Electronic Fund Transfers (Regulation E)

Federal RegisterFeb 7, 2012

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1005

[Docket No. CFPB-2011-0009]

RIN 3170-AA15

Electronic Fund Transfers (Regulation E)

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Final rule; official interpretation.

SUMMARY:

The Bureau of Consumer Financial Protection is amending Regulation E, which implements the Electronic Fund Transfer Act, and the official interpretation to the regulation, which interprets the requirements of Regulation E. The final rule provides new protections, including disclosures and error resolution and cancellation rights, to consumers who send remittance transfers to other consumers or businesses in a foreign country. The amendments implement statutory requirements set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

DATES:

The rule is effective February 7, 2013.

FOR FURTHER INFORMATION CONTACT:

Mandie Aubrey, Dana Miller, or Stephen Shin, Counsels, or Krista Ayoub or Vivian Wong, Senior Counsels, Division of Research, Markets, and Regulations, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006, at (202) 435-7000.

SUPPLEMENTARY INFORMATION:

I. Overview

The Bureau of Consumer Financial Protection (Bureau) is publishing this final rule to implement section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),

which creates a comprehensive new system of consumer protections for remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries. Consumers transfer tens of billions of dollars from the United States each year. However, these transactions were generally excluded from existing Federal consumer protection regulations in the United States until the Dodd-Frank Act expanded the scope of the Electronic Fund Transfer Act (EFTA)

to provide for their regulation.

Public Law 111-203, 124 Stat. 1376, section 1073 (2010).

15 U.S.C. 1693

et seq.

EFTA section 919 is codified in 15 U.S.C. 1693o-1.

The new protections will significantly improve the predictability of remittance transfers and provide consumers with better information for comparison shopping. First, the statute requires consistent, reliable disclosures about the price of a transfer, the amount of currency to be delivered to the recipient, and the date of availability. Consumers must receive pricing information before they make payment, and under the final rule will generally have 30 minutes after making payment to cancel a transaction. Second, the new requirements also increase consumer protections where transfers go awry by requiring providers to investigate disputes and remedy errors. Because the statute defines “remittance transfers” broadly, most electronic transfers of funds sent by consumers in the United States to recipients in other countries will be subject to the new protections.

Authority to implement the new Dodd-Frank Act provisions amending the EFTA transferred from the Board of Governors of the Federal Reserve System (Board) to the Bureau effective July 21, 2011. The Dodd-Frank Act requires that regulations to implement certain of these provisions be issued by January 21, 2012. To ensure compliance with this deadline, the Board issued a Notice of Proposed Rulemaking in May 2011 (May 2011 Proposed Rule) with the expectation that the Bureau would complete the rulemaking process.

76 FR 29902 (May 23, 2011).

The Bureau is now issuing the final rule to define standards and provide initial guidance to industry. The final rule provides for a one-year implementation period. The Bureau is also publishing elsewhere in today's

Federal Register

a Notice of Proposed Rulemaking (January 2012 Proposed Rule) to further refine application of the final rule to certain transactions and remittance transfer providers. The Bureau expects to complete any further rulemaking on matters raised in the January 2012 Proposed Rule on an expedited basis before the end of the one-year implementation period.

The Bureau will work actively with consumers, industry, and other regulators in the coming months to follow up on the final rule. For instance, the Bureau has begun discussions with other Federal and state regulators concerning the fact that Congress's decision to regulate remittance transfers under the EFTA affects the application of certain State laws and Federal anti-money laundering regulations, as discussed further below. In coming months, the Bureau also expects to develop a small business compliance guide and engage in dialogue with industry regarding implementation issues. Finally, as the implementation date approaches, the Bureau expects to conduct a public awareness campaign to educate consumers about the new disclosures and their other rights under the Dodd-Frank Act.

II. Background

A. Scope and Regulation of Remittance Activities

The term “remittance transfer” has been used in other contexts to describe consumer-to-consumer transfers of low monetary value, often made via non-depository companies known as “money transmitters” by migrants supporting friends and relatives in their home countries.

But while this likely is the single largest category of electronic transfers of funds by consumers in the United States to recipients in foreign countries, it is not the only one. For instance, transfers can be sent abroad by any consumers in the United States, not just immigrants. In addition to using money transmitters, consumers can transfer funds to recipients in foreign countries through depository institutions or credit unions, for instance through wire transfers or automated clearing house (ACH) transactions. Furthermore, consumers in the United States may transfer funds to businesses as well as to individuals in foreign countries, for instance to pay bills, tuition, or other expenses. Although a number of studies of certain sets of consumers' international funds transfers have shown that transactions average several hundred dollars per transfer,

average transfer sizes vary significantly among subsets of the market,

e.g.,

among sets of consumer transfers sent to particular destination regions, or among consumer transfers

sent via particular methods or for particular purposes.

See, e.g.,

Committee on Payment and Settlement Systems and the World Bank,

General Principles for International Remittance Services

6 (Jan. 2007), available at: siteresources.worldbank.org/INTPAYMENTREMMITTANCE/Resources/New_Remittance_Report.pdf (“

CPSS Principles”

See, e.g.,

Ole E. Andreassen,

Remittance Service Providers in the United States: How Remittance Firms Operate and How They Perceive Their Business Environment

15-16 (June 2006), available at: siteresources.worldbank.org/INTPAYMENTREMMITTANCE/Resources/BusinessmodelsFSEseries.pdf) (“Andreassen”); Manuel Orozco, Inter-American Dialogue,

Migration and Remittances in Times of Recession: Effects on Latin American and Caribbean Economies

13-14 (Apr. 2009), available at: www.oecd.org/dataoecd/48/8/42753222.pdf; Bendixen & Amandi,

Survey of Latin American Immigrants in the United States

23 (Apr. 30, 2008), available at:

idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=35063818.

(“

Bendixen Survey”

)

For example, one study found that 52% of total worldwide transfers to India from Indians living abroad were made in amounts of $1,100 and above, and of that category, 63% exceeded $2,200. Muzaffar Chishti, Migration Policy Institute,

The Rise in Remittances to India: A Closer Look

(February 2007), available at: http://www.migrationinformation.org/Feature/display.cfm?ID=577 (citing to 2006 study by the Reserve Bank of India; study was not limited to transfers from the United States);

see also

Manuel Orozco, Inter-American Dialogue,

Worker Remittances in an International Scope

10 (Feb. 28, 2003), available at: www.iadb.org/document.cfm?id=35076501.

As described further below, the Dodd-Frank Act defines “remittance transfer” broadly to include most electronic transfers of funds sent by consumers in the United States to recipients in other countries. There is no available data regarding the volume of remittance transfers using the statutory definition, but a number of studies regarding related financial flows indicate that consumers in the United States transfer tens of billions of dollars abroad annually. Globally, the World Bank estimates that the worldwide volume of certain cash, asset, and in-kind transfers made by migrants to developing countries reached $325 billion in 2010, and that the United States was the source of the greatest number of such transfers.

The U.S. Bureau of Economic Analysis estimates that in 2010, $37.1 billion in cash and in-kind transfers were made from the United States to foreign households by foreign-born individuals who had spent one or more years here.

Similarly, a private consulting firm estimates that in 2005, $42 billion in international transfers were made by money transmitters in the United States.

The U.S. Census Bureau, in contrast, estimates that monetary transfers from U.S. households to family and friends abroad totaled approximately $12 billion in 2008.

The available data suggest that the majority of consumers' international transfers from the United States are sent to the Caribbean and Latin America, and primarily to Mexico. Significant sums are also sent to Asia, and to the Philippines in particular.

World Bank,

Migration and Remittances Factbook 2011

15, 17 (2d ed. 2011). The World Bank estimates include cash and in-kind transfers by migrants to their native countries, earnings of temporary workers, and certain asset transfers.

Bureau of Economic Analysis (BEA”),

Personal Transfers, 1992:I -2011:III

(Dec. 15, 2011). For more on the BEA's methodology,

see

Mai-Chi Hoang and Erin M. Whitaker, BEA, “Annual Revision of the U.S. International Transaction Accounts,”

Surv. of Current Bus,

vol. 91, no. 7 (July 2011) at 47-61; Christopher L. Bach, BEA, “Annual Revision of the U.S. International Accounts, 1991-2004,”

Surv. of Current Bus.

vol. 85, no. 7 (July 2005) at 64-66.

KPMG LLP Economic and Valuation Services,

2005 Money Services Business Industry Survey Study for Financial Crimes Enforcement Network

5 (Sept. 26, 2005), available at:

www.fincen.gov/news_room/rp/reports/pdf/FinCEN_MSB_2005_Survey.pdf

(“

KPMG Report”

) (Volume estimates included fees charged, as well as principal transferred. It is unclear whether estimate includes inbound, as well as outbound, transfers).

Elizabeth M. Grieco, Patricia de la Cruz et al.,

Who in the United States Sends and Receives Remittances? An Initial Analysis of the Monetary Transfer Data from the August 2008 CPS Migration Supplement,

U.S. Census Bureau Working Paper No. 87 (Nov. 2010), available at http://www.census.gov/population/www/documentation/twps0087/twps0087.html. The report recognizes the substantial difference between its estimate and that of the BEA and offers several possible explanations, but does not reach a conclusion about the difference between the estimates.

U.S. Gov't Accountability Office, GAO-06-204,

International Remittances: Information on Products, Costs, and Consumer Disclosures

7 (November 2005) (“

GAO Report”

);

see also

Cong. Budget Office,

Migrants' Remittances and Related Economic Flows

7 (Feb. 2011).

In the United States, remittance transfers sent by non-bank “money transmitters,” depository institutions, and credit unions are generally subject to Federal anti-money laundering laws and restrictions on transfers to or from certain persons. Money transmitters are also subject to State licensing and (in some cases) State regulatory regimes. However, consumer protections for remittance and other funds transfers vary widely at the State level, and international money transfers fall largely outside the scope of existing Federal consumer protections. For instance, the EFTA was enacted in 1978 to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer (EFT) systems. As implemented by Regulation E (12 CFR part 1005),

the EFTA governs transactions such as transfers initiated through automated teller machines, point-of-sale terminals, automated clearing house systems, telephone bill-payment plans, or remote banking services. However, prior to the new Dodd-Frank Amendments, Congress had specifically structured the EFTA to exclude wire transfers,

and transfers sent by money transmitters also generally fall outside the scope of existing Regulation E. As described in more detail below, these categories of transfers are believed to compose the majority of the remittance transfer market.

In light of the transfer of the rulemaking authority for the EFTA (other than Section 920 of the EFTA) from the Board to the Bureau, the Bureau published for public comment an interim final rule establishing a new Regulation E at 12 CFR part 1005.

See

76 FR 81020 (Dec. 27, 2011). Consequently, provisions in the Board's Regulation E at 12 CFR part 205 were republished as the Bureau's Regulation E at 12 CFR part 1005.

See

EFTA section 903(7), which has been implemented in 12 CFR 1005.3(c).

B. Specific Methods of Consumer Remittance and Other Money Transfers

Consumers can choose among several methods of transferring money to foreign countries, as detailed below. Information on the volume of certain methods, particularly consumer wire transfers, is very limited, but the Bureau believes that transactions by non-bank “money transmitters” and wire transfers by depository institutions and credit unions make up the majority of the remittance transfer market.

The various methods of remittance transfer can generally be categorized as involving either closed network or open network systems, although new hybrids between open and closed networks are developing. In closed networks, a principal remittance transfer provider offers a service through a network of agents or other partners that help collect funds in the United States and disburse funds abroad. Through the provider's own contractual arrangements with those agents or other partners, or through the contractual relationships owned by the provider's business partner, the principal provider can exercise some control over the transfer from end-to-end.

In contrast, in an open network, no single provider has control over or relationships with all of the participants that may collect funds in the United States or disburse funds abroad. A number of principal providers may access the system. National laws, individual contracts, and the rules of various messaging, settlement, or payment systems may constrain certain parts of transfers sent through an open network system. But any participant, such as a U.S. depository institution, may use the network to send transfers to unaffiliated institutions abroad with which it has no contractual relationship, and over which it has limited authority or ability to monitor or control.

See generally

CPSS Principles at 9-10.

Remittance Transfers Through Money Transmitters

Historically, many consumers have sent remittance transfers through non-depository institutions called “money transmitters.”

