On January 23, 2014, the Consumer Financial Protection Bureau (the “CFPB”) issued a proposed rule (the “Proposed Rule”) that would permit the CFPB to supervise nonbank international money transfer providers that satisfy the Proposed Rule’s definition of “larger participant.” According to the CFPB’s press release, the Proposed Rule’s impetus is to provide the CFPB with supervisory authority to ensure that nonbank international money transfer providers, which generally are not subject to CFPB oversight, adhere to the CFPB’s consumer protection rules for international remittances (the “Remittance Rule”).1
The Proposed Rule
The Proposed Rule defines a “larger participant” in the international money transfer market as any “nonbank covered person”2 that has at least one million aggregate annual international money transfers. Under CFPB regulations, a nonbank entity that qualifies as a “larger participant” is deemed to remain a “larger participant” until two years after the first day of the tax year in which the entity most recently qualified as a “larger participant.” As discussed below, any entity that qualifies as a “larger participant”3 is subject to the CFPB’s supervisory authority.
Which Transactions Are Included?
The Proposed Rule is concerned only with international money transfers conducted for consumers, regardless of whether the consumer holds an account with the transfer provider. Thus, the number of international money transfers for businesses performed by an entity does not affect whether the entity qualifies as a “larger participant.” In addition, the Proposed Rule requires an entity to aggregate all international money transfers conducted by the entity’s agents on its behalf and by its nonbank affiliates. However, an entity should not include any transfers it conducted as agent on another’s behalf.4
The Proposed Rule’s definitions are modeled after the corresponding terms in the Remittance Rule and in the Electronic Fund Transfer Act. However, one important distinction is that the Remittance Rule does not apply to transfers of $15 or less while the Proposed Rule considers all transfers towards the numeric threshold in order to determine if one qualifies as a “larger participant.”
How to Calculate the Number of Annual Transactions
In determining whether it satisfies the annual threshold, a nonbank entity should calculate the number of international money transfers it has conducted over the past three years (together with its nonbank affiliates and agents) and divide by three. If, however, the nonbank entity was in business for less than three years, it should calculate the total number of its international money transfers (together with its nonbank affiliates and agents), divide by the number of weeks the nonbank entity has been in business, and multiply by 52.
While nonbank international money transfer providers generally are subject to the Remittance Rule, the CFPB is generally unable to examine such providers, in the absence of the Proposed Rule, unless the CFPB has “reasonable cause” to believe a provider is engaging, or has engaged, in conduct that poses a risk to consumers. However, under § 1024 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the CFPB has supervisory authority over “larger participants”5 in consumer financial products or services markets, which the CFPB may define by rule.6 The CFPB estimates that approximately 25 nonbank international money transfer providers (responsible for approximately 90% of nonbank international money transfers) would satisfy the Proposed Rule’s “larger participant” definition, and therefore would become subject to the CFPB’s supervisory authority. The Proposed Rule does not give the CFPB supervisory authority over entities specifically exempted by the Dodd-Frank Act, such as securities broker-dealers regulated by the Securities and Exchange Commission.
Comments are due 60 days after the Proposed Rule’s publication in the Federal Register. Comments are accepted on any portion of the Proposed Rule, but the CFPB specifically has invited comments regarding whether the threshold of one million transfers should be raised or lowered (the CFPB discusses a lower level of 500,000 and a higher level of three million transactions) or whether the Proposed Rule should instead consider annual receipts or annual transmitted dollar volume.