The Consumer Financial Protection Bureau announced today that it is moving forward with new regulations governing remittance transactions. The rules will require that customers receive upfront disclosure of the exchange rate and fees involved in the transaction, as well as the amount that the recipient will actually receive. A complaint procedure will also be put into place, the CFPB said in a statement, to make remittance providers responsible for abuses committed by their agents.
The CFPB said that the rules will enforce the bureau's mandate under section 1073 of the Dodd-Frank act that charged it with identifying and implementing necessary requirements for greater disclosure from remittance providers. The new requirements will be limited to providers who process at least 100 remittances a year, but the bureau said that it rejected an industry proposal to raise that benchmark to 6,000 transactions a year. This, the bureau said, would have seriously reduced its regulatory reach.
In a recent article, Bank Systems & Technology noted how Dodd-Frank 1073 provides an example of a new regulation that is already having unintended consequences. Speaking about a recent survey that demonstrated high levels of uncertainty about new regulatory requirements for banks, George Ravich, the chief marketing officer of FundTech, a financial services technology provider that conducted the survey, said that many smaller banks are pulling out of the remittance market altogether because of Dodd-Frank 1073. Ravich explained that it is difficult for banks to calculate upfront how much a remittance transaction will cost to process, because it's often hard to tell how many institutions they might have to reroute the transaction through to get it to the recipient. Ravich said many smaller banks seem to feel that complying with the new regulations just isn't worth it if remittances aren't a key part of their business. Some of these smaller banks might have been excluded from the regulations if the CFPB had accepted the industry's suggested benchmark of 6,000 transactions a year.
As we noted in another previous article, Western Union has been looking to partner with smaller banks to offer remittance payments. If banks won't offer remittances themselves this could mean a bigger share of the market pie for Western Union, and possibly other remittance providers, for whom it is well worth it to stay in the remittance business regardless of the new rules.
The regulations under Dodd-Frank 1073 will go into effect February 7, 2013, the CFPB said.