Money transmitters generally operate through closed networks, receiving and disbursing funds through their own outlets or through agents, such as grocery stores, neighborhood convenience stores, or depository institutions. Money

transmitters have traditionally dominated the market for transfers from consumers in the United States to relatives or other households abroad.

These businesses, in turn, have tended to focus on modest-sized transfers. Many cap the size of individual transfers,

and some evidence suggests that for some destination markets, money transmitters' prices for transfers of several hundred dollars tend to be lower than depository institutions' prices.

Federal law requires money transmitters to register with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury. 31 U.S.C. 5330; 31 CFR 1022.380. Most states also require money transmitters to be licensed by the State.

Bureau,

Report on Remittance Transfers

6 (July 20, 2011), available at: http://www.consumerfinance.gov/wp-content/uploads/2011/07/Report_20110720_RemittanceTransfers.pdf (“

Bureau 2011 Report”

KPMG Report

at 47.

See, e.g., Remittance Prices Worldwide: Making Markets More Transparent, Sending Money FROM United States,

at: http://remittanceprices.worldbank.org/Country-Corridors/from-United-States (tracking select providers' prices for sending $200 and $500 transfers from the United States to select countries).

For a remittance transfer conducted through a money transmitter, a consumer typically provides basic identifying information about himself and the recipient, and pays cash sufficient to cover the transfer amount and any transfer fees charged by the money transmitter. The consumer is often provided a confirmation code, which the consumer relays to the recipient. The money transmitter sends an instruction to a specified payout location or locations in the recipient's country where the recipient may pick up the transferred funds in cash, often in local currency, on or after a specified date, upon presentation of the confirmation code and/or other identification. These transfers are generally referred to as cash-to-cash remittances.

Although most money transmitters focus on cash-to-cash remittance transfers, many have also broadened their product offerings, with respect to both the methods for sending and the methods for receiving remittance transfers. For example, money transmitters may permit transfers to be initiated using credit cards, debit cards, or bank account debits, through Web sites, dedicated telephone lines at agent locations, at stand-alone kiosks, or by telephone. Abroad, money transmitters and their partners may allow funds to be deposited into recipients' bank accounts, or distributed directly onto prepaid cards. Funds can also be transferred among consumers' “virtual wallets,” through accounts identified by individuals' email addresses or mobile phone numbers. A recent survey of companies sending funds from the United States to Latin America showed that approximately 75% permit consumers to send transfers of funds that can be deposited directly into recipients' bank accounts, and about 15% offer internet-based transfers.

Manuel Orozco, Elizabeth Burgess et al, Inter-American Dialogue,

A Scorecard in the Market for Money Transfers: Trends in Competition in Latin American and the Caribbean

6 (June 18, 2010) (“

Scorecard”

). Like cash-to-cash remittances, many of these new offerings rely on closed networks, though others rely on open networks or reflect some characteristics of both open and closed network transactions. The primary means of open network transfers are wire transfers and international ACH transfers, discussed in more detail below.

The cost of a transfer sent through a money transmitter generally has two components, in addition to any governmental taxes. The first component is fees. In general, money transmitters charge up-front fees at the time that a transaction is sent. Though it is possible that agents that disburse funds may charge additional fees, the contractual relationships that money transmitters hold with their agents—or with intermediaries that manage such agents—may allow money transmitters, as a condition of network participation, to forbid such fees.

The second component is the exchange rate applied to the transfer, which determines how much money a consumer will have to pay in order for a recipient to receive a certain amount of local currency. Money transmitters also often set the exchange rates that apply to the transfers they send, at or before the time that a consumer tenders payment. However, some money transmitters offer floating rate products where the exchange rate is not determined until the recipient picks up the funds. In either scenario, the exchange rate that applies to a transfer usually reflects a spread: a percentage difference between that exchange rate (the “retail” rate) and some “wholesale” exchange rate.

Spreads can be used to generate revenue for the money transmitter or its partners. Spreads are also one of several mechanisms that money transmitters or their partners may use to manage exchange rate risk, which arises due to the frequent fluctuations in most wholesale currency markets and the time lags between when transfers are initiated, when destination market currency is bought, when transfers are picked up by recipients, and when the parties settle their transactions.

There are a variety of ways to measure the wholesale exchange rate. For example, researchers may rely on publicly available interbank exchange rates, which are the rates available to large financial institutions exchanging very large quantities of currency with each other.

contrast, in calculating their revenues due to spread, money transmitters generally rely on the rates at which they buy currency, which may be different from interbank rates.

Funds sent through a money transmitter are generally available in one to three business days, although same day delivery may be available, often for a higher fee. At the time of the transaction, transmitters generally set a date (and possibly time) when funds will be available. Based on the contractual relationships among network participants, money transmitters may require agents in the recipient country to make funds available to recipients before accounts are settled among the agent in the United States, the money transmitter, the agent abroad, and any other entities involved. But the processes and methods that agents in the United States, money transmitters, agents abroad, and other entities communicate with each other, transfer funds among each other, and settle accounts can vary widely.

See generally Andreassen

at 3-5;

CPSS Principles

at 41-42.

Because money transmitters generally work through closed networks, even those that do not operate their own retail outlets often have direct contractual relationships with agents in the United States through which consumers initiate transfers, as well as agents abroad, which make funds available to recipients. Alternatively, money transmitters may have direct relationships with intermediaries that, in turn, contract with and manage individual agents. In either scenario, money transmitters can use the terms of their contractual relationships to restrict the terms under which agents or other network partners can operate and to obtain information from the agents or other networks to monitor their compliance with contractual and legal requirements.

International Wire Transfers

Depository institutions and credit unions have traditionally offered consumers remittance transfer services by way of wire transfers, which are certain electronically transmitted orders that direct receiving depository institutions to pay identified beneficiaries.

Unlike closed network

transactions, which generally can only be sent to agents or other entities that have signed on to work with the specific provider in question, wire transfers are generally open network transactions that can reach virtually any bank worldwide through national payment systems that are connected through correspondent and other intermediary bank relationships.

Historically, while money transmitters have focused on modest-sized transfers between persons who may not use depository institutions or credit unions, wire transfers have generally been used for large transactions sent by consumers with deposit accounts to recipients with deposit accounts. Wire transfers are generally not capped on the amount that can be sent, and individual transactions can involve thousands or millions of dollars. Because flat fees are common, the price of a wire transfer, as a percent of the transaction amount, often decreases as the size of the transfer increases. Information on the volume of consumer wire transfers is very limited.

Wire transfers can, in fact, be composed of a sequence of payment orders, each of which are settled using different payment systems. For instance, an international wire transfer may be composed, in part, by a domestic wire transaction between the sending institution in the United States and an intermediary also operating in the United States; a “book transfer” between two accounts held by the intermediary institution; and a transaction between that intermediary and the receiving institution (that may be conducted through the domestic wire system in the receiving country).

A correspondent relationship is generally one in which a financial institution has a contractual arrangement to hold deposits and provide services to another financial institution, which has limited access to certain financial markets.

To initiate a wire transfer, a consumer typically provides the sending depository institution or credit union not only information about himself and the recipient of the transfer, but also technical information about the recipient's financial institution and the account into which money will be received. The fees charged by the sending institution and the principal amount to be transferred are deducted from the consumer's account. No access code or similar device is typically required because the funds will be deposited into the designated recipient's account in the foreign country.

Like money transmitters, providers of wire transfers usually charge up-front fees at the time of the transaction. In some cases, intermediary institutions impose additional fees (sometimes referred to as “lifting fees”) and recipient institutions may also charge fees for converting funds into local currency and/or depositing them into recipients' accounts. Often, intermediary and recipient institutions charge fees to the consumer by deducting them from the principal amount transferred, although sometimes fees are charged to the sending institution instead.

For wire transfers that will be received in a foreign currency, the mechanics of the currency exchange may depend on the circumstances. A sending depository institution or credit union that participates in foreign exchange markets may exchange the currency at the time of transfer, using an exchange rate that the sending institution sets. In such cases, the principal amount will be then transferred in the foreign currency. Even if the funds are to be received in a foreign currency, however, the sending financial institution may not conduct the foreign exchange itself. Some financial institutions, particularly smaller institutions, may not participate in any foreign currency markets. In other cases, a depository institution or credit union may choose not to trade an illiquid currency or a consumer may request that the financial institution send the transfer in U.S. dollars. In these cases, the sending institution's correspondent institution, the first cross-border intermediary institution in the recipient's country, or the recipient's institution, may set the exchange rate that applies to the transfer. Like exchange rates applied to closed network transfers, exchange rates applied to wire transfers may reflect a spread between the retail rate and the wholesale rate; this spread can be used to generate revenue or to help manage exchange rate risk.

Funds that are sent by wire transfers are usually not available on the same day that the transaction is initiated. Because of time zone differences, and because payment is often not made before funds are settled among the various parties, wire transfers generally take at least one day for delivery. They may take longer, depending on the number of institutions involved in the transmittal route, the payment systems used, and individual institutions' business practices.

Communications within the open network can be complicated. Where a sending institution has no contractual, account, or other relationships with a recipient institution, it may communicate indirectly by sending funds and payment instructions to a correspondent institution, which will then transmit the instructions and funds to the recipient institution directly or indirectly through other intermediary institutions. In some cases the sending institutions may not know the identity of the intermediary institution prior to initiating the transfer because more than one transfer route may be possible. Institutions may learn about each other's practices through any direct contractual or other relationships that do exist, through experience in effectuating wire transfers over time, through reference materials, or through information provided by the consumer. However, as open networks operate today, there is no global practice of communications by intermediary and recipient institutions that do not have direct relationships with a sending institution regarding fees deducted from the principal amount or charged to the recipient, exchange rates that are set by the intermediary or recipient institution, or compliance practices. Furthermore, even among contractual partners, communication practices could vary.

International ACH

More recently, some depository institutions and credit unions have begun to offer other methods for initiating remittance transfers, such as through the automated clearing house system (ACH), which provides for batched electronic fund transfers generally on a nightly basis. To reach a foreign recipient, transfers initiated through the ACH system must generally pass through a “gateway operator” in the United States, to an entity in the recipient country (such as a foreign financial institution) according to the terms of an agreement between the two; the transfers are then cleared and settled through a payment system in the recipient country. Individual financial institutions can serve as gateway operators, and through a set of branded services called FedGlobal ACH Payments, the Federal Reserve Banks also offer international ACH gateway services.

Board,

Report to the Congress on the Use of the Automated Clearinghouse System for Remittance Transfers to Foreign Countries

4-6, 7, 9 (July 2011), available at:

http://www.federalreserve.gov/boarddocs/rptcongress/ACH_report_201107.pdf

(“

Board ACH Report”

Similar to the typical money transmitter services, the FedGlobal ACH Payments services have been designed for modest sized transfers. They have been marketed, at least in part, to serve migrants sending money to their countries of origin, and some of the FedGlobal services include transaction limits.

Unlike some money transmitters, FedGlobal does not offer transfers that can be picked up on the same day on which they are sent.

Board ACH Report

at 4, 10; Fed. Reserve Bank Services,

FedGlobal® ACH Payments Service Origination Manual

23, 48, available at:

http://www.frbservices.org/files/serviceofferings/pdf/fedach_global_service_orig_manual.pdf

(“

FedGlobal Originations Manual”

FedGlobal Originations Manual

at 11, 49.

Development of the FedGlobal system has occurred in the last decade. In 2001, the Federal Reserve Banks began offering cross-border ACH services to Canada. In 2004, the Federal Reserve Banks launched an interbank mechanism in partnership with the central bank of Mexico, later branded

“Directo a México,” to carry out cross-border ACH transactions between the United States and Mexico. The Federal Reserve Banks now offer international ACH services to 35 countries in Europe, Canada, and Latin America through agreements with private-sector or government entities.

In each case, the Federal Reserve and the entity or entities with which the Federal Reserve has an agreement receive, process, and distribute ACH payments to financial institutions or recipients within the respective domestic payment systems, and in accordance with the terms of the FedGlobal ACH service.

Depending on the recipient country, institutions may offer customers account-to-account transfers, or allow customers to send transfers that may be picked up in cash at a participating institution or other payout location abroad.

