December 07, 2012

Dealing With Dodd-Frank

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The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law over two years ago, but many of its provisions have yet to be implemented. One such part of the bill, Section 1073, is tentatively slated to go into effect in February and has the attention of the banking world. This part of the bill amends the Electronic Funds Transfer Act, which governs consumer payments initiated in the U.S. but sent to recipients in other countries, often generically referred to as "remittances." Among the new expectations the regulation requires from banks around these payments is to tell consumers the fees and taxes involved in such payments before they are conducted, which can be extremely difficult to calculate, says Nancy Atkinson, senior analyst with Boston-based Aite Group.

Atkinson notes that many times intermediary banks take a slice of the payment for themselves as a kind of fee, which will force the banks that initiate the payment to contact the intermediary bank to find out what that percentage will be, which varies between institutions.

Also, adds Atkinson, the aspect of Section 1073 that requires banks to tell the initiator of the payment what taxes will have to be taken out of that payment is difficult to fulfill.

"Each country has its own tax laws, and in many countries it depends on the purpose and type of the payment," she says.

Atkinson notes that there has some rumblings the government will delay the implementation of this part of Dodd-Frank, but it's something banks will eventually have to deal with regardless.

The end result of 1073 is that fewer banks will provide these types of services, says George Ravich, EVP and CMO for Fundtech.

"The banking industry is most definitely the whipping boy of government – an easy target for an official who want to play to the cheap seats," says Ravich. "The industry must earn its way back to its position as a critical and constructive pillar of society; yet prevent the apparent piling-on that is occurring. In order to do this, it must be carefully explained to regulators and the public that too much regulation is not only bad for the economy as a whole but that it can often backfire and cause more damage than good. The industry’s reaction to DF-1073 is a perfect example of this, where the likely net result will be that the consumer cost of a foreign transaction will increase, and there will be fewer banks providing these services due to intolerable regulatory requirements."