Interaction with Article 4A
Transaction-related disclosure requirements
Cancellation and refund
Provider liability for acts of agents
Disclosure standard and manner of disclosure
Section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Electronic Fund Transfer Act by adding a new Section 919 that applies to consumer-initiated remittances to foreign recipients. Generally, these provisions establish a disclosure and error resolution regime for consumers who use 'remittance transfer providers' to send remittances to recipients located in a foreign country. The Board of Governors of the Federal Reserve System was directed by statute to issue final implementing rules by January 21 2012.
On May 12 2011 the board issued proposed rules amending Regulation E to implement the Section 1073 provisions.(1) The proposal was published in the Federal Register on May 23 2011.(2) Although the proposal was issued by the board, the board notes in the supplementary information that the rules implementing the Section 1073 provisions will likely be finalised by the Consumer Financial Protection Bureau. Comments on the proposal are due no later than July 22 2011. The proposal, including supplementary information, official staff interpretations and model forms, is lengthy (over 200 pages in its original format). While the board did attempt in some areas to mitigate some of the practical impact of the overbroad and ambiguous statutory language, the proposal remains highly prescriptive and reaches myriad transactions that are not ordinarily considered in the industry to be 'remittances'. This update briefly summarises the proposal and notes some of the key issues it raises.
Given the breadth of the proposal, there are many more issues that should be considered by entities involved in moving funds abroad for individuals than can be addressed in this update.
Generally, Section 919 of the Electronic Fund Transfer Act and the proposal apply to remittance transfers made by remittance transfer providers. Under the proposal, a 'remittance transfer' is defined as the electronic transfer of funds requested by a sender to a designated recipient, regardless of whether the sender holds an account with the remittance transfer provider, and regardless of whether the transaction meets Regulation E's definition of an 'electronic fund transfer' under Section 205.3(b).(3) Although the defined term 'sender' is limited to consumers, there is no such limitation on the character of the recipients of such transfers. Thus, covered remittance transfers include not only the type of person-to-person transfers ordinarily considered to be remittances, but also almost any international transfer initiated by an individual. Indeed, because Regulation E defines a 'consumer' simply as a natural person,(4) the proposal would cover payments for all types of goods and services, including payments for business, rather than personal, family or household, purposes. For example, the draft commentary provides that online bill payment to foreign merchants is specifically covered.(5) Pre-paid cards that are delivered by a provider to a person outside the United States at the request of a sender are covered, unless the sender can withdraw funds from the underlying pre-paid card account.
The proposal also does not provide guidance as to when a transfer to an account would be considered "received at a location in a foreign country".(6) For example, it is clear that the board intends to cover account-to-account transfers, notwithstanding that these are not ordinarily thought of as remittances in the industry, but the proposal does not clearly state that an account is foreign for this purpose only if the account holding institution is located outside the United States. This could create ambiguity, for example, for US institutions that hold accounts for foreigners and that can be accessed from outside the United States.(7)
A provider is any person that provides remittance transfers for a consumer in the normal course of its business, regardless of whether the consumer holds an account with such person, thereby covering a broad swathe of banks, broker-dealers, money transmitters and others.(8)
A critical aspect of the proposal is its interaction with Article 4A of the Uniform Commercial Code. Article 4A does not apply "to a funds transfer, any part of which is governed by the [Electronic Fund Transfer Act]".(9) Accordingly, the proposal indicates that in subjecting consumer wire transfers to the Electronic Fund Transfer Act:
"[t]he Board recognized that one consequence… could be legal uncertainty for certain remittance transfer providers. Specifically, providers of international wire transfers may no longer be able to rely on [Uniform Commercial Code] Article 4A's rules governing the rights and responsibilities among the parties to a wire transfer."(10)
Declining to attempt to craft a federal solution to this problem, the board suggests that the states or wire transfer systems take action to address this problem.