Board ACH Report

at 9, 14; Fed. Reserve Bank Services,

FedGlobal ACH Payments,

available at:

http://www.frbservices.org/serviceofferings/fedach/fedach_international_ach_payments.html

(“

FedGlobal ACH Payments”

FedGlobal Originations Manual.

FedGlobal ACH Payments, http://www.frbservices.org/serviceofferings/fedach/fedach_international_ach_payments.html

The Federal Reserve provides U.S. financial institutions access to its FedGlobal ACH Payments Service for a fee. Financial institutions, in turn, offer the product to their customers for a fee.

For the purposes of this discussion, international ACH transactions will be considered open network transactions. However, depending in part on the nature of the agreements between U.S. gateway operators and the foreign entities involved, international ACH transfers also share some characteristics of closed network transfers. For example, like wire transfers, international ACH transfers can involve payment systems in which a large number of sending and receiving institutions may participate, such that the sending institution and the receiving institution may have no direct relationship. Agreements formed by the gateway operator with foreign entities may, however, restrict some terms of the service and the participants in the system. For example, unlike institutions that receive wire transfers, institutions that receive FedGlobal ACH transfers are generally restricted, by the terms of the service, from deducting a fee from the principal amount (though the service may permit recipient institutions to charge certain other fees, such as fees for receiving a transfer).

See, e.g.,

Lenora Suki,

Competition and Remittances in Latin America: Lower Prices and More Efficient Markets,

Working Paper at 27 (Feb. 2007), available at:

http://www.oecd.org/dataoecd/31/52/38821426.pdf

(“

Competition and Remittances”

FedGlobal Originations Manual

at 13, 27, 37, 42, 51. For transfers to Europe, the terms of the service provide for reimbursement of any fees deducted from the principal.

In some instances, the financial institution originating a FedGlobal ACH transfer can choose to conduct the foreign exchange, and send the transfer in the foreign currency. In other cases, however, transfers are sent in U.S. dollars and any applicable exchange rate is determined afterward, by the foreign ACH counterpart, either directly or through foreign depository institutions.

For such transfers, the terms of the FedGlobal service can determine how and when the applicable rate is set. For instance, for FedGlobal transfers to Mexico, the exchange rate is based on rate published by the Bank of Mexico on the date the transfer is credited to the beneficiary's account, minus a fixed spread.

Funds are deposited into the recipient's account or made available to be picked up, in accordance with a delivery schedule that is established by the rules applicable to each FedGlobal service, and the practice of receiving financial institutions.

Board ACH Report

at 10-11.

See Foreign Exchange Rate,

available at:

http://directoamexico.com/en/tipodecam.html.

Board ACH Report

at 11;

FedGlobal Originations Manual

at 11, 13.

International ACH transfers sent through the FedGlobal service or other mechanisms likely account for a small share of the remittance transfers sent annually. In July 2011, the Board reported that about 410 financial institutions had enrolled in the FedGlobal ACH Payments Service, and that only about one-third of those initiated transfers in a typical month. The Board further reported that some enrolled institutions do not offer the service for consumer-initiated transfers; a large portion of the transfers sent through the FedGlobal's Canadian and European services were commercial payments; and the volume of transfers through the FedGlobal's Latin America service was negligible.

Board ACH Report

at 12 & n.53, 14-15.

The FedGlobal ACH services account for only about 20 percent of cross-border transactions that are processed through the U.S. ACH networks.

The Bureau believes that remittance transfers account for only a small portion of these additional transactions, which include not only outbound, consumer-initiated transfers, but also inbound transfers and transfers initiated by government and businesses.

Section 1073 of the Dodd-Frank Act directs the Board to work with the Federal Reserve Banks and the Department of the Treasury to expand the use of the ACH system and other payment mechanisms for remittance transfers to foreign countries.

Board ACH Report

at 5 & n.20, 9.

Board ACH Report

at 6.

Other Transfer Methods

Over the last decade, some depository institutions and credit unions have independently developed other remittance transfer products, or have directly partnered with or joined other networks of financial institutions or other payout locations. Often designed with a focus on modest-sized transfers, these products include account-to-account, account-to-cash, and cash-to-account products that may be offered through closed network systems and resemble those offered by money transmitters.

Services may be offered to non-account holders, as well as accountholders.

See, e.g., Scorecard

at 7, 25-26.

In addition, depository institutions, credit unions, money transmitters, and other entities, including brokerages, may directly, or in partnership with others, offer consumers other closed network, open network, and other models for sending money abroad. Some of these other models relying on prepaid and debit cards can be used to deliver funds to a person located abroad. For example, consumers may send funds to recipients abroad using prepaid cards. In one model, a consumer in the United States purchases a prepaid card, loads funds onto the card, and has it sent to a recipient in another country. The recipient may then use the prepaid card at an ATM or at a point of sale, at which time any currency exchange typically occurs. The consumer can reload the recipient's prepaid card through the provider's Web site.

Depending on the business model, a prepaid card could also be reloaded at in-person locations or through other reload mechanisms.

A consumer may also add a recipient in another country as an authorized user on his or her checking or savings account based in the United States, which could be denominated in dollars or in a foreign currency. A debit card linked to the consumer's account is provided to the recipient, who can use it to withdraw funds at an ATM or at a point of sale.

Consumers may also use informal methods to send money abroad, such as sending funds through the mail or with a friend, relative, or courier traveling to the destination country.

See, e.g., Bendixen Survey

24 (estimating about 12% of Latin American migrants' transfers from the United States to their families are sent through mail, courier, or friends traveling abroad).

C. Consumer Choice, Pricing, and Disclosure

Research suggests that consumers choose a particular remittance transfer provider or product over another for a number of reasons. Significant factors include price, trust in the provider, security, reliability (

i.e.,

having specified funds available at the specified time), and convenience, particularly in markets with limited locations for recipients to pick up funds.

The relative importance of these factors can vary. For instance, some studies indicate that consumers are willing to pay higher prices to ensure that recipients receive the entire amount promised at the promised delivery time, and that consumers also tend to continue using a service provider once it proves reliable.

Though the available information is limited, similar factors may also affect some consumers' decisions about whether to send money at all, or how much money to send. For instance, one study showed that small decreases in fees charged led to significant increases in the number of transfers made by migrant consumers sending remittances to their home countries.

Marianne A. Hilgert, Jeanne M. Hogarth,

et al.

“Banking on Remittances: Extending Financial Services to Immigrants.” 15

Partners

No. 2 at 18 (2005);

Competition and Remittances

at 25; May 2011 Proposed Rule, 76 FR 29905 (summarizing results of consumer research conducted by the Board in connection with development of the proposed rule).

GAO Report

at 8; May 2011 Proposed Rule, 76 FR 29905.

see also

Inter-American Development Bank, Multilateral Investment Fund,

Ten Years of Innovation in Remittances: Lessons Learned and Models for the Future

8 (2010).

Scorecard

at 10.

However, this information is limited, in both its scope and its applicability. For instance, not all remittance transfer markets are as competitive as the market for modest-sized transfers to Latin America. Furthermore, across markets, a number of concerns with regard to the clarity and reliability of information provided to consumers have been identified.

See generally

S. Rep. 111-176, at 179-80 (2010);

Remittances: Regulation and Disclosure in a New Economic Environment,

Hearing Before House Subcomm. on Fin. Insts. and Cons. Credit, House Comm. on Fin. Servs., No. 111-39 (June 3, 2009) (“

2009 House Hearing”

);

Remittances: Access, Transparency, and Market Efficiency—A Progress Report,

Hearing Before House Subcomm. on Domestic and Int'l Monetary Policy, Trade, and Technology, House Comm. on Fin. Servs., No. 110-32 (May 17, 2007) (“

2007 House Hearing”

First, pricing for remittance transfers is complex. The overall price of the transaction depends on three components (fees, taxes, and exchange rates). As a result, determining what amount of funds will actually be received and which provider offers the lowest price requires arithmetic that can be challenging for consumers.

See, e.g., Bureau 2011 Report

at 17-20; Testimony of Annette LoVoi, Appleseed,

2009 House Hearing

at 8-9, 13, 24; Testimony of Manuel Orozco, Inter-American Dialogue,

2009 House Hearing

at 61-63; Testimony of Mark A. Thompson, The Western Union Company,

2009 House Hearing

at 20; Testimony of Beatriz Ibarra, National Council of La Raza,

2007 House Hearing

at 41.

Second, pricing models can vary widely and change frequently, making it even more difficult for consumers to compare transfer options. Fees may be charged to senders up front or deducted from the principal amount. Because wholesale currency markets can fluctuate constantly over the course of the day, the exchange rates applied to individual remittance transfers may also change over the course of the day, depending on how frequently remittance transfer providers update their retail rates. Remittance transfer providers may also vary their exchange rates and fees charged based on a range of factors, such as the sending and receiving locations, and size and speed of the transfer.

Taxes may vary depending on the type of remittance transfer provider, the type of recipient institution, and various other factors.

These variations can also make it difficult for consumers to compare prices across providers or among remittance products.

See, e.g., Bureau 2011 Report

at 13-14, 17-20; Testimony of Tom Haider, MoneyGram International,

2007 House Hearing

at 14.

Okla. Stat. § 63-2-503.1j; Letter from Bobi Shields-Farrelly, United Nations Federal Credit Union, to Board of Governors of the Federal Reserve System, June 29, 2011.

Third, disclosure practices have varied in the absence of a consistent Federal regime. In the last decade, the number of states that require provision of post-transaction receipts stating fees and/or exchange rates has increased, and several class action lawsuits against large money transmitters also resulted in settlement agreements requiring disclosure of certain pricing information. However, the legal requirements vary and coverage is limited. Moreover, many of the State requirements do not require pre-transaction disclosures or disclosure of the amount of foreign currency to be received.

Bureau 2011 Report

at 14-16;

see also

Testimony of Annette LoVoi, Appleseed,

2007 House Hearing

at 19; Testimony of Beatriz Ibarra, National Council of La Raza,

2007 House Hearing

at 42.

Finally, the reliance of many remittance senders on foreign languages can further complicate consumers' ability to obtain and understand transaction information from various remittance transfer providers.

See generally,

Catalina Amuedo-Dorantes, Cynthia Bansak, and Susan Pozo, “On the Remitting Patterns of Immigrants: Evidence from Mexican Survey Data,”

Economic Review

(First Quarter 2005) 37-58 at 41,

CPSS Principles

at 3.

Congressional hearings prior to enactment of the Dodd-Frank Act focused on the need for standardized and reliable pre-payment disclosures, suggesting that disclosure of the amount of money to be received by the designated recipient is particularly critical.

As discussed above, research suggests that consumers place a high value on reliability to ensure that the promised amount is made available to recipients.

In addition, the amount to

be received can facilitate cost comparisons because it factors in both the exchange rate used and charges deducted from the principal amount to be transferred.

Consumer advocates also argued that requiring error resolution mechanisms where funds are not received as expected is also important.

Industry advocates emphasized the need for consistency, arguing that the current patchwork of regulatory approaches leads to unnecessary administrative costs that make remittances more expensive for consumers.

See, e.g.,

S. Rep. 111-176, at 179-80 (2010); Testimony of Annette LoVoi, Appleseed,

2009 House Hearing

at 8-9, 13, 24; Testimony of Mark A. Thompson, The Western Union Company,

2009 House Hearing

at 20; Testimony of Tom Haider, MoneyGram,

2007 House Hearing

at 9; Testimony of Annette LoVoi, Appleseed,

2007 House Hearing

at 3, 49; Testimony of James C. Orr, Microfinance International Corporation,

2007 House Hearing

at 59.

see also

S. Rep. 111-176, at 179-80 (2010).

Testimony of Tom Haider, MoneyGram,

2007 House Hearing

at 8, 32-33;

see also

Testimony of Mark A. Thompson, The Western Union,

2007 House Hearing

at 11, 67 (arguing that legislation should not create an unlevel playing field between different types of providers).

III. Summary of Statute and Rulemaking Process

A. Overview of the Statute

The Dodd-Frank Act creates a comprehensive system of consumer protections across various types of remittance transfers. The statute: (i) Mandates disclosure of the exchange rate and the amount to be received, among other things, by the remittance transfer provider, prior to and at the time of payment by the consumer for the transfer; (ii) provides for Federal rights regarding consumer cancellation and refund policies; (iii) requires remittance transfer providers to investigate disputes and remedy errors regarding remittance transfers; and (iv) establishes standards for the liability of remittance transfer providers for the acts of their agents and authorized delegates. The statute also contains other provisions to encourage provision and use of low-cost remittance transfers, including directing the Bureau and other agencies to assist in the execution of a national financial empowerment strategy, as it relates to remittances.

