FINANCIAL SERVICES FLASH REPORT

Transcription

1 FINANCIAL SERVICES FLASH REPORT New Requirements fr Internatinal Mney Transfers December 9, 2013 Octber 28, 2013, was the effective date f the Cnsumer Financial Prtectin Bureau s (CFPB) final rules amending its Regulatin E t include new cnsumer prtectin requirements regarding remittance transfers sent by cnsumers in the United States t individuals and businesses in freign cuntries (hereafter, the Rule ). These requirements were included in the Ddd-Frank Wall Street Refrm and Cnsumer Prtectin Act f 2010 (DFA), which expanded the Electrnic Fund Transfer Act (EFTA) in respnse t cncerns regarding inadequate cnsumer prtectins fr remittance transfers. Histrically, many cnsumers sending wires abrad reprted being vercharged, misinfrmed and, in sme cases, unsuccessful in transferring the funds t the intended recipient. The Rule prvides a variety f prtectins t cnsumers, including new disclsures and cmprehensive errr reslutin rights, all intended t imprve the transparency and reliability f freign remittance transfers. This Flash Reprt summarizes the technical requirements f the Rule and prvides perspective n effective implementatin f these requirements. Cvered Entities and Transactins A remittance transfer is an electrnic transfer f funds requested by a cnsumer in the United States (the sender ) and sent by a remittance transfer prvider (the prvider ) t a recipient in a freign cuntry, which can be any natural persn r business entity specified t receive the transfer (the designated recipient ). A remittance transfer prvider is any entity (including a depsitry institutin, credit unin r mney transmitter) that prvided mre than 100 remittance transfers in the current and previus calendar years. The fllwing table summarizes the types f remittance transfers cvered by the Rule: Examples f remittance transfers Transfers where the sender prvides cash r anther methd f payment t a mney transmitter r financial institutin and requests that funds be sent t a specified lcatin r accunt in a freign cuntry Cnsumer wire transfers, where a financial institutin executes a payment rder upn a sender's request t wire mney frm the sender's accunt t a designated recipient Examples f transactins that are nt remittance transfers Transfers nt fr persnal, family r husehld purpses and/r where sender is nt a cnsumer Internatinal funds transfers nt cnducted electrnically (such as mailing funds thrugh a pstal r curier service)

2 Examples f remittance transfers The purchase f a prepaid card in the U.S. where the prvider mails the prepaid card directly t a recipient abrad, r the additin f funds t a prepaid card by a cnsumer where the prvider is directly engaged with the sender t add these funds and where the prepaid card was previusly sent by the prvider t a persn in a freign cuntry Internatinal ACH payments riginating in the U.S. t a designated recipient in a freign cuntry Online bill payments and ther electrnic transfers that a sender schedules in advance, including preauthrized remittance transfers, made by the sender's financial institutin at the sender's request t a designated recipient in a freign cuntry Examples f transactins that are nt remittance transfers A cnsumer's depsit f funds t a checking r savings accunt lcated in the United States Cnsumer purchases made using a debit card, credit card, prepaid card r a checking accunt number prvided directly by a cnsumer t a freign merchant Online bill payments and ther electrnic transfers that senders can schedule in advance, made thrugh the website f a merchant lcated in a freign cuntry where the cnsumer prvides directly t the merchant a checking accunt, credit card, debit card r prepaid card number Any transfer f $15 r less The mailing f an ATM card assciated with a U.S.- based bank accunt t a cnsumer abrad Remittance transfers are subject t the Rule even if the sender des nt have an accunt with the remittance transfer prvider, and regardless f whether the transactin is als an electrnic funds transfer (EFT). Cnsumer Disclsures One f the primary cmpnents f the Rule is that remittance transfer prviders are required t prvide clear and cnspicuus disclsures t senders that reflect the details f the specific transactin. The disclsures must be prvided bth prir t and after the sender makes the payment; hwever, cmbined disclsures are als permitted. The infrmatin required t be included in the disclsures is described belw: Pre-payment disclsures: Senders must be prvided certain disclsures when the sender requests a remittance transfer, but befre a remittance transfer is paid. These disclsures must include: Transfer amunt. The amunt that will be transferred t the designated recipient. Transfer fees and transfer taxes. Any fees impsed and any taxes cllected n the remittance transfer by the prvider. Ttal amunt. The ttal amunt f the transactin, which is the sum f the transfer amunt and any transfer fees and transfer taxes. Exchange rate. The exchange rate used by the prvider. Transfer amunt (in freign currency). The amunt that will be transferred, as described in the first bullet pint abve, in the currency in which the funds will be received, but nly if cvered third-party fees are impsed (explained in the fllwing bullet pint). Prtiviti 2