Transaction-related disclosure requirements
The proposal would require providers to meet a number of pre-payment disclosure requirements regarding the specifics of the remittance, including, as applicable:
- the amount that will be transferred to the recipient in the currency in which funds are transferred;
- any fees and taxes imposed on the transfer by the provider in the sending currency;
- the total amount of the transaction (ie, reflective of any fees and taxes that may be imposed) in the sending currency;
- the exchange rate, rounded to the nearest 1/100th of a decimal point;
- any fees and taxes imposed on the transfer by person other than the provider in the currency in which the funds will be received;
- the transfer amount stated in the receiving currency, if that amount will be reduced by fees and taxes identified above; and
- the total amount to be received by the recipient in the receiving currency.(11)
In addition to the pre-payment disclosure, providers would be required under the proposal to provide senders with a receipt at the time of payment that includes the applicable pre-transaction disclosures outlined above, and certain additional information about the transaction, including:
- the date by which funds would be available to the recipient;(12)
- the recipient's name and, if provided by the sender, the recipient's telephone number and/or address;
- a statement of the sender's error resolution rights and right to cancel a transaction;
- the name, telephone number and web address of the provider; and
- a statement that the sender can contact the provider's state regulator and the Consumer Financial Protection Bureau for questions or complaints regarding the provider.(13)
The proposal permits providers to provide the pre-transaction disclosures and receipts in a single document that is provided to the sender before payment.(14)
Accuracy requirement and limitations on use of estimations
Pre and post-transaction disclosures generally must be accurate when a sender pays for the remittance transfer, unless one of the proposal's two exemptions applies and certain other conditions specified in the proposal for providing estimates are met.(15) The first exemption is temporary, is available only to 'insured depository institutions' and allows such institutions to use estimates if the institution cannot determine the exact amounts required to be disclosed for reasons beyond its control and the remittance transfer is sent from the sender's account with the institution.(16) The proposal provides that this exemption will sunset on July 20 2015.(17) This appears to create the odd result that insured institutions receiving cash from an account holder for transfer abroad would have the benefit of the exemption if those funds were first deposited to the consumer's account, but not if they were used directly to pay for the transfer. The second exemption applies when a provider cannot determine the exact amounts required to be disclosed, either because the laws of the recipient country or the method by which transactions are made in the recipient country do not permit such a determination to be made.(18) Under either exemption, however, the provider must still deliver estimates meeting specific requirements, notwithstanding that the provider does not control such fees and taxes.
Upon the sender's request, a provider must provide the sender with a notice providing a more detailed description of the sender's error resolution and cancellation rights, which are discussed below, than is otherwise contained in the pre-transaction and receipt disclosures above.(19)
Receipt of error notice from senders and duty to investigate
Under the proposal, senders generally will be required to provide providers with notice of an error within 180 days of the promised date of delivery of a transfer.(20) The notice triggers a provider's duty to investigate the claim and determine whether an error occurred within 90 days of receiving the notice, and any investigation outcome generally must be reported to the sender within three business days of completion.(21) The provider's report of the results of the investigation must include a written explanation of the findings and, if the provider concludes that no error or a different error occurred, note the sender's right to request the documents on which the provider relied in making its determination.(22) When a sender's error notice is based on documentation, additional information or clarification that the sender had previously requested, the proposal requires providers to treat the sender's error notice as timely if it is received no later than 60 days after the provider sends the requested documentation, information or clarification.(23) Under these circumstances, the 60-day window rather than the 180-day window applies, although the proposal is somewhat unclear on the interplay between the 180 days and the 60 days.
Interaction with other provisions of Regulations E and Z
The proposal includes specific discussion of how the remittance transfer error resolution provisions interact with the other error resolutions provisions of Regulations E and Z when a covered remittance is paid via a transaction otherwise subject to those other provisions (eg, purchase of a money transfer with a debit card or credit card). A troubling aspect of this discussion is a reference in the supplementary information that:
"[i]n certain circumstances, the creditor issuing a credit card may also act as a remittance transfer provider, for example, when the cardholder sends funds from his or her credit card through a service offered by the creditor to a recipient in a foreign country."(24)
While the commentary is clear that mere purchases from foreign merchants (eg, on the Internet) do not constitute remittances for this purpose, this is the first time that the board has attempted to treat an extension of credit as a funds transfer.
