On Monday, May 23, the Federal Reserve Board (the “Board”) issued proposed revisions to its Regulation E (Electronic Fund Transfers) in order to implement changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”).
The Electronic Fund Transfer Act and Regulation E currently govern the rights, liabilities and responsibilities of participants in electronic fund transfers ("EFTs"). EFTs are payment transactions that result in a debit or a credit to a consumer’s asset account. Examples are automated teller machine ("ATM") transactions, point of sale ("POS") payments, preauthorized automatic transfers and automatic bill payment plans.
The Act creates new protections for consumers who send “remittance transfers” to designated recipients in foreign countries. Generally, a “remittance transfer” is one in which a consumer sends funds to a relative or other individual located in another country. The proposed rule and the Act regulate transactions currently exempted under Regulation E, such as consumer wire transfers and electronic transfers that are paid for in cash. A remittance transfer need not be an EFT to be covered under Regulation E. Remittance transfers may be sent in a variety of ways, such as through a “money transmitter.” Money transmitters are most often licensed businesses that send funds directly, or through one or more agents, to the foreign country. Other common methods of sending remittance transfers are through international wire transfers and international automated clearing house ("ACH") transactions. Typically, consumers would send these through one or more financial institutions. There are other means of transferring funds to a recipient in a foreign country, such as through the use of pre-paid cards that are mailed to the recipient, but the three services described above are the main methods currently in use.
The proposed rule would provide for three general areas of protection for consumers sending remittance transfers:
Disclosure. As with EFTs currently governed by Regulation E, the proposed rule would provide for disclosures to the consumer at various stages of the service.
- Initial Disclosures. A remittance transfer provider would be required to provide certain disclosures to the consumer at the time the consumer requests the transfer, but prior to being paid for the transfer. Information that would have to be disclosed would include the currency exchange rate, applicable fees and taxes, and the amount to be received by the designated recipient. Oral disclosures would be permitted in the case of a telephone transfer.
- Receipt of Payment. A remittance transfer provider would be required to provide the consumer/sender with a written receipt upon payment. The information on the receipt would include the information provided in paragraph (a), above, as well as additional information such as the date the funds will be available, the recipient’s contact information, and information on the sender’s error resolution and cancellation rights. The receipt would not need to be given where all of the information required to be on the receipt is on the initial disclosure, such as in the case of an isolated, “one-off” transaction that is not part of a recurring payment plan.
The proposed rule also provides for two main exceptions to the requirement for a disclosure of the amount to be received:
- A temporary exception, lasting until five years after the enactment of the Act (July 21, 2015), would apply only to insured depository institutions and credit unions that cannot determine certain disclosed amounts for reasons beyond their control.
- A permanent exception that would apply to any remittance transfer provider that cannot determine certain disclosed amounts because of the laws of, or transfer methods used in, the recipient’s country. Generally, this exception would apply where the government or the central bank of the foreign country sets the exchange rate after the funds are sent, or the law of the foreign country requires that the exchange rate be set upon receipt.
The proposed rule also requires that remittance transfer providers give the above disclosures in English and in every language used by the remittance transfer provider to market its services. As with other disclosure requirements in Regulation E, the proposed rule contains model disclosures, in English and Spanish, which may be used to comply with the disclosure requirements.
- Error Resolution Procedures. Currently, Regulation E provides for certain rights and responsibilities for both the consumer and the EFT service provider. The proposed rule would extend these rights, in part, to the participants in a remittance transfer. Generally, when an “error,” such as an unauthorized transaction or a mistake in an authorized transaction, occurs, the consumer has an obligation to report the error within 180 days. This notice triggers several responsibilities on the part of the remittance transfer provider to investigate and resolve the claim within a certain period of time. The proposal also contains requirements for cancellation and refund rights for senders and record retention requirements for remittance transfer providers.
- Liability of Agents. The proposed rule contains two alternatives for the implementation of liability standards for remittance transfer providers, including those that act through one or more agents. Under the first alternative, the remittance transfer provider would be liable for all actions and inactions of any agent acting on behalf of the remittance transfer provider. Under the second alternative, if the remittance transfer provider establishes and maintains policies and procedures for agent compliance, including appropriate oversight measures, and the provider corrects any violations, to the extent appropriate, the remittance transfer provider would not be liable for the acts of its agent.
Financial institutions, “money transmitters,” and other remittance transfer providers, may comment, and should do so if they think that these changes, or the specifics of the implementation of these changes as published in the notice, will have an adverse effect on their businesses. According to the notice of proposed rulemaking, comment letters should refer to Docket No. R-1419 and RIN No. 7100-AD76 and may be mailed electronically to firstname.lastname@example.org. The comment period ends July 22, 2011. Since general rulemaking authority for the Electronic Fund Transfer Act will be transferred to the new Consumer Financial Protection Bureau in July of 2011, the final rule will be issued by that agency and not by the Board.