The requirements apply broadly. Congress defined “remittance transfer” to include all electronic transfers of funds to designated recipients located in foreign countries that are “initiated by a remittance transfer provider” upon the request of consumers in the United States; only very small dollar transfers are excepted by the statute. The statute thus expands the scope of the EFTA, which has historically focused on electronic fund transfers involving “accounts” held at financial institutions, which include depository institutions, credit unions, and other companies that directly or indirectly hold checking, savings, or other assets accounts. The remittance transfer provisions, in contrast, apply regardless of whether the consumer holds an account with the remittance transfer provider or whether the remittance transfer is also an “electronic fund transfer” as defined under the EFTA.

Congress also provided a specific accommodation for depository institutions and credit unions, in apparent recognition of the fact they would need time to improve communications with foreign financial institutions that conduct currency exchanges or impose fees on certain open network transactions. The statute creates a temporary exception to permit insured depository institutions and credit unions to provide “reasonably accurate estimates” of the amount to be received where the remittance transfer provider is “unable to know [the amount], for reasons beyond its control” at the time that the sender requests a transfer to be conducted through an account held with the provider. The exception sunsets five years from the date of enactment of the Dodd-Frank Act (

i.e.,

July 21, 2015), but the statute authorizes the Bureau to extend that date for no more than five years if it determines that termination of the exception would negatively affect the ability of depository institutions and credit unions to send remittances to locations in foreign countries.

Thus, once the temporary exception expires, the statute will generally require all remittance transfer providers to disclose the actual amounts to be received by designated recipients. The statute creates a permanent exception authorizing the Bureau to issue rules to permit use of reasonably accurate estimates where the Bureau determines that a recipient nations' laws or the methods by which transfers are made to a recipient nation do not permit remittance transfer providers to know the amount of currency to be received.

The statute further mandates that all remittance transfer providers investigate and remedy errors that are reported by the sender within 180 days of the promised date of delivery, specifically including situations in which the amount of currency designated in the disclosures was not in fact made available to the designated recipient in the foreign country. Under the statute, senders may designate whether funds should be refunded to them or made available to the designated recipient at no additional cost, or any other remedy determined by the Bureau. The statute also directs the Bureau to issue rules concerning appropriate cancellation and refund policies, as well as appropriate standards or conditions of liability for providers with regard to the acts of agents and authorized delegates.

B. Outreach and Consumer Testing

Both the Board and the Bureau have conducted extensive outreach and research on remittances issues in preparation for the rulemaking process. Starting in fall 2010, Board staff conducted outreach with various parties regarding remittances and implementation of the statute. Board staff met with representatives from a variety of money transmitters, financial institutions, industry trade associations, consumer advocates, and other interested parties to discuss current remittance transfer business models, consumer disclosure and error resolution practices, operational issues, and specific provisions of the statute.

Summaries of these meetings are available on the Board's Web site at:

http://www.federalreserve.gov/newsevents/reform_consumer.htm.

In addition, the Board engaged a testing consultant, ICF Macro (Macro), to conduct focus groups and one-on-one interviews regarding remittance transfers. Participants were all consumers who had made at least one remittance transfer and represented a range of ages, education levels, amount of time lived in the United States, and country or region to which remittances were sent. In December 2010, Macro conducted a series of six focus groups with eight to ten participants each, to explore current remittance provider practices and attitudes about remittance disclosures. Three focus groups were held in the Washington, DC metro area (specifically Bethesda, Maryland), and three were held in Los Angeles, California. At each location, two of the three focus groups were conducted in English, and the third in Spanish. In early 2011, Macro conducted a series of one-on-one interviews in New York City, Atlanta, Georgia, and the Washington, DC metro area (Bethesda, Maryland), with nine to ten participants in each city. During the interviews, participants were given scenarios in which they completed hypothetical remittance transfers and received one or

more disclosure forms. For each scenario, participants were asked specific questions to test their understanding of the information presented in the disclosure forms.

The Bureau has also conducted additional outreach and research on remittances issues. Section 1073 of the Dodd-Frank Act required the Bureau to provide a report regarding the feasibility of and impediments to the use of remittance history in the calculation of a consumer's credit score, and recommendations on the manner in which maximum transparency and disclosure to consumers of exchange rates for remittance transfers may be accomplished.

The Bureau has also conducted further outreach on remittance transfers with representatives from industry and consumer groups after closing of the comment period on the Board proposal and transfer of the rulewriting authorities.

The Bureau also held multiple meetings with appropriate Federal agencies to consult with them regarding the May 2011 Proposed Rule and the January 2012 Proposed Rule, as discussed further below.

See Bureau 2011 Report.

The Bureau is currently engaged in quantitative research to explore further the potential relationships between consumers' remittance histories and credit scores.

Summaries of these meetings are available at:

http://www.regulations.gov.

C. Summary of the Board's Proposal

The Board published the May 2011 Proposed Rule to amend Regulation E and the official staff commentary to implement the Dodd-Frank Act remittance transfer provisions.

Under the May 2011 Proposed Rule, a remittance transfer provider was generally required to provide a written pre-payment disclosure to a “sender,” as defined in the statute and the proposed regulation, containing information about the specific transfer, such as the exchange rate, applicable fees and taxes, and the amount to be received by the designated recipient. The remittance transfer provider was also generally required to provide a written receipt at the time the sender pays for the remittance transfer. The receipt would have included the information provided on the pre-payment disclosure, as well as the date of availability, the recipient's contact information, and information regarding the sender's error resolution and cancellation rights. Alternatively, the May 2011 Proposed Rule permitted remittance transfer providers to provide senders a single written pre-payment disclosure containing all of the information required on the receipt. Consistent with the statute, the May 2011 Proposed Rule would have required that these disclosures generally be provided in English and in each of the foreign languages principally used by the remittance transfer provider to advertise, solicit, or market remittance transfer services at a particular office.

76 FR 29902 (May 23, 2011).

Pursuant to EFTA section 919(a)(6), the Board in the months prior to issuing the proposal studied whether requiring storefront and Internet notices would facilitate the ability of consumers to compare prices and understand the types and amounts of fees or costs imposed on remittance transfers. Based on the results of this analysis, the Board decided not to propose rules that would require posting of such notices.

The May 2011 Proposed Rule also contained provisions to implement two statutory exceptions to permit disclosure of reasonably accurate estimates of the amount of currency to be received. The first proposed exception would have implemented the temporary exception for insured depository institutions and credit unions to estimate exchange rates or fees that are determined by persons with which the financial institution has no correspondent banking relationship. The proposed rule stated that the exception would expire on July 21, 2015, as specified in the statute. The second proposed exception defined the circumstances in which providers could use estimates because the amount of currency to be received could not be determined due to: (i) The laws of a recipient country; or (ii) the method by which transactions are made in the recipient country.

Additionally, the May 2011 Proposed Rule included error resolution standards, including recordkeeping standards, similar to those that currently apply to a financial institution under Regulation E with respect to errors involving electronic fund transfers. The proposal also would have provided a one business day period for consumers to cancel their transactions and obtain a full refund. Finally, the May 2011 Proposed Rule set forth two alternative approaches for implementing the standards of liability for remittance transfer providers that act through an agent. Under the first proposed alternative, a remittance transfer provider would have been liable for violations by an agent when such agent acts for the provider. Under the second proposed alternative, a remittance transfer provider would have been liable for violations by an agent acting for the provider, unless the provider established and maintained policies and procedures for agent compliance, including appropriate oversight measures, and the provider corrected any violation reported by a particular consumer, to the extent appropriate.

D. Overview of Public Comments

The Board received more than 60 comment letters on the May 2011 Proposed Rule. These comment letters were received by the Board and subsequently transferred to the Bureau. The majority of the comment letters were submitted by industry commenters, including banks, credit unions, money transmitters, and industry trade associations. In addition, letters were submitted by individual consumers and academics, consumer groups, State banking and money transmitter regulators, two Federal Reserve Banks, and two members of Congress.

While some commenters addressed their comments to the Board, the Bureau is assuming that all comments regarding this rulemaking are directed to the Bureau.

Many industry commenters, particularly financial institution commenters, argued that the scope of the May 2011 Proposed Rule was overbroad and would have unintended consequences. Many commenters asserted that the regulation should not apply to transfers where the originating institution does not control the transfer from end to end, such as international wire transfers and international ACH transfers. Commenters stated that compliance with the disclosure requirements, particularly the disclosure of fees charged by intermediary institutions handling the transfer and taxes levied in the recipient country, would be difficult or impossible for open network transfers. Commenters suggested that subjecting open network transfers to these requirements would cause financial institutions to withdraw from the market or restrict where such transfers may be sent, which would either decrease consumer access or increase costs to consumers. Commenters asserted that the Bureau should extend the temporary exception allowing use of estimates to 2020 or that the Bureau had and should use exception authority to make the exemption provision permanent. Several commenters also asserted that remittances to businesses and large-value consumer transactions should be exempted from the rule.

Consumer group commenters, on the other hand, supported the May 2011 Proposed Rule as faithfully implementing the statutory mandates, asserting that Congress had specifically intended the disclosure regime to change business practices by depository

institutions and credit unions that allow undisclosed exchange rates and fees. The commenters urged the Bureau not to extend the sunset date for the temporary exception allowing depository institutions and credit unions to use estimates under certain circumstances, and to publish a list of countries in which the laws or transfer methods prevent remittance transfer providers from determining the amount to be provided in order to prevent the exception from being abused. Furthermore, consumer group commenters asserted that the required disclosures would provide information that consumers currently lack about the foreign exchange rate, fees, and the date of delivery associated with a transfer. However, the commenters criticized the proposed disclosures as providing inadequate information regarding error resolution rights and failing to make clear when pricing information was estimated. They also urged the Bureau to reject combined disclosure forms because they did not provide clear proof that a contract had been formed and payment rendered.

Regarding the proposed foreign language disclosure requirements, industry commenters recommended that the rule provide limits on the number or type of languages in which disclosures must be provided. These commenters stated that the May 2011 Proposed Rule would provide a disincentive for remittance transfer providers to provide a wide range of foreign language services to customers. Consumer group commenters and a Congressional commenter believed that the proposed foreign language provisions were appropriate and that the final rule should ensure that non- and limited-English speaking consumers have access to meaningful remittance transaction disclosures.

Industry commenters also generally objected to proposed error resolution provisions that place liability on remittance transfer providers for errors caused by parties other than the provider. These commenters believed that these provisions inappropriately shifted liability to remittance transfer providers that did not err or control the circumstances that caused the error. Some commenters suggested that remittance transfer providers may not have the ability to recover funds from third parties involved in the transfer and that the financial impact of losses experienced by the provider as a result of errors by another party could be significant enough for remittance transfer providers to exit the market. Furthermore, industry commenters generally did not agree with the proposed refund and cancellation provisions, arguing, among other things, that the proposed cancellation period was too long. Consumer group commenters generally supported the proposed error resolution and refund and cancellation provisions, though some consumer group commenters also suggested that the cancellation period could be shortened.

Finally, with respect to agent liability, consumer group commenters, State regulator commenters, and a Federal Reserve Bank commenter supported proposed Alternative A under the May 2011 Proposed Rule. This alternative would make the remittance transfer provider liable for violations by an agent, when such agent acts for the provider. Industry commenters, on the other hand, supported proposed Alternative B. This alternative would impose liability on a remittance transfer provider for violations by an agent acting for the provider, unless the provider established and maintained policies and procedures for agent compliance, including appropriate oversight measures, and the provider corrected any violation, to the extent appropriate.

IV. Summary of Final Rule and Concurrent Proposal

A. Introduction

As described in more detail below, the final rule implements the Dodd-Frank Act by largely adopting the proposal as published in May 2011, with several amendments and clarifications based on commenters' suggestions and further analysis by the Bureau. In the concurrent proposal, the Bureau is seeking public comment and data that would permit the Bureau to develop clearer and more appropriately tailored standards for: (i) Setting a specific numeric threshold as a safe harbor for determining which providers of remittance services are excluded from compliance with the new requirements because they do not provide remittance transfers “in the normal course of business”; and (ii) applying the disclosure and cancellation requirements where senders request one or more transfers several days in advance of the transfer date.