3 Other fees. Any fees impsed n the remittance transfer by a persn ther than the remittance transfer prvider if the persn charging the fee is an agent f the remittance transfer prvider r an intermediary institutin in cnnectin with a wire transfer ( cvered third-party fees ). Ttal t recipient. The amunt that will be received by the designated recipient in the currency in which the funds will be received. Statement n nn-cvered third party fees and taxes. A statement that certain freign taxes and third-party fees may be cllected by smene ther than the prvider and that the recipient therefre may receive less than disclsed (disclsure f these actual fees and taxes is ptinal, if the amunts can even be determined). Prviders may als chse t indicate that, in the event the sender prvides an incrrect accunt number r recipient institutin identifier, the sender culd lse the transfer amunt. Finally, certain pre-payment disclsure estimates are nt guaranteed until payment is made by the sender. Fr example, if exchange rates change after the pre-payment disclsure is prvided and prir t the payment being made, the prvider may ffer a new pre-payment disclsure t reflect the change in rates. Hwever, if rates change after payment is made, the prvider must hnr the rate prvided n the pre-payment disclsure. Receipt disclsures: Cnsumers must als be prvided certain disclsures when payment is made fr the remittance transfer, which can be either by cash r custmer authrizatin. These disclsures must cntain the same infrmatin prvided in the pre-payment disclsures, as well as the fllwing: Availability date. The date in the freign cuntry n which funds will be available t the designated recipient. Recipient infrmatin. The name, and if prvided by the sender, telephne number and/r address f the designated recipient. Errr reslutin and cancellatin rights. A statement summarizing the sender s rights regarding the reslutin f errrs and cancellatin. Remittance transfer prvider infrmatin. The name, address and website f the remittance transfer prvider. Cntact infrmatin. A statement that the sender can cntact the state agency that licenses r charters the remittance transfer prvider with respect t the remittance transfer and the CFPB fr questins r cmplaints abut the remittance transfer prvider (and the cntact infrmatin f these agencies and the CFPB). Fr any remittance transfer scheduled by the sender at least three business days befre the date f the transfer, r fr the first transfer in a series f preauthrized remittance transfers, the receipt disclsure must als cntain the date the remittance transfer prvider will make r made the remittance transfer. Lng-frm errr reslutin and cancellatin ntice. Upn a sender s request, a remittance transfer prvider must prmptly prvide a detailed ( lng-frm ) ntice f the sender s errr reslutin and cancellatin rights. Fr transfers scheduled by the sender at least three business days in advance, the descriptin f these rights must reflect the cancellatin requirements fr remittance transfers scheduled in advance. Often, the transfer request and payment ccur clsely tgether in time; as such, a disclsure that cmbines the cntent requirements f the pre-payment disclsure and receipt disclsure can be prvided in a single disclsure t the sender prir t payment f the remittance transfer. Hwever, if a cmbined disclsure is used, the sender must als be prvided with a prf f payment (r cnfirmatin that the transfer has been scheduled, when the payment is nt prcessed by the prvider at the time it is scheduled) that is clear and cnspicuus, in writing and in a retainable frm. Prtiviti 3

4 There are certain unique disclsure requirements that apply t transfers scheduled in advance f the actual transfer date: Fr a ne-time transfer scheduled five r mre business days in advance f the date f transfer r fr the first in a series f preauthrized remittance transfers, bth the pre-payment disclsure and receipt disclsure must be prvided t the sender in the same manner described abve. Hwever, if any f the disclsures cntains estimates, the prvider must als mail r deliver t the sender an additinal receipt disclsure within ne business day after the date f the transfer. (In cases where the transfer is initiated frm the sender's accunt held by the prvider, this additinal disclsure may be prvided with the sender s next peridic statement, r within 30 days after the date f the transfer if a peridic statement is nt prvided.) Fr each subsequent preauthrized remittance transfer: