CFPB Issues Proposed Rule Regarding Electronic Fund Transfer Act
by: Donna M. Saati, Esq.
On December 31, 2012, the Bureau of Consumer Financial Protection (“CFPB” or the “Bureau”) proposed to amend subpart B of Regulation E, which implements the Electronic Fund Transfer Act (“EFTA”), and the official interpretation of the regulation.
In its proposal, the CFPB seeks to refine three narrow aspects of a final rule issued on February 7, 2012 and supplemented by a subsequent rule on August 20, 2012, (collectively, the “Final Rule”). The Final Rule implements section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”) and amends the EFTA by creating a new EFTA section 919. Section 919 governs the electronic transfers of funds sent by U.S. consumers to designated recipients in other countries and establishes consumer protections for remittance transfers sent by U.S. consumers to individuals and businesses in foreign countries.
The new EFTA section 919 generally requires:
- Disclosures prior to and at the time of payment by the sender for the transfer;
- Cancellation and refund rights;
- The investigation and remedy of errors by providers; and
- Liability standards for providers for the acts of their agents.
In response to industry concern over the costs and challenges of the new EFTA section 919, the Bureau is proposing to narrowly adjust the Final Rule with regard to three issues:
- Disclosure requirements specific to certain fees imposed by recipient institutions on remittance transfers;
- Disclosure requirements specific to foreign taxes, including taxes charged by foreign regional, provincial, state, or other local governments; and
- Inclusion as an error the failure to deliver a transfer where the error occurs due to the provision of an incorrect account number by the sender, resulting in a deposit to the wrong account.
Additionally, the Bureau is proposing to temporarily delay the effective date of the Final Rule which is currently set to take effect on February 7, 2013, until ninety days after the proposal is finalized.
Certain Fee Disclosures
The Final Rule requires the provider to furnish a pre-payment disclosure to a sender containing detailed information about the transfer requested by the sender. Specifically, the information should include the exchange rate, applicable fees and taxes, and the amount to be received by the designated recipient. Additionally, the provider must provide a receipt including the information that appears on the pre-payment disclosure, as well as additional information such as the date of the availability of the funds, contact information of the designated recipient, and information regarding the sender’s error resolution and cancellation rights.
In response to industry concern that certain fees may not be known at the time of the transaction (by the sender or the provider) or that consideration of numerous other variables can be taken into account when calculating costs/fees, the proposed rule seeks to introduce some flexibility to address these concerns. The proposed rule provides additional guidance on how foreign taxes and recipient institution fees may be disclosed. Where a remittance transfer provider lacks specific knowledge regarding variables that affect the amount of foreign taxes or recipient institution fees imposed on the transfer, the proposal permits said provider to rely on a sender’s representations or, alternatively, estimate by disclosing the highest possible foreign tax and/or recipient institution fees that could be imposed with respect to any unknown variable.
Foreign Tax Disclosures
The Final Rule requires a provider to disclose any taxes imposed on the remittance transfer. Foreign taxes that must be disclosed include regional, provincial, state, or other local taxes (“subnational taxes”), as well as taxes imposed by a foreign country’s central government. Industry providers argue that it is “exponentially more burdensome” to research and disclose subnational taxes and that such disclosures provide little benefit to consumers.
The Bureau is proposing to exercise its exception authority under section 904(c) of the EFTA by eliminating the requirement to disclose foreign subnational taxes. The proposal would thus limit the remittance transfer provider’s obligation to only disclose foreign taxes imposed on the transfer by a country’s central government.
The proposed changes regarding recipient institution fees and taxes, taken together, could mean that providers will be making disclosures that are not exact. As such, the proposal also requests comments on whether or not these types of disclosures, (i.e., not exact) should be labeled as “Estimated”.
Error Resolution Provisions
Industry providers have expressed concern with the Final Rule as it pertains to the remedies that apply with respect to errors that occur because the sender of a remittance transfer has provided incorrect or insufficient information to the remittance transfer provider. In instances where transfers are deposited to the wrong account and cannot be recovered despite a provider’s reasonable efforts, the provider bears the cost of the lost principal transfer amount. This arrangement could lend itself to fraudulent activity by senders attempting to take advantage of the Final Rule.
The proposal revises the error resolutions provisions as they pertain to instances where a sender furnishes incorrect or insufficient information. Under circumstances where the provider can demonstrate that the sender provided the incorrect information and had notice that the sender could lose the transfer amount, the provider would be required to attempt to recover the funds but would not be liable for the lost principal transfer amount if such recovery is unsuccessful. Additionally, where a sender provides incorrect or insufficient information, the Bureau seeks to allow providers additional flexibility when resending new funds at a new exchange rate. The proposal permits providers to offer oral, streamlined disclosures instead of treating the resend as an entirely new transfer.
The CFPB continues to monitor implementation and market developments in order to facilitate compliance with the Final Rule.
Comment Period
Comments on the proposed temporary delay of the February 7, 2013 effective date had to be received by January 15, 2013. Comments on the remainder of the proposal must be received by January 30, 2013.
About the Author:
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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