The proposal provides that any of the following types of transfer or consumer inquiry would be deemed an error triggering a duty to investigate:
- an incorrect amount paid by a sender in connection with a remittance transfer;
- a computational or bookkeeping error made by the provider relating to a transfer;
- the failure to make available to a designated recipient the amount of currency stated in the post-transaction receipt;
- the failure to make funds in connection with a remittance transfer available to a designated recipient by the date of availability stated in the post-transaction receipt, unless the failure resulted from circumstances outside the provider's control, or the sender provided incorrect information and had the opportunity to correct the information and send the transfer at no additional cost; or
- the sender requests "additional information or clarification" concerning a transfer.(25)
Inquiries regarding a transfer of $15 or less and requests for information for tax purposes are not errors and do not automatically result in an obligation to investigate.(26) The proposal also provides that inquiries regarding the status of transfer are not deemed to be errors, except where the inquiry involves a circumstance in which the funds from the transfer were not made available to a designated recipient by the stated date of availability.(27)
The proposal implements the two remedies that are specified in Section 919. Under the first remedy, the sender could choose to obtain a full refund of the amount tendered (including all fees and taxes) where the remittance transfer was not properly transmitted, or an amount appropriate to resolve the error.(28) The proposal does not provide guidance as to what might be considered an 'appropriate' amount in this regard, although arguably it is intended to refer to the amount of an overpayment by the sender or an undelivered amount. The second remedy allows the sender to choose to have the provider send to the designated recipient the amount appropriate to resolve the error, at no additional cost to the sender or the designated recipient.(29) Under this remedy, if the remittance transfer was not sent or delivered to the designated recipient by the stated date of availability, the provider would be required to refund all fees charged or imposed in connection with the transfer.(30) With respect to this option, the board expressed the view that requiring the provider to refund all fees, including the transfer fee, is appropriate because the sender did not receive the contracted service.
The Dodd-Frank Act requires the board to promulgate regulations regarding 'appropriate' remittance cancellation policies.(31) The board interpreted this requirement to mandate minimum cancellation standards, creating significant issues for, among other things, transfers sent by wire transfer or automated clearing house. The proposal would require a provider to comply with a sender's oral or written request to cancel a remittance transfer no later than one business day from when the sender makes payment in connection with the remittance, if two conditions are met.(32) First, the sender's cancellation request must enable the provider to identify the sender and the particular transfer to be cancelled.(33)
Second, the transferred funds must not have been picked up by the designated recipient or deposited into an account of the recipient.(34) The proposal would require providers to refund, at no additional cost to the sender, the total amount of funds tendered by the sender in connection with the remittance transfer, including any fees imposed in connection with the requested transfer, within three business days of receiving the sender's valid cancellation request.(35) (If Article 4A does apply to certain transfers, that will raise issues in terms of the interaction of Article 4A's finality provisions with the proposal's cancellation standards.)
Provider liability for acts of agents
The board is proposing two alternatives to implement Section 919(f) of the Electronic Funds Transfer Act with respect to acts of agents. Under the first alternative, a provider will be strictly liable for violations by an agent when the agent acts for the provider.(36)
Under the second alternative, a provider will be shielded from liability for violations by an agent if the provider has established and maintains policies and procedures for agent compliance, including appropriate oversight measures, and the provider corrects any violation consistent with the proposal's error resolution and remedy requirements, meaning that the provider remains liable for the amount of the transaction and associated fees.(37)
The proposal includes several model forms that would comply with a number of the proposal's requirements, including Spanish language versions of both the pre and post-transaction disclosure requirements.(38)
Disclosure standard and manner of disclosure
Required disclosures generally must meet the 'clear and conspicuous' standard and be provided to the consumer in writing and in a retainable form.(39) Pre-transaction disclosures may be provided electronically, without compliance with the E-Sign Act, if the sender's remittance request to the provider is electronic. The supplementary information indicates that pre-transaction disclosures therefore may not be provided on screen when the sender is physically present at a sending location if a copy is not provided until after the transaction is complete. Pre-transaction disclosure information may be disclosed orally, but only if the transaction is conducted entirely by telephone. Receipts may not be provided electronically without compliance with the E-Sign Act. The board specifically requests comment on how to address disclosures in connection with mobile payment services.
