANPR) in May 2012 (77 Fed. Reg. 30923)

• Would apply federal Regulation E to GPR cards/devices • Considerations:

• Scope of Reg E requirements to be applied to GPR cards (e.g., periodic statements);

• potential exceptions for limited use cards;

• timing and content of disclosures (e.g., pre- or post- sale, fees, FDIC pass-through insurance, customer agreements);

• offering credit/savings features;

• efficacy of reporting to credit bureaus.

#ACIPayments

General Purpose Reloadable (GPR) Prepaid Cards, cont’d

• Proposed rule is expected this year.

• CFPB began accepting complaints on prepaid cards and nonbank products in July 2014.

• Federal legislation has been introduced which would provide similar/other protections. • E.g., Prepaid Card Consumer Protection Act of 2013, S. 1867;

Prepaid Card Disclosure Act of 2014, S. 1903

Potential Impact: Will FDIC insurance become a requirement? Overdraft

protection? Limitations on fees? See recent Visa industry announcement re: “seal” designation for

GPR consumer cards meeting certain requirements.

#ACIPayments

Annual Privacy Notice Website Posting

• CFPB has proposed a rule to amend the annual privacy notice requirement under Regulation P, applicable to “financial institutions” under the Gramm-Leach-Bliley Act (GLBA).

• Would permit an alternative delivery method for FIs’ annual privacy notices by posting on website in lieu of mailing if: • FI does not share customer’s nonpublic personal information with nonaffiliated

third parties in a manner that triggers GLBA opt-out rights; • FI does not include on its annual privacy notice an opt-out notice under Section

603 of the Fair Credit Reporting Act (FCRA); • FI’s annual privacy notice is not the only notice provided to satisfy the

requirements of Section 624 of the FCRA (regarding affiliate marketing); • Information on the privacy notice has not changed since the customer received

the prior initial or annual notice; and • FI uses the model annual privacy notice provided under Regulation P.

#ACIPayments

Annual Privacy Notice Website Posting, cont’d

• If the FI has changed its privacy practices since the last notice or engaged in information-sharing activities for which consumers have a right to opt-out, cannot use this alternative delivery method.

• This alternative would be available where customers have already consented to electronic delivery of privacy notices (e.g., by email). • Current Regulation P states that a FI may deliver the notice electronically if the

consumer agrees (12 C.F.R. 1016.9(a)).

• But. . . CFPB’s research has indicated that most consumers have not agreed to receive electronic disclosures.

• Comment period closed June 2014.

Potential Impact: Useful to mobile/emerging payment-related providers, since does not require customer’s consent to electronic delivery, unlike current Regulation.

#ACIPayments

Next up . . .

• What other emerging payments products are within the CFPB’s sights(?) • Mobile Payments at POS

• Potential implications of recent Apple iPay announcement; “service providers” subject to CFPB jurisdiction.

• Domestic Money Transfers

• Enhanced/Broader Substantive Privacy Protections

Discuss: But . . . can CFPB implement new substantive requirements under current Dodd-Frank Consumer Financial Protection Act authority, or is further legislation required?

remittance transfer rule: depository institution exemption

Economy & Finance