US Remittance Rule takes effect

with Ervin Dervisevic

The Consumer Financial Protection Bureau’s (CFPB) final International Remittance Rule (“Remittance Rule”) became effective on October 28, 2013.

In the past, consumers sending money from the United States abroad might have received limited information on the costs of international money transfers and how much money would the beneficiaries receive. Whenever consumers experienced problems sending money abroad, little federal law was there to protect them. 

From this point onwards, the Remittance Rule will help protect consumer rights by requiring more information to be provided to consumers. In particular, the rule includes requirements for disclosing transaction information to consumers, new error resolution standards, procedures on transfer cancellations and refunds, and foreign language disclosure requirements. 

In general, the rule covers transfers processed by money transmitters, banks, and other financial services companies that constantly send more than 100 international money transfers each year. Remittance Rule covers any “remittance transfer,” meaning any electronic transfer of money from a consumer in the U.S. to a designated person or business in another country. Hence, the Remittance Rule covers the consumer to consumer and consumer to business transfers.

Overview of the Remittance Rule is available at CFPB blog, and basic new consumer protection measures are:

a)    Prepayment disclosures – Prior to a transaction, the company processing a transfer is obliged to provide information on the total cost of the transaction, the exchange rates, fees, and taxes the sender pays, and the amount that will be received by the beneficiary.
b)    Transaction receipts – Proof of payment must be provided to the sender after the transaction is paid for or authorized by the sender. 
c)    Error resolution – If a consumer believes the mistake has been made during the transfer, he or she may promptly dispute the error with the company. Consumers have up to six months to dispute an error with the transfer provider. 
d)    Cancellation and refunds – The consumer, verbally or by a written request, has the right to cancel the transaction within 30 minutes of the transaction taking place. Refunds must generally include the total amount paid.
e)    Foreign language disclosures – Where remittance services are marketed in a foreign language, disclosures must generally be provided in English and in the foreign language used for marketing purposes.

Implementation of Remittance Rule is welcome and timely. It is possible that the requirement that banks reveal price estimates for the entire transfer will push down remittance fees, due to the increased competition as new procedures enable consumers to seek the most convenient and/or cheapest providers. Remittance costs are a key determinant of resource flows to developing countries, and lowering these costs is an important policy objective. However, in recent months banks have started imposing “lifting fees” on customers receiving remittances, and these fees are not disclosed in advance to the customers (see Migration and Development Brief 21). The new Remittance Rule is expected to make such costs more transparent to the customers.