Required disclosures must always be provided in English. In addition, the proposal contains detailed rules regarding other languages in which disclosures must be provided.(40) These include requirements for disclosures "in the language primarily used by the sender with the remittance transfer provided to the conduct the transaction",(41) which may raise issues for providers that do not routinely transact business in a particular language, but attempt to accommodate senders in unusual circumstances.
Importantly for the retail remittance industry, the board did not propose the posting of model notices at storefronts or on the Internet.
For further information on this topic please contact David Teitelbaum or Joel Feinberg at Sidley Austin LLP by telephone (+1 202 736 8600), fax (+1 202 736 8711) or email ([email protected] or [email protected]).
(1) The board's release is accessible at www.federalreserve.gov/newsevents/press/bcreg/20110512a.htm.
(2) The Federal Register version of the proposal is accessible at http://frwebgate1.access.gpo.gov/cgibin/PDFgate.cgi?WAISdocID=CGThzo/0/2/0&WAISaction=retrieve.
(3) Proposed Section 205.30(d)(1). The proposal would not apply to transfers of $15 or less. Proposed Section 205.30(d)(2).
(5) Proposed commentary, Section 30(d)-5.
(6) Proposed Section 205.30(c).
(7) The board also requested comment on whether there are circumstances in which the pick-up location cannot be identified because the recipient is identified by an email address.
(8) Proposed Section 205.30(e).
(9) Uniform Commercial Code, Section 4A-108.
(10) 76 Federal Register 29902, 29909 (May 23 2011).
(11) Proposed Section 205.31(b)(1) and (e)(1).
(12) Strangely, providers are prohibited from disclosing a range of dates (eg, "between June 5 to 10"), but may disclose that funds may be available earlier than an outside date (eg, "June 10 (may be available sooner)").
(13) Proposed Sections 205.31(b)(2) and (e)(2)
(14) Proposed Sections 205.31(b)(3) and (e)(1).
(15) Proposed Section 205.31(f)(2). The specific approaches that must be used to arrive at estimates are set forth in proposed Section 205.32(c).
(16) Proposed Section 205.32(a).
(17) Proposed Section 205.32(a)(2).
(18) Proposed Section 205.32(b).
(19) Proposed Section 205.31(b)(4). This disclosure must be made using proposed Model Form A-36 or a substantially similar notice.
(20) Proposed Section 205.33(b)(1).
(21) Proposed Section 205.33(c)(1).
(22) Proposed Section 205.33(d)(1).
(23) Proposed Section 205.33(b)(2).
(24) 76 Federal Register 29902, 29932 (May 23 2011).
(25) Proposed Section 205.33(a)(1).
(26) Proposed Section 205.33(a)(2)(i) and (iii).
(27) Proposed Section 205.33(a)(2)(ii).
(28) Proposed Section 205.33(c)(2)(i).
(29) Proposed Section 205.33(c)(2)(ii).
(30) Proposed Section 205.33(c)(2)(iii).
(31) Electronic Funds Transfer Act, Section 919(d)(3), as amended by Dodd-Frank Act, Section 1073.
(32) Proposed Section 205.34(a).
(33) Proposed Section 205.34(a)(1). For example, the sender could provide the confirmation number or code that would be used by the designated recipient to pick up the transfer or other identification number or code supplied by the remittance transfer provider in connection with the transfer, if such number or code is sufficient for the remittance transfer provider to identify the transfer. Proposed Comment 34(a)-1.
(34) Proposed Section 205.34(a)(2).
(35) Proposed Section 205.34(b).
(36) Proposed Section 205.3(a) – Alternative A.
(37) Proposed Section 205.3(a) – Alternative B.
(38) Proposed Model Forms A-30 through A-41.
(39) Proposed Sections 205.31(a)(1) and (2).
(40) Proposed Section 205.32(g).