If any f the nn-estimated infrmatin n the mst recent pre-payment and receipt disclsures prvided becmes inaccurate, then the prvider must prvide t the sender, within a reasnable time prir t the scheduled date f the next preauthrized remittance transfer, an updated receipt disclsure that clearly and cnspicuusly indicates that it cntains updated infrmatin. Unless the mst recent receipt disclsure prvided cntained n estimates, the prvider must send a receipt disclsure n later than ne business day after the date f the transfer. (In cases where the transfer is initiated frm the sender's accunt held by the prvider, this additinal disclsure may be prvided with the sender s next peridic statement, r within 30 days after the date f the transfer if a peridic statement is nt prvided.) The prvider must disclse t the sender n mre than 12 mnths, and n less than five business days, prir t the date f any subsequent transfer: 1) the date the prvider will make the subsequent transfer; 2) a statement abut the rights f the sender regarding cancellatin; and 3) the name, telephne number(s), and website f the remittance transfer prvider. Fr any subsequent preauthrized remittance transfer fr which the date f transfer is fur r fewer business days after the date payment is made fr that transfer, this infrmatin must be prvided n r with the receipt disclsure fr the initial transfer in that series. In general, the disclsures abve must be prvided in writing but may be prvided electrnically as lng as the disclsures are made in a retainable frm. Ntably, the CFPB addressed the prvisin f such disclsures fr transactins initiated by telephne, mbile applicatin and/r text message as fllws: If a transactin is cnducted rally entirely by telephne, the prvider may prvide the prepayment disclsure rally, and must als include the rights f the sender regarding cancellatin. Fr preauthrized transfers, the prvider must als disclse rally the date the remittance transfer prvider will make r made the remittance transfer and, fr any subsequent transfer in a series f preauthrized remittance transfers, the date the prvider will make the subsequent transfer. If a transactin is cnducted entirely by telephne via a mbile applicatin r text message, the prvider may prvide the pre-payment disclsure rally r via mbile applicatin r text message. In either case, the receipt disclsure may be mailed and delivered t the cnsumer within ne business day after the date n which payment is made fr the remittance transfer; hwever, if the transactin is perfrmed frm the sender s accunt with the prvider, the receipt can be prvided n r with the sender s next regularly scheduled peridic statement fr that accunt (r within 30 days after payment is made fr the remittance transfer if a peridic statement is nt prvided). Prtiviti 4

5 Finally, disclsures must be given t the sender in English and, if applicable, either in: Each f the freign languages principally used by the prvider t advertise, slicit, r market remittance transfer services, either rally, in writing, r electrnically, at the ffice in which the sender cnducts the transactin r asserts an errr; r The freign language primarily used by the sender with the prvider t cnduct the transactin (r assert an errr), prvided that such freign language is principally used by the prvider t advertise, slicit, r market remittance transfer. Fr disclsures prvided rally fr transactins cnducted rally and entirely by telephne, r rally r via mbile applicatin r text message fr transactins cnducted via mbile applicatin r text message, the prvider must give the disclsures in the language primarily used by the sender with the prvider t cnduct the transactin, regardless f which language was used t slicit, market r advertise the remittance transfer services. Estimates Generally, the amunts required t be disclsed in the pre-payment and receipt disclsures must be exact; hwever, there are exceptins that permit a prvider t disclse estimates fr reasns that are beynd the prvider s cntrl r because exact amunts cannt be determined due t cuntry-specific laws. The Rule prvides fur such exceptins: Temprary exceptins: Insured depsitry institutins and credit unins that are unable t determine the exact amunts required t be disclsed fr reasns beynd their cntrl may estimate the disclsure f the exchange rate, the transfer amunt (in the freign currency) and cvered third-party fees (in the freign currency), nly if the remittance transfer is initiated frm the sender s accunt with the institutin. This might happen, fr instance, where the institutin des nt have a crrespndent relatinship with the institutin where the funds are depsited int the recipient's accunt and where that institutin sets the exchange rate. Estimates utilized must cnfrm t (r be mre beneficial t the cnsumer than) the methds prescribed by the CFPB in the Rule. This temprary exceptin expires July 