The Bureau takes seriously concerns raised by commenters, particularly implementation challenges in the open network context.

The Bureau believes that a number of providers likely do not currently possess or have easy access to the information needed to satisfy the new disclosure requirements for every transaction. For these providers, as well as their operating partners, compliance may require modification of current systems, protocols, and contracts. Nevertheless, the Bureau believes that it would be premature to make a determination about extending the temporary exception allowing depository institutions and credit unions to estimate disclosure information. The statute specifies a very narrow role for the Bureau by according it discretion only to extend the exception for a limited time period upon a specific finding regarding the ability of depository institutions and credit unions to send remittance transfers. Forecasting how the market will evolve in response to the final rule is difficult prior to the rule's release and more than three years in advance of the sunset date set by the statute. It is not clear how providers, and in particular small companies and companies that send remittance transfers only infrequently, may react to the new requirements and potential implementation costs. Nor is it clear what new models and systems may be developed to enable these and other companies to comply more easily with the statutory and regulatory requirements. The remittances market has already undergone significant evolution over the last two decades, in response to increasing transaction flows, new technology, new business models, and other factors. New products and partnerships have been developing, and may be further spurred by implementation of the Dodd-Frank Act requirements.

The analyses below under section 1022 of the Dodd-Frank Act, the Regulatory Flexibility Act, and the Paperwork Reduction Act detail the Bureau's attempts to assess various categories of benefits, costs, and impacts upon various categories of stakeholders.

The final rule therefore generally tracks the language and structure of the Dodd-Frank Act and the May 2011 Proposed Rule, with some additional tailoring to provide guidance on complying with the requirements in particular circumstances such as transactions conducted by mobile applications or text message and transactions in which a sender preauthorizes remittance transfers to recur at substantially regular intervals. Going forward, the Bureau expects to develop a small business compliance guide, engage in a dialogue with both industry and consumer groups to monitor implementation issues, and consider what data will be useful to monitor the effect of the new regime on consumer access and market competition over time.

B. Summary of the Final Rule

The final rule incorporates the definitions of “remittance transfer,” “sender,” “remittance transfer provider,” and “designated recipient” generally as set forth in the statute. As in the May 2011 Proposed Rule, remittance transfer is defined broadly to include international wire and ACH transfers, consistent with the statutory language. In response to commenters' comments, the final rule also provides guidance for assessing whether a company qualifies as a “remittance transfer provider” under the statute by providing remittance transfers in the “normal course of its business.” Further guidance is also provided to describe the circumstances in which loading funds to a prepaid card may be considered a remittance transfer.

Consistent with the statute and the May 2011 Proposed Rule, the final rule requires a remittance transfer provider to provide a written pre-payment disclosure to a sender containing information about the specific transfer, such as the exchange rate, applicable fees and taxes, and the amount to be received by the designated recipient. Under the final rule, the remittance transfer provider is also generally required to provide a written receipt when payment is made. The receipt must include the information provided on the pre-payment disclosure, as well as additional information, such as the date of availability, the recipient's contact information, and information regarding the sender's error resolution and cancellation rights. Alternatively, the final rule permits remittance transfer providers to give senders a single written disclosure prior to payment containing all of the information required on the receipt, so long as the provider also provides proof of payment such as a stamp on the earlier document.

The final rule generally requires that these disclosures be provided in English and in each of the foreign languages principally used by the remittance transfer provider to advertise, solicit, or market remittance transfer services at a particular office. Language in the model disclosure forms has been modified slightly to clarify and provide additional detail that may be useful to consumers, as well as to reflect substantive changes in the final rule regarding the period to exercise cancellation rights. The final rule also contains additional guidance on how the required disclosures may be provided when the remittance transfer is made using text message or a mobile application. Moreover, in light of the timing and disclosure challenges for preauthorized remittance transfers, which are authorized in advance to recur at substantially regular intervals, the final rule sets forth alternative disclosure requirements for such transfers. In particular, while the disclosures requirements for the first transfer in a preauthorized remittance transfer are the same as for single remittance transfers, for subsequent transfers in a series of preauthorized remittance transfers, a provider must provide a pre-payment disclosure within a reasonable time prior to the scheduled date of the transfer. The receipt for each subsequent transfer generally must be provided no later than one business day after the date on which the transfer is made.

The final rule also implements the two statutory exceptions that permit a remittance transfer provider to disclose an estimate of the amount of currency to be received, rather than the actual amount. As discussed above, the final rule provides that the first exception, which applies to insured depository institutions and insured credit unions that cannot determine certain disclosed amounts for reasons beyond their control, expires on July 21, 2015. The second exception applies when the provider cannot determine certain amounts to be disclosed because of: (i) The laws of a recipient country; or (ii) the method by which transactions are made in the recipient country. The Bureau expects to issue a safe harbor list of countries to which the second exception applies prior to the effective date of the final rule and to update it periodically thereafter to facilitate compliance and enforcement. The final rule also provides clarification on use of particular estimate methodologies.

Consistent with the May 2011 Proposed Rule, the error resolution procedures for remittance transfers set forth in the final rule are similar to those that currently apply to financial institutions under Regulation E with respect to errors involving electronic fund transfers. The Bureau is adopting certain modifications to the proposed error resolution provisions in response to commenters' concerns, including defining additional circumstances that would not be considered errors. The final rule also provides senders specified cancellation and refund rights. In response to commenters' concerns, the Bureau is reducing the cancellation period from one business day to 30 minutes. Furthermore, the Bureau is adopting a different cancellation and refund procedure for any remittance transfer scheduled by the sender at least three business days before the date of the transfer. For these transfers scheduled in advance, senders may generally cancel the transfer as long as the request to cancel is received by the provider at least three business days before the scheduled date of the remittance transfer. Finally, the Bureau is adopting a standard of liability under which a remittance transfer provider will be liable for violations by an agent, when such agent acts for the provider.

C. Summary of Concurrent Proposal

The Bureau is also issuing a concurrent proposal (January 2012 Proposed Rule), published elsewhere in today's

Federal Register

. This proposal has two parts. First, it seeks comment on the addition of a possible safe harbor to the definition of the term “remittance transfer provider” to make it easier to determine when certain companies are excluded from the statutory scheme because they do not provide remittance transfers in “the normal course of business.” Second, it seeks comment on a possible safe harbor and other refinements to disclosure and cancellation requirements for certain transfers scheduled in advance, including “preauthorized” remittance transfers that are scheduled in advance to recur at substantially regular intervals. The Bureau believes that further tailoring of the final rule may be warranted both to reduce compliance burden for providers and to increase the benefits of the disclosure and cancellation requirements to consumers. The Bureau believes that these issues would benefit from further public comment.

Regarding the first part of the January 2012 Proposed Rule, the Bureau is soliciting comment on a safe harbor for determining whether a person is providing remittance transfers in the “normal course of business,” and thus is a “remittance transfer provider.” Under the proposed safe harbor, if a person makes no more than 25 remittance transfers in the previous calendar year, the person would not be deemed to be providing remittance transfers in the normal course of business for the current calendar year if it provides no more than 25 remittance transfers in the current calendar year. The Bureau is soliciting comment on whether the threshold number for the safe harbor should be higher or lower than 25 transfers, such as 10 or 50 transfers.

Regarding the second part of the January 2012 Proposed Rule, the Bureau is also seeking comment on a possible safe harbor and other refinements to disclosure and cancellation requirements for certain transfers scheduled in advance, including

preauthorized remittance transfers. Specifically, the proposal solicits comment whether use of estimates should be permitted in the pre-payment disclosure and receipt given at the time the transfer is requested and authorized in the following two circumstances: (i) A consumer schedules a one-time transfer or the first in a series of preauthorized transfers to occur more than 10 days after the transfer is authorized; or (ii) a consumer enters into an agreement for preauthorized remittance transfers where the amount of the transfers can vary and the consumer does not know the exact amount of the first transfer at the time the disclosures for that transfer are given. The January 2012 Proposed Rule is also requesting comment on whether a provider that uses estimates in the pre-payment disclosure and receipt given at the time of the transfer is requested and authorized in the two situations described above should be required to provide a second receipt disclosure with accurate information within a reasonable time prior to the scheduled date of the transfer.

The January 2012 Proposal Rule also solicits comment on possible refinements to the disclosure rules applicable to subsequent preauthorized remittance transfers. Specifically, the Bureau is soliciting comment on two alternative approaches to the disclosures rules for subsequent preauthorized remittance transfers: (i) Whether the Bureau should retain the requirement that a provider give a pre-payment disclosure for each subsequent transfer, and should provide a safe harbor interpreting the “within a reasonable time” standard for providing this disclosure; or (ii) whether the Bureau instead should eliminate the requirement to provide a pre-payment disclosure for each subsequent transfer.

The January 2012 Proposed Rule also seeks comment on possible changes to the cancellation requirements for certain remittance transfers that a sender schedules in advance, including preauthorized remittance transfers. The January 2012 Proposed Rule solicits comment on whether the three-business-day deadline to cancel such remittances transfers in the final rule should be changed to be earlier or later than three business days. Furthermore, the January 2012 Proposed Rule solicits comment on three issues related to the disclosure of the deadline to cancel as set forth in the final rule: (i) Whether the three-business-day deadline to cancel transfers scheduled in advance should be disclosed more clearly to consumers, such as requiring a provider to disclose in the receipt the specific date the deadline to cancel will expire; (ii) whether a provider should be allowed on a receipt to describe both the three-business-day and 30 minute deadline-to-cancel time frames and either describe to which transfers each deadline to cancel is applicable, or alternatively, use a check box or other method to indicate which deadline is applicable to the transfer; and (iii) whether the disclosure of the deadline to cancel should be disclosed in the pre-payment disclosure for each subsequent transfer, rather than in the receipt given for each subsequent transfer.

V. Legal Authority

Section 1073 of the Dodd-Frank Act creates a new Section 919 of the EFTA and requires remittance transfer providers to provide disclosures to senders of remittance transfers, pursuant to rules prescribed by the Bureau. In particular, providers must give senders a written pre-payment disclosure containing specified information applicable to the sender's remittance transfer. The remittance transfer provider must also provide a written receipt that includes the information provided on the pre-payment disclosure, as well as additional specified information. EFTA section 919(a).

In addition, EFTA section 919 provides for specific error resolution procedures. The Act directs the Bureau to promulgate error resolution standards and rules regarding appropriate cancellation and refund policies. EFTA section 919(d). Finally, EFTA section 919 requires the Bureau to establish standards of liability for remittance transfer providers, including those that act through agents. EFTA section 919(f). Except as described below, the remittance transfer rule is finalized under the authority provided to the Bureau in EFTA section 919, and as more specifically described in this

SUPPLEMENTARY INFORMATION

In addition to the statutory mandates set forth in the Dodd-Frank Act, EFTA section 904(a) authorizes the Bureau to prescribe regulations necessary to carry out the purposes of the title. The express purposes of the EFTA, as amended by the Dodd-Frank Act, are to establish “the rights, liabilities, and responsibilities of participants in electronic fund and remittance transfer systems” and to provide “individual consumer rights.” EFTA section 902(b). EFTA section 904(c) further provides that regulations prescribed by the Bureau may contain any classifications, differentiations, or other provisions, and may provide for such adjustments or exceptions for any class of electronic fund transfers or remittance transfers that the Bureau deems necessary or proper to effectuate the purposes of the title, to prevent circumvention or evasion, or to facilitate compliance.

As described in more detail in the

SUPPLEMENTARY INFORMATION

, the following provisions are adopted in part or in whole pursuant to the Bureau's authority in EFTA sections 904(a) and 904(c) include: §§ 1005.30(e)(2)(ii), 1005.31(a)(2), (a)(5), (b)(1)(i), (b)(1)(ii), (b)(1)(iii), (b)(1)(iv), (b)(1)(v), (b)(1)(vi), (b)(2)(i), (b)(3), (e)(2), (g)(1)(ii), (g)(2), 1005.32(a) and (b), 1005.33(c)(1), and 1005.36.