21, Permanent exceptins fr transfers t certain cuntries: Permanent exceptins apply fr transfers t certain recipient cuntries where the laws r the methds by which transactins are made in these cuntries d nt permit exact determinatins t be made. The CFPB published a safe harbr listing f such cuntries that prviders can rely upn t help determine whether estimates are available. This listing currently includes Aruba, Brazil, China, Ethipia and Libya. Estimates utilized must cnfrm t (r be mre beneficial t the cnsumer than) the methds prescribed by the CFPB in the Rule. Permanent exceptins fr transfers scheduled in advance: Fr transfers scheduled by a sender five r mre business days befre the date f the transfer, the prvider is permitted t estimate certain figures (e.g., exchange rate, the amunt f funds t be received by the recipient, cvered third-party fees, etc.) required t be disclsed in the pre-payment and receipt disclsures. Cvered third-party fees may be estimated nly if the exchange rate is als estimated and the estimated exchange rate affects the amunt f such fees. Fees and taxes may be estimated nly if the amunt that will be transferred in the currency in which it is funded is als estimated, and the estimated amunt affects the amunt f such fees and taxes. Estimates must be based n the exchange rate (r the estimated exchange rate, if applicable) that the prvider wuld have used r did use that day in prviding disclsures t a sender requesting such a remittance transfer t be made n the same day. Permanent exceptin fr ptinal disclsure f nn-cvered third-party fees and taxes: Estimates may be prvided fr applicable nn-cvered third-party fees and taxes cllected n the remittance transfer by a persn ther than the prvider (such as the institutin that receives the remittance transfer n behalf f the designated recipient), nly if such estimates are based n reasnable surces f infrmatin. Prtiviti 5

6 Prcedures fr Cancellatin and Refund f Remittance Transfers Under the Rule, senders may cancel a remittance transfer within 30 minutes f making a payment in cnnectin with a remittance transfer if: The sender des s in a manner that enables the prvider t identify the sender's name and address r telephne number and the particular transfer t be cancelled; and The funds have nt already been picked up by, r depsited int an accunt f, the designated recipient. A prvider must prvide the 30-minute cancellatin right regardless f the prvider's nrmal business hurs. Senders are nt required t cancel their transactins at the same lcatin, r even in the same manner, in which they funded the transactin. Fr any remittance transfer scheduled by the sender at least three business days befre the date f the transfer, the prvider must cmply with any ral r written request frm the sender t cancel the remittance transfer when the request is received by the prvider at least three business days befre the scheduled date f the remittance transfer. The ttal amunt, including all fees and taxes, must be refunded by the prvider t the sender at n additinal cst t the sender within three business days f receiving the cancellatin request. The refund can be made in cash r the same frm f payment used t fund the transfer; hwever, if the transfer was funded by cash, a refund check may be prvided. Institutins chsing t delay sending a remittance transfer until after the 30 minutes have passed must cntinue t hnr the exchange rate disclsed t the sender, even if rates have subsequently changed. Prcedures fr Reslving Errrs The Rule prvides senders with new rights regarding errr reslutin, and institutins shuld nte that these requirements differ substantially frm the existing prvisins applicable t EFTs. A remittance transfer prvider must develp written plicies and prcedures designed t ensure cmpliance with these new errr reslutin requirements. The fllwing table summarizes the types f errrs cvered by the Rule 1 : Types f Transfers r Inquiries That Are Cvered Ptential Errrs Incrrect amunt paid by a sender Failure t make available t the recipient the amunts disclsed Types f Transfers r Inquiries That Are Nt Cvered Ptential Errrs Amunt paid by sender differs frm disclsure as a result f a permissible estimate Amunt received by recipient differs frm amunts disclsed due t: 1) the applicatin f the actual exchange rate, fees, and taxes, rather than any estimated amunts; 2) extrardinary circumstances utside the remittance transfer prvider's cntrl that culd nt have been reasnably anticipated; r 3) certain third-party fees r taxes cllected n the remittance transfer by a persn ther than the prvider and the prvider prvided necessary disclaimers t the sender 1 Certain errrs related t EFTs r credit accunts in relatin t remittance transfers, such as unauthrized EFTs frm a depsit accunt r draws n an existing line f credit, r incrrect transfers where the accunt-hlding institutin is nt als the remittance transfer prvider, may be subject alternatively r in additin t existing errr reslutin requirements under Regulatin E and/r the CFPB s Regulatin Z. Institutins shuld crdinate implementatin f the remittance transfer errr reslutin requirements carefully with existing errr reslutin prcesses and prcedures. Prtiviti 6

7 Types f Transfers r Inquiries That Are Cvered Ptential Errrs Failure t make funds available t a designated recipient by the disclsed date f availability The sender's request fr remittance transfer disclsures r fr additinal infrmatin r clarificatin cncerning a remittance transfer, including a request a sender makes t determine whether an errr exists Cmputatin r bkkeeping errrs made by the prvider Types f Transfers r Inquiries That Are Nt Cvered Ptential Errrs Funds nt made available t recipient by date disclsed due t: 1) extrardinary circumstances utside the remittance transfer prvider's cntrl that culd nt have been reasnably anticipated; 2) delays related t fraud r anti-mney laundering screening prcedures r requirements; 3) the remittance transfer being made with fraudulent intent by the sender r any persn acting in cncert with the sender; r 4) the sender prviding the remittance transfer prvider an incrrect accunt number r recipient institutin identifier fr the designated recipient's accunt r institutin Status inquiry n the transfer, r a request fr infrmatin fr tax r ther recrdkeeping purpses A change requested by the designated recipient A change in the type r amunt f currency received by the designated recipient frm what was disclsed t the sender, if the prvider relied n infrmatin prvided by the sender when making the disclsure T reslve an errr, senders must cntact the prvider rally r in writing within 180 days f the disclsed date f availability f the remittance transfer; prvide infrmatin sufficient fr the prvider t identify the sender, the recipient, and the specific remittance transfer; and indicate why the sender believes an errr exists, including, t the extent pssible, the type, date, and amunt f the errr. Lnger perids may apply if a ntice f errr is based upn dcumentatin, additinal infrmatin, r clarificatin that the sender previusly requested f the prvider. Prviders must cmplete an investigatin f the errr within 90 days f receiving ntice frm the sender and ntify the sender f the results f the investigatin within three business days after the investigatin is cmpleted. The fllwing steps must be taken by the prvider: If the errr is cnfirmed: The prvider may ntify the sender that the errr has been cnfirmed either rally r in writing. The prvider must crrect the errr within ne business day (r whenever reasnably practical) after receiving the sender s instructins regarding the apprpriate remedy. Senders shuld be prvided with a reasnable amunt f time t indicate the remedy f the errr that they prefer; in the absence f directin within a reasnable perid, the prvider may apply a default remedy. Remedies may include refunding t the sender the amunt paid fr the remittance transfer r redelivering t the designated recipient the amunt apprpriate t reslve the errr. Refunds may be in the same frm in which the remittance transfer was paid by the sender, r by check, at the prvider s discretin. Nte that regardless f whether the amunt is refunded r redelivered, the prvider must als refund any cvered fees and taxes impsed n the initial transfer (whether by the prvider r a third party). Remedies d nt include any cnsequential damages. Exceptins apply fr situatins in which the sender riginally prvided incrrect r insufficient infrmatin when requesting the remittance transfer, in which case cvered third-party fees and taxes impsed n the riginal transfer may nt be required t be refunded as well. Prtiviti 7

8 If the errr is nt cnfirmed: If it is determined that n errr exists, the prvider must ntify the sender in writing explaining the results f the investigatin and the sender s right t request cpies f the dcuments n which the prvider relied in making its determinatin. If a different errr is cnfirmed: If it is determined that an errr ccurred in a manner r amunt different frm that asserted by the sender, the prvider must ntify the sender rally r in writing f the determinatin and f the available remedies t crrect the errr. The prvider must als ntify the sender in writing f the results f the investigatin and the sender s right t request relevant dcuments related t the investigatin. The prvider cannt assess any fees related t cnducting an investigatin r t any aspect f the errr reslutin prcess. A remittance transfer prvider may crrect an errr withut investigatin, but if it des s it must cmply with all timing, ntificatin, and remedy requirements under the Rule. Perspectives n Cmpliance Fr institutins that wrked t meet the changing cmpliance deadlines and requirements f this Rule since its first prpsal