The proposed Model Forms in Appendix A are also adopted pursuant to EFTA section 904(a).

Throughout the

SUPPLEMENTARY INFORMATION

, the Bureau is citing its authority under both EFTA section 904(a) and EFTA section 904(c) for purposes of simplicity. The Bureau notes, however, that with respect to some of the provisions referenced in the text, use of only one of the authorities may be sufficient.

The consultation and economic impact analysis requirement previously contained in EFTA sections 904(a)(1)-(4) were not amended to apply to the Bureau. Nevertheless, the Bureau consulted with the appropriate prudential regulators and other Federal agencies and considered the potential benefits, costs, and impacts of the rule to consumers and covered persons as required under section 1022 of the Dodd-Frank Act, and through these processes would have satisfied the requirements of these EFTA provisions if they had been applicable.

VI. Section-by-Section Analysis

Section 1005.1 Authority and Purpose

Section 1005.1(b) addresses the purpose of Regulation E, which is to carry out the purpose of the EFTA. The Dodd-Frank Act revised EFTA section 902(b) to state in part that the purpose of the EFTA is to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund

and remittance

transfer systems. * * * ” (emphasis added). Accordingly, the final rule makes a technical amendment to § 1005.1(b) to incorporate this revision. Furthermore, because remittance transfers can be offered by persons other than financial institutions, the final rule also makes a technical amendment to § 1005.1(b) to include a reference to other persons.

Section 1005.2 Definitions

Section 1005.2 generally sets forth the definitions that apply to Regulation E. One commenter suggested that the Bureau clarify the applicability of the definitions contained in § 1005.2, which have been placed in a new subpart A, to the remittance provisions in subpart B. Section 1005.2 is prefaced with: “For purposes of this part. * * *.” “This part” refers to the entirety of part 1005, including all subparts. Therefore, except

as modified or limited by subpart B (which modifications or limitations apply only to subpart B), the definitions in § 1005.2 apply to all of Regulation E, including subpart B. The final rule adopts comment 30-1 to clarify the applicability of the definitions contained in § 1005.2 to subpart B. The final rule also amends § 1005.2 to cross reference subpart B to make clear that the definitions in § 1005.2 apply to subpart B unless otherwise provided in subpart B.

Section 1005.3 Coverage

Currently, § 1005.3(a) states that Regulation E generally applies to financial institutions. Section 1005.3(a) is revised to state that the requirements of subpart B apply to remittance transfer providers. The revision reflects the fact that the scope of the Dodd-Frank Act's remittance transfer provisions is not limited to financial institutions. Specifically, EFTA section 919(g)(3) defines a remittance transfer provider as “

any person

that provides remittance transfers for a consumer in the normal course of its business, whether or not the consumer holds an account with such person” (emphasis added). Thus, subpart B applies to non-financial institutions, such as non-bank money transmitters, that send remittance transfers. This revision is adopted as proposed.

Section 1005.30 Remittance Transfer Definitions

EFTA section 919(g) sets forth several definitions applicable to the remittance transfer provisions in subpart B. As discussed in more detail below, many commenters requested clarification on specific definitions, and also urged the Bureau to consider a number of revisions and exemptions to limit the application of the rule to different types of transactions. Final § 1005.30 incorporates the statutory definitions generally as proposed, with additional interpretations and clarifications in response to specific concerns raised by commenters. The final rule revises the definition of “business day” in § 1005.30(b) to more closely track the definition of “business day” in § 1005.2(d) of Regulation E. In addition, the final rule adds a new definition of “preauthorized remittance transfer.”

30(a) Agent

Proposed § 205.30(a) stated that an “agent” means an agent, authorized delegate, or person affiliated with a remittance transfer provider under State or other applicable law, when such agent, authorized delegate, or affiliate acts for that remittance transfer provider. The final rule adopts the definition as proposed in renumbered § 1005.30(a).

EFTA section 919 does not use consistent terminology concerning agents of remittance transfer providers. For example, EFTA section 919(f)(1) uses the phrase “agent, authorized delegate, or person affiliated with a remittance transfer provider,” when that person “acts for that remittance transfer provider,” while other provisions use the phrase “agent or authorized delegate” (EFTA section 919(f)(2)) or simply “agent” (EFTA section 919(b)). The Bureau does not believe that these statutory wording differences are intended to establish different standards across the rule. Therefore, the rule generally refers to “agents,” as defined in § 1005.30(a), to provide consistency across the rule.

Commenters suggested that the Bureau provide further clarity on the definition of “agent,” including clarifying that financial institutions' relationships with intermediary and correspondent institutions are not agency relationships unless an agreement creates such a relationship as a matter of law. The final rule does not contain these suggested clarifications. The Bureau believes that because the concept of agency has historically been defined by common law, it is appropriate for the definition to defer to applicable law regarding agents, including with respect to what creates or constitutes an agency relationship.

30(b) Business Day

Several provisions in the final rule use the term “business day.”

See, e.g.,

§§ 1005.31(e)(2) and 1005.33(c)(1). Because the definition of “business day” in § 1005.2(d) of Regulation E applies only to financial institutions and includes inapt commentary, the Board proposed an alternative definition of “business day” applicable to remittance transfer providers. The proposed rule stated that “business day” means any day on which a remittance transfer provider accepts funds for sending remittance transfers.

Commenters generally objected to the proposed definition. In particular, financial institution commenters expressed concern that the date on which an institution “accepts funds” is unclear, because it could be interpreted either as the date on which funds are deposited into an account, or when the institution accepts a sender's order to transfer funds. Other commenters suggested replacing the proposed definition with a definition closer to the definition of “business day” in § 1005.2(d) Regulation E. Upon further review, and for greater consistency among definitions, the Bureau is adopting a revised “business day” definition in renumbered § 1005.30(b) as explained in related commentary that more closely tracks the general definition of “business day” in § 1005.2(d), but that is tailored to the particular aspects of remittance transfers.

Specifically, § 1005.30(b) states that “business day” means any day on which the offices of a remittance transfer provider are open to the public for carrying on substantially all business functions. Similar to proposed comment 30(b)-1, final comment 30(b)-1 clarifies that with respect to subpart B, a business day includes the entire 24-hour period ending at midnight, and a notice given under any section of subpart B is effective even if given outside of normal business hours. However, comment 30(b)-1 states that a remittance transfer provider is not required under subpart B to make telephone lines available on a 24-hour basis.

Comment 30(b)-2 explains that “substantially all business functions” include both the public and the back-office operations of the provider. For example, if the offices of a provider are open on Saturdays for customers to request remittance transfers, but not for performing internal functions (such as investigating errors), then Saturday is not a business day for that provider. In this case, Saturday does not count toward the business-day standard for subpart B for purposes of determining the number of days for resolving errors, processing refunds, etc.

Comment 30(b)-3 clarifies that a provider may determine, at its election, whether an abbreviated day is a business day. For example, if a provider engages in substantially all business functions until noon on Saturdays instead of its usual 3 p.m. closing, it may consider Saturday a business day. Finally, comment 30(b)-4 states that if a provider makes a telephone line available on Sundays for cancelling the transfer, but performs no other business functions, Sunday is not a business day under the “substantially all business functions” standard.

30(c) Designated Recipient

EFTA section 919(g)(1) provides that “designated recipient” means “any person located in a foreign country and identified by the sender as the authorized recipient of a remittance transfer to be made by a remittance transfer provider, except that a designated recipient shall not be deemed to be a consumer for purposes of [the EFTA].” Proposed § 205.30(c)

implemented EFTA section 919(g)(1), with several edits for clarity. First, the Board proposal noted that a remittance transfer provider will generally only know the location where funds are to be sent, rather than where a designated recipient is physically located. For instance, although the sender may indicate that funds are to be sent to the recipient in Mexico City, the recipient could actually be in the United States at the time of the transfer. Thus, the Board stated that the statutory reference to a “person located in a foreign country” should be read with a view to the location where funds are to be sent. Additionally, the statute references a remittance transfer “to be made by a remittance transfer provider.” As discussed below, the definition of “remittance transfer” requires that it be sent by a remittance transfer provider, so this language is unnecessary. Accordingly, proposed § 205.30(c) stated that a designated recipient is any person specified by the sender as an authorized recipient of a remittance transfer to be received at a location in a foreign country. The final rule adopts the proposed rule as proposed in renumbered § 1005.30(c), but with additional explanatory commentary to address issues raised by commenters.

Proposed comment 30(c)-1 stated that a designated recipient can be either a natural person or a business. Several commenters argued that transfers to entities other than natural persons should be excluded, so that the rule would cover only consumer-to-consumer transfers. However, the statute clearly anticipates covering consumer-to-business transfers, as it defines “designated recipient” to include transfers to “persons,” and does not limit its application to consumer recipients.

See

15 U.S.C. 1693p(g)(1). The EFTA defines “consumer” to mean a natural person, but does not define the term “person.” Nonetheless, the EFTA uses the term “person” in many provisions, and the context of how the term “person” is used in those EFTA provisions indicates that it includes entities that are natural persons, as well as organizations. For example, the EFTA defines the term “financial institution” to mean “a State or National bank, a State or Federal savings and loan association, a mutual savings bank, a State or Federal credit union, or any

other

person who, directly or indirectly, holds an account belonging to a consumer.” (emphasis added). As a result, Regulation E has long defined “person” to mean a natural person or an organization.

See

§ 1005.2(j). The Bureau believes that the statute by using the term “person” intended to cover remittance transfers sent by consumers not just to family members, but also directly to businesses abroad to pay tuition, mortgage, medical, utilities, or other bills or to fulfill other obligations. Accordingly, the final rule does not generally exclude consumer-to-business transfers where a remittance transfer provider is acting as an electronic intermediary. Instead, the Bureau is adopting comment 30(c)-1 to state that a designated recipient can be either a natural person or an organization, such as a corporation.

Proposed comment 30(c)-2 explained that a remittance transfer is received at a location in a foreign country if funds are to be received at a location physically outside of any State.

One money transmitter commenter noted that it may know the country to which a transfer is being sent, but not the specific payout location. The comment was intended to address the receipt of funds at a foreign location in the general sense; that is, any location that is outside of a State. Thus, the final comment, adopted as renumbered comment 30(c)-2.i., clarifies that a sender need not designate a specific pick-up location.

The term “State” is defined in 12 CFR 1005.2(l).

In addition, commenters requested further clarification for determining whether there is a designated recipient when a transfer is made to an account. For example, in a wire transfer transaction, commenters stated that the consumer requesting the transfer may only identify the recipient of funds by an account number or the location or routing number of the receiving institution. Other commenters argued that transfers to an account associated with an institution in a State should not be viewed as transfers to a designated recipient, even if a person in a foreign country has exclusive access to the account.

New comment 30(c)-2.ii. provides further guidance to address these issues. For transfers to a designated recipient's account, comment 30(c)-2.ii. states that whether funds are to be received at a location physically outside of any State depends on where the account is located. If the account is located in a State, the funds will not be received at a location in a foreign country.

The Bureau concurs with the Board's statement that the statutory reference to a “person located in a foreign country” should be read with a view to the location where funds are to be sent, and believes that comment 30(c)-2.ii. is consistent with this approach. Thus, the Bureau agrees that transfers to domestic accounts should not be considered transfers to a location in a foreign country. The Bureau also agrees that providers may not always know where a recipient is physically located at the time a consumer requests a transfer to be sent, and believes that directing providers to look to the location of the account, rather than the location of the individual recipient, creates an appropriate bright line that will facilitate compliance with the final rule, ease compliance burden, and most effectively accomplish the purpose of the statute to apply the provisions to transfers to foreign countries.

One commenter suggested revising the definition of “designated recipient” to exclude senders, such that transfers made by a sender to a sender's separate account abroad would be excluded. However, nothing in the statute indicates that the definition of “designated recipient” should exclude transfers to a foreign-based account of the sender. The Bureau believes that a sender would also benefit from disclosures indicating the ultimate amount to be received in a transfer, particularly where an exchange rate is applied. The final rule adopts comment 30(c)-3 to clarify that a sender may also be a designated recipient, such as where a sender requests that a provider send an electronic transfer of funds from the sender's checking account in a State to the sender's checking account located in a foreign country.