in May 2011, it has been a lng and circuitus path. The requirements are cmplex, and further changes and additinal regulatry guidance and clarificatin are pssible. Financial institutins seeking t manage cmpliance with these requirements effectively shuld cnsider the fllwing: Plicies, prcedures and training. The Rule establishes a new bdy f detailed cmpliance requirements that will require similarly detailed plicies and prcedures in rder t achieve cmpliance peratinally. Custmer-facing persnnel will need in-depth training t understand these new requirements and hw the institutin has chsen t implement them, as will back-end peratinal persnnel prcessing the transactins. Third parties. Third-party risk is inescapable fr financial institutins ffering remittance transfer services. Institutins may chse t utsurce this service t third-party vendrs ffering turnkey slutins; hwever, even institutins that chse nt t utsurce will need t crdinate with crrespndent banks, mney transmitters and ther agents t access key infrmatin. Institutins shuld manage these vendrs in accrdance with prudent third-party risk management practices, including cntingency planning, rbust initial and nging due diligence and clear cntractual expectatins regarding perfrmance. Technlgy. Given the autmated manner in which such transactins are cnducted via nline bill payment, ACH, wires, telephne, etc. institutins must rely upn systems t facilitate cmpliance with these requirements. Operating systems must be capable f generating necessary disclsures, carrying ut the transactins in the manner disclsed, and retaining all required infrmatin. Further, they must be designed with apprpriate cntrls, safeguards and tls fr mnitring and reprting. Finally, custmers are increasingly using emerging technlgies, such as mbile applicatins and text messaging; as such, institutins must have the necessary infrastructure in place t carry ut such transactins and cmply with the Rule. Mnitring. Given the cmplexity f the Rule, the changes necessary t implement the requirements peratinally, and the fact that such transactins may be ffered in varius departments thrughut the rganizatin, internal validatin mechanisms are necessary t assess the effectiveness f the institutin s cmpliance with the Rule. Whether thrugh exceptin reprting, cmpliance testing r an internal audit, prcesses and cntrls shuld be evaluated n a regular basis and deficiencies addressed prmptly. Issue management. Even in a well-designed prcess, things can g wrng. Manual errrs may ccur, systems may malfunctin, and third parties may nt fulfill their bligatins. It is incumbent upn the financial institutin t identify and manage any issues it ntices expeditiusly and cmpletely, whether the issues are raised by the cnsumer r identified internally. Based upn the assessed nature f the issue and impact n the institutin s custmers, changes t prcesses, systems and even third parties may be necessary, and the institutin shuld be prepared t reslve any resulting errrs with affected custmers. Prtiviti 8

9 Finally, institutins that ffer such prducts infrequently shuld take steps t ensure that they d nt exceed unintentinally the annual transactin limits. Effective Date The disclsure requirements are effective fr remittance transfers that are requested by a sender n r after Octber 28, 2013 (the Effective Date ). Fr preauthrized remittance transfers, the pre-payment and receipt disclsure requirements will apply t preauthrized remittance transfers authrized by a sender n r after the Effective Date. The errr reslutin, refund and cancellatin requirements are applicable nly t remittance transfers n which a sender makes a payment n r after the Effective Date. Fr any remittance transfer scheduled by the sender at least three business days befre the date f the transfer, the errr reslutin, refund and cancellatin requirements apply t transfers authrized by a sender n r after the Effective Date. Abut Prtiviti Prtiviti ( is a glbal cnsulting firm that helps cmpanies slve prblems in finance, technlgy, peratins, gvernance, risk and internal audit. Thrugh ur netwrk f mre than 70 ffices in ver 20 cuntries, we have served mre than 35 percent f FORTUNE 1000 and FORTUNE Glbal 500 cmpanies. We als wrk with smaller, grwing cmpanies, including thse lking t g public, as well as with gvernment agencies. Prtiviti is a whlly wned subsidiary f Rbert Half (NYSE: RHI). Funded in 1948, Rbert Half is a member f the S&P 500 index. Cntacts Carl Beaumier Managing Directr carl.beaumier@prtiviti.cm Sean Kulczycki Directr sean.kulczycki@prtiviti.cm Michael Brauneis Managing Directr michael.brauneis@prtiviti.cm Steven Stachwicz Assciate Directr steven.stachwicz@prtiviti.cm 2013 Prtiviti Inc. An Equal Opprtunity Emplyer. Prtiviti is nt licensed r registered as a public accunting firm and des nt issue pinins n financial statements r ffer attestatin services.