The Board solicited comment on whether there could be instances where a remittance provider may receive a recipient's email address but no other information to determine the location where funds are to be received. Several commenters affirmed this could happen. For example, one commenter stated that consumers can provide a recipient's email address to use its transfer service; while recipients must register with the provider to access the transferred funds, it is possible that the provider would not know whether the transferred funds will be received at a location in a foreign country until the funds are claimed.

Final comment 30(c)-2.iii. addresses this scenario. Where the sender does not specify information about a recipient's account, but instead just provides information about the recipient, a remittance transfer provider must determine whether the funds will be received at a location in a foreign country based on information that is provided by the sender, and other information the provider may have, at the time the transfer is requested. For example, if a consumer gives a provider

the recipient's email address, and the provider has no other information about whether the funds will be received by the recipient at a location in a foreign country, then the provider may determine that funds are not to be received at a location in a foreign country. However, if the provider has additional information at the time the transfer is requested indicating that funds are to be received in a foreign country, such as where the recipient's email address is registered with the provider and associated with a foreign account, then the provider has sufficient information to conclude that the remittance transfer is to be received at a location in a foreign country.

Commenters also noted that, with regard to prepaid cards, the provider may not know at the time the prepaid card is purchased whether the funds will be received at a location physically outside of any State. These commenters stated that where general-purpose reloadable prepaid cards or payroll cards are issued to two persons—one person in a State and another person in a foreign country—and both cards access the same funds, the provider may not be able to ascertain at the time of the request for the cards that funds will be received at a location physically outside of any State. In this case, the issuer does not know at the time of the request the ultimate recipient of the funds.

The Bureau notes that funds that can be accessed by a prepaid card are generally not considered to be an “account” as defined in § 1005.2(b) of Regulation E. Thus, where the funds that can be accessed by a prepaid card are held does not determine whether a prepaid card is being issued to a designated recipient. The Bureau believes when a participant in a prepaid card program, such as a prepaid card issuer or a prepaid card program manager, issues prepaid cards, the participant in the prepaid card program must look to where it or another participant in the prepaid card program sends the prepaid cards, to determine whether the prepaid card funds will be received in a foreign country. Likewise, when a participant in a prepaid card program adds additional funds at the sender's direct request to prepaid cards that it or any other participant previously issued, the participant in the prepaid card program must look to where it or another participant in the prepaid card program has sent the cards to determine whether the prepaid card funds will be received in a foreign country. The Bureau does not believe that it is appropriate for a participant in the prepaid card program to determine whether the funds will be received in a foreign country based on where the participants have decided to hold the funds the cards access. The Bureau believes that such a rule would allow participants in the prepaid card program to circumvent the remittance transfer rules by holding the funds in a State. Under such an approach, participants in the prepaid card program would not be required to comply with the remittance transfer rules if the funds are located in a State even where prepaid cards that access the funds are sent only to recipients located in a foreign country.

In the case where two prepaid cards are issued to two persons—one person in a State and another person in a foreign country—and both cards access the same funds, the Bureau believes that the provider has sufficient information to determine that the funds will be received in a foreign country because it has sent one of the prepaid cards to a person in a foreign country. Proposed comment 30(d)-3 suggested that in this situation, the transfer would not be to a designated recipient because the sender retained the ability to draw down the funds on the prepaid card. Proposed comment 30(d)-3 is not adopted. The Bureau is concerned that if it adopted a rule that the transfer is not to a designated recipient in this case, a provider that sends prepaid cards abroad with the intent of providing a service where funds loaded in a State are intended to be accessed in a foreign country could circumvent the remittance transfer rules by always automatically providing a second prepaid card to the sender, even if the sender did not request a second card.

Thus, final comment 30(c)-2.iii. clarifies that if a consumer in a State purchases a prepaid card, the provider has sufficient information to conclude that the funds are to be received in a foreign country if the remittance transfer provider sends a prepaid card to a specified recipient in a foreign country, even if a person located in a State, including the sender, retains the ability to access funds on the prepaid card. In this case, the prepaid issuer knows at the time of the request that a prepaid card has been sent to a recipient located in a foreign country. In contrast, if the provider provides the card directly to the consumer, the provider may conclude that funds are not to be received in a foreign country, because the provider does not know whether the consumer will subsequently send the prepaid card to a recipient in a foreign country.

30(d) Preauthorized Remittance Transfer

In the May 2011 Proposed Rule, the Board requested comment on the treatment of preauthorized bill payments under the definition of “remittance transfer.” This issue, and its resolution, are discussed in more detail below in the discussions of § 1005.30(e) and new § 1005.36.

The term “preauthorized electronic fund transfer” is currently defined under 12 CFR 1005.2(k) to mean an “electronic fund transfer authorized in advance to recur at substantially regular intervals.” Because subpart B applies to more than just EFTs, the final rule includes a new definition of “preauthorized remittance transfer” in § 1005.30(d). The definition tracks the definition in § 1005.2(k), but revises its applicability to “remittance transfers authorized in advance to recur at substantially regular intervals.” Similarly, the final rule adopts a new comment 30(d)-1 that tracks existing comment 2(k)-1, but with references to remittance transfers replacing references to EFTs.

30(e) Remittance Transfer

30(e)(1) General Definition

EFTA section 919(g)(2)(A) defines a “remittance transfer” as an “electronic (as defined in section 106(2) of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7007

et seq.

[(“E-Sign Act”)]) transfer of funds requested by a sender located in any State to a designated recipient that is initiated by a remittance transfer provider.” The statute further specifies that such a transaction is a remittance transfer whether or not the sender holds an account with the remittance transfer provider and whether or not the remittance transfer is also an electronic fund transfer, as defined in EFTA section 903. The statute thus brings within the scope of the EFTA certain transactions that have traditionally been outside the scope of the EFTA, if those transactions meet the elements of the definition of “remittance transfer.” Such transactions include cash-based remittance transfers sent through a money transmitter as well as consumer wire transfers and international ACH transactions. Proposed § 205.30(d) incorporated the definition of “remittance transfer” in EFTA section 919(g)(2), with revisions for clarity. The Board also proposed commentary to provide further guidance on the definition, as well as examples of transactions that are and are not remittance transfers under the rule.

Proposed § 205.30(d)(1) set forth the general definition in EFTA section 919(g)(2)(A). Proposed § 205.30(d)(1) stated that a remittance transfer means the electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider. Proposed § 205.30(d)(1) further stated that the term applies regardless of whether the sender holds an account with the remittance transfer provider and regardless of whether the transfer is also an electronic fund transfer, as defined in Regulation E. Section 1005.30(e)(1) of the final rule incorporates the definition generally as proposed, with additional revisions to the commentary for clarity.

Industry commenters, particularly financial institution commenters, opposed the definition of “remittance transfer” as overly broad. These commenters argued that the definition should not apply to open network transactions, such as international wire transfers and ACH transactions, or alternatively, that a separate rule tailored to these transactions should be adopted. Citing to legislative history, these commenters argued that the statute was intended only to address traditional cash-based, low-dollar-value remittances. Industry commenters argued that based on the difficulty with complying with the rule's disclosure requirements, as discussed below in connection with § 1005.31, including open network transactions in the remittance transfer definition could have unintended consequences. These commenters maintained that providers would withdraw from the market or restrict where transfers may be sent if the final rule were applied to international wire transfers and ACH transactions, and that this would either decrease consumer access to remittance transfers or increase costs to consumers. Thus, these commenters argued that the Bureau should exercise its authority under EFTA section 904(c) to exempt these transactions from the definition of “remittance transfer.” Industry commenters also urged the Bureau to adopt other exclusions and limitations to the “remittance transfer” definition, which are addressed below in the discussion of § 1005.30(e)(2). In contrast, consumer group commenters supported the proposed definition of “remittance transfer,” including its inclusion of open network transactions. These commenters argued that the proposed definition is consistent with the language of the statute and the purpose of the statute's provisions.

The Bureau acknowledges the compliance challenges raised by the inclusion of open network transactions. Nevertheless, the Bureau believes the unambiguous language of the statute requires coverage of these transactions, such as wire transfers. The statute is broad in scope, specifically covering transactions that are account-based and that are not electronic fund transfers. The Bureau finds no statutory language to support excluding open network transactions—indeed, quite the contrary: The statute includes a temporary exception for certain insured institutions permitting estimates to be used in providing disclosures under specified circumstances in EFTA section 919(a)(4)(A). There would be no need for such an exception if open network transactions were not covered by the statute. Congress specifically recognized that it would be difficult for financial institutions to meet certain disclosure requirement with regard to open network transactions and tailored a specific accommodation to allow use of reasonably accurate estimates for an interim period until financial institutions can develop methods to determine exact disclosures, such as fees and taxes charged by third parties. Therefore, the Bureau does not believe it should exercise its exception authority under EFTA section 904(c) to exclude open network transactions from the definition of “remittance transfer.”

Proposed comments 30(d)-1 through 30(d)-4 provided further guidance on each of the elements of the proposed definition of “remittance transfer.” Proposed comment 30(d)-1 provided that there must be an electronic transfer of funds. The term “electronic” has the meaning given in section 106(2) of the E-Sign Act. There may be an electronic transfer of funds if a provider makes an electronic book entry between different settlement accounts to effectuate the transfer. However, the proposed comment explained that where a sender mails funds directly to a recipient, or provides funds to a courier for delivery to a foreign country, there has not been an electronic transfer of funds, and thus no remittance transfer.

Citing the electronic book entry comment, one commenter suggested that the Bureau should expressly exclude the sale or issuance of checks, money orders, or other paper instruments from the “remittance transfer” definition. The Bureau agrees that issuing a paper check, draft, money order, or other paper instrument to be mailed abroad generally does not constitute an electronic transfer of funds. For clarity, the final comment, adopted as comment 30(e)-1, notes that where a provider issues a check, draft, or other paper instrument to be mailed abroad, there is not an electronic transfer of funds, except as described below with respect to online bill payments.

A few commenters suggested that with respect to online bill payments, a consumer does not request an electronic transfer of funds. Instead, commenters stated that the consumer requests only that an amount be paid out of an account, and the payment method is generally left up to the institution. Thus, these commenters argued, there is no specific sender request to send a remittance transfer. The final rule adopts an approach that is consistent with the treatment of online bill payment services as an EFT under Regulation E in § 1005.3(b). Specifically, comment 3(b)(1)-1.vi. makes clear that an EFT includes “a payment made by a bill payer under a bill-payment service available to a consumer via computer or other electronic means, unless the terms of the bill-payment service explicitly state that all payments, or all payments to a particular payee or payees, will be solely by check, draft, or similar paper instrument drawn on the consumer's account, and the payee or payees that will be paid in this manner are identified to the consumer.”

Accordingly, final comment 30(e)-1 provides that an electronic transfer of funds occurs for a payment made by a provider under a bill-payment service available to a consumer via computer or other electronic means, unless the terms of the bill-payment service explicitly state that all payments, or all payments to a particular payee or payees, will be solely by check, draft, or similar paper instrument drawn on the consumer's account to be mailed abroad, and the payee or payees that will be paid in this manner are identified to the consumer. Thus, with respect to such a bill-payment service, if a provider provides a check, draft or similar paper instrument drawn on a consumer's account to be mailed abroad for a payee that is not identified to the consumer as described above, this payment by check, draft or similar payment instrument will be considered an electronic transfer of funds. In this case, the sender has requested the transfer using a bill-payment service available to a consumer via computer or other electronic means and would expect the transfer to be conducted electronically because the terms of the bill-payment service have not explicitly stated that payments to the particular payee will be solely by a check, draft, or similar paper instrument drawn on the consumer's account to be mailed abroad. In this case, the Bureau believes that it not appropriate to allow a provider to avoid providing the disclosures required by § 1005.31 at the

time of the sender's request, simply because the payee may ultimately be paid by a check, draft or similar paper instrument drawn on the consumer's account mailed abroad.

Proposed comment 30(d)-2 provided that the definition of “remittance transfer” requires a specific sender to request a remittance transfer provider send a remittance transfer. The proposed comment explained that a deposit by a consumer into a checking or savings account does not itself constitute such a request, even if a person in a foreign country is an authorized user on that account, where the consumer retains the ability to withdraw funds in the account. This comment is not adopted in the final rule, as inconsistent with guidance adopted in comment 30(c)-2.ii. As discussed above under the section-by-section analysis to § 1005.30(c), when a sender requests that a remittance transfer provider send an electronic transfer of funds to a recipient's account, the location of the account determines whether the transfer is made to a designated recipient and thus is a remittance transfer. If the recipient's account is located in a State, the transfer will not be a remittance transfer because the transfer will not be received at a location in a foreign country, and thus the recipient would not be a “designated recipient.” By contrast, if the recipient's account is located in a foreign country, the transfer will be a remittance transfer, even if the sender has the ability to withdraw funds in the account, because the transfer will be received at a location in a foreign country, and the recipient would be a “designated recipient.”

See

comment 30(c)-2.ii.

Proposed comment 30(d)-3 provided that the definition of “remittance transfer” also requires that the transfer be sent to a designated recipient. As noted above, the definition of “designated recipient” requires a person to be identified by the sender as the authorized recipient of a remittance transfer to be sent by a remittance transfer provider. Proposed comment 30(d)-3 explained that there is no designated recipient unless the sender specifically identifies the recipient of a transfer. Proposed comment 30(d)-3 specified that there would be a designated recipient if, for example, the sender instructs a remittance transfer provider to send a prepaid card to a specified recipient in a foreign country, and the sender does not retain the ability to draw down funds on the prepaid card. In contrast, proposed comment 30(d)-3 specified that there would be no designated recipient where the sender retains the ability to withdraw funds, such as when a person in a foreign country is made an authorized user on the sender's checking account, because the remittance transfer provider cannot identify the ultimate recipient of the funds. As discussed in more detail in the section-by-section analysis to § 1005.30(c), both examples are not adopted, as inconsistent with guidance in comment 30(c)-2.ii. and iii.

Proposed comment 30(d)-4 provided that the definition of “remittance transfer” requires that the remittance transfer must be sent by a remittance transfer provider. The proposed comment explained that this means that there must be an intermediary actively involved in sending the electronic transfer of funds. Examples in the proposed comment included a person (other than the sender) sending an instruction to an agent in a foreign country to make funds available to a recipient; executing a payment order pursuant to a consumer's instructions; executing a consumer's online bill payment request; or otherwise engaging in the business of accepting or debiting funds for transmission to a recipient and transmitting those funds.

However, the proposed comment explained that a payment card network or other third party payment service that is functionally similar to a payment card network does not send a remittance transfer when a consumer designates a debit or credit card as the payment method to purchase goods or services from a foreign merchant. For example, in such a case, the payment card network or third party payment service is not directly engaged with the sender to send a transfer of funds to a person in a foreign country; rather, the network or third party payment service is only providing contemporaneous third-party payment processing and settlement services on behalf of the merchant or the remittance transfer provider, rather than on behalf of the sender. Similarly, where a consumer provides a checking or other account number directly to a merchant as payment for goods or services, the merchant is not acting as a remittance transfer provider when it submits the payment information for processing.

Commenters generally supported the proposed comment. One commenter suggested that the Bureau should revise the discussion about the use of a payment card network using a debit or credit card as a payment method to include the use of a payment card network using a prepaid card for consistency with other provisions of the rule.

The final comment is adopted as comment 30(e)-2, and is revised. As with the proposed comment, the final comment provides that the definition of “remittance transfer” requires that the remittance transfer must be sent by a remittance transfer provider. The final comment explains that this means that there must be an intermediary that is directly engaged with the sender to send an electronic transfer of funds on behalf of the sender to a designated recipient. The final comment clarifies that a payment card network or other third party payment service that is functionally similar to a payment card network does not send a remittance transfer when a consumer provides a debit, credit, or prepaid card directly to a foreign merchant as the payment method to purchase goods or services. In such a case, the payment card network or third party payment service is not directly engaged with the sender to send a transfer of funds to a person in a foreign country; rather, the network or third party payment service is merely providing contemporaneous third-party payment processing and settlement services on behalf of the merchant or the card issuer, rather than on behalf of the sender. The final comment in 30(e)-2 also clarifies that in such a case, the card issuer also is not directly engaged with the sender to send an electronic transfer of funds to the foreign merchant when the card issuer provides payment to the merchant. Similarly, where a consumer provides a checking or other account number, or a debit, credit or prepaid card, directly to a foreign merchant as payment for goods or services, the final comment clarifies that the merchant is not acting as an intermediary that sends a transfer of funds on behalf of the sender when it submits the payment information for processing. The Bureau notes that this comment applies only for purposes of this rule. In other contexts, a person may act as a provider even when it is not directly engaged with the consumer to provide a consumer financial product or service.

Finally, comment 30(e)-2 also discusses the situation where a card issuer or a payment card network is an intermediary that is directly engaged with the sender to obtain funds using the sender's debit, prepaid or credit card and to send those funds to a recipient's checking account located in a foreign country. In this case, the final comment clarifies that the card issuer or payment card network is an intermediary that is directly engaged with the sender to send an electronic transfer of funds on behalf of the sender, and this transfer of funds

is a remittance transfer because it is made to a designated recipient.

See also

comment 30(c)-2.ii.

As noted in the proposal, some transactions that have not traditionally been considered remittance transfers will fall within the scope of the rule. In contrast, other transfer methods specifically marketed for use by a consumer to send money abroad, but that do not meet all elements of the definition of “remittance transfer,” may fall outside the scope of the rule (

e.g.,

a prepaid card where the participants in the prepaid card program do not send a card to a designated recipient in a foreign country). While the Board stated that it believed the proposed definition of “remittance transfer” in § 205.30(d) implemented the broad statutory definition, the Board solicited comment on whether it should exempt online bill payments made through the sender's institution, including preauthorized bill payments, from the rule, as it could be challenging for institutions to provide timely disclosures.

Most industry commenters urged the Bureau to exempt online bill payments from the rule, including preauthorized bill payments, given the challenges associated with providing disclosures for transfers that occur in the future. Commenters stated that the disclosures for such payments would be burdensome and would provide only marginal benefits to consumers, particularly given that Regulation E already addresses online bill payments. Commenters also noted that different coverage would apply to payments initiated through a financial institution, which would be covered, versus payments initiated directly with a billing party, which would not be covered. With respect to preauthorized bill payments, commenters stated that it would be impracticable to provide pre-payment disclosures when the request is made for transactions that could be scheduled months in advance.

Overall, the Bureau believes the protections afforded by the statute favor the inclusion of online bill payments in the rule, as well as other types of transfers that a sender schedules in advance. subpart A of Regulation E applies to EFTs from an account at a financial institution and provides certain protections to consumers. However, the subpart A provisions do not require disclosures regarding the exchange rate to be applied at transfer or certain other items that must be disclosed under EFTA section 919 and this rule (although related up-front fees would be disclosed in or with the account agreement). In addition, the Bureau also understands that there are non-bank money transmitters not covered by existing provisions in Regulation E that offer international bill payment services.

Moreover, some of the disclosure challenges raised by commenters are similar to those that have been raised in connection with other remittance transfer methods that are included in the rule, for example, where the exchange rate is not necessarily known at the time of transfer. The Bureau recognizes that the rule's coverage differs depending on whether a foreign payee is paid through a remittance transfer provider or paid directly by a consumer. However, this difference arises due to the EFTA's definition of “remittance transfer.” As discussed above, for a transfer to be considered a “remittance transfer,” the transfer must involve an intermediary that is directly engaged with the sender to send an electronic transfer of funds on behalf of the sender to a designated recipient. A foreign merchant is not acting as an intermediary that sends a transfer of funds on behalf of the sender when it processes a payment paid to it directly by the sender. In addition, in this case, the financial institution is not directly engaged with the sender to send an electronic transfer of funds to the foreign merchant when the institution provides payment to the merchant. The Bureau believes this is different from the situation where an institution offers online international bill payment services to consumers. In this circumstance, the institution is directly engaged with the sender to send an electronic transfer of funds on behalf of the sender to a designated recipient. Thus, the final rule does not exclude online bill payments from the definition. As a result, under the final rule, providers will generally need to provide pre-payment disclosures and receipts for these types of transfers in accordance with § 1005.31.

However, in light of the timing challenges noted above, the final rule sets forth tailored disclosure and cancellation requirements with respect to certain remittance transfers that a sender schedules in advance, including preauthorized remittance transfers (defined and discussed above in § 1005.30(d)), in a new § 1005.36. In addition, the Bureau is issuing the January 2012 Proposed Rule, published elsewhere in today's

Federal Register,

soliciting comment on alternative disclosure and cancellation requirements with respect to these transfers. These are discussed in more detail below in the discussion of § 1005.36.

Proposed comment 30(d)-5 provided a non-exclusive list of examples of transactions that are, and are not, remittance transfers. The list addressed online bill payments in the examples in 30(d)-5.i.E. and 30(d)-5.ii.C. However, electronic transfers of funds to be sent abroad can also be scheduled through other means, such as over the telephone, and such scheduled transfers may not necessarily relate specifically to the payment of bills. Thus, while the final comment, renumbered as comment 30(e)-3, does not contain an exhaustive list of examples, in order to clarify the rule's application, the online bill payment examples in the final comment have been revised to more generally address transfers that senders can schedule in advance, including preauthorized remittance transfers.

30(e)(2) Exceptions

EFTA section 919(g)(2)(B) states that a remittance transfer does not include a transfer described in EFTA section 919(g)(2)(A) “in an amount that is equal to or lesser than the amount of a small-value transaction determined, by rule, to be excluded from the requirements under section 906(a)” of the EFTA. EFTA section 906(a) addresses the requirements for electronic terminal receipts. The Board previously determined by rule that financial institutions are not subject to the requirement to provide electronic terminal receipts for small-value transfers of $15 or less.

See

§ 1005.9(e). Proposed § 205.30(d)(2) incorporated this exception for small-value transfers by providing that remittance transfers do not include transfer amounts of $15 or less. The final rule adopts the small-value exception in § 1005.30(e)(2)(i). The $15 exception refers to the amount that will be transferred to the designated recipient in the currency in which the transfer will be funded, as described in § 1005.31(b)(1)(i).

Industry commenters urged the Bureau to adopt a variety of additional exceptions to the rule, in addition to exempting wire transfers and other open network transactions. Most industry commenters argued that the Bureau should exclude wire transfers and ACH transactions above a certain dollar amount, generally ranging from $500 to $1,000. These commenters argued that the average value of consumer transfers from the United States is lower than the dollar thresholds that they advocated for, so these thresholds would capture most traditional remittances, while excluding higher-dollar transfers that they argued were not intended to be captured in the statute. Several commenters also presented data that

many wire transfers exceed the suggested dollar amount, and thus, such an exclusion would limit the costs and risks of the proposal, including fraud risks; would mitigate risks associated with the loss of UCC Article 4A coverage for wire transfers (as described in more detail below); and would more properly focus the final rule on traditional remittance transfers.

The final rule does not contain an exclusion for remittance transfers above a specified dollar amount. The Bureau believes that consumers who choose to transfer funds less frequently but in higher dollar amounts or who send relatively large remittance transfers to pay tuition, medical, and other larger bills should receive the same protections as frequent, low-value senders. Indeed, given the amounts involved, such consumers may stand to benefit even more from the disclosures and error resolution rights afforded by the rule to ensure that the proper amount is received by the recipient. Accordingly, the Bureau believes that an exception based solely on a dollar amount would not be consistent with the purposes of the statute. Finally, the dollar amounts suggested by the commenters did not account for variations in average transfer amounts by destination region or type of transfer, some of which exceed the thresholds proposed by commenters.

Chishti,

supra

note 6.

Similarly, the Bureau does not believe that the rule should exclude remittance transfers requested by high net-worth consumers, as urged by one commenter. Again, there is no indication that Congress intended such an exclusion. Further, a high net-worth consumer has an interest in knowing the amount that will be received by a recipient, and the applicable exchange rate, just as a consumer who does not have a high net worth. A high net-worth consumer also has a similar stake in the resolution of any errors.

The final rule does contain one new exclusion. Several commenters argued that the final rule should exclude from the definition of “remittance transfer” any transfers the primary purposes of which is the purchase or sale of securities or commodities as described in § 1005.3(c)(4). Section 1005.3(c)(4) exempts from the definition of “electronic fund transfer” any transfer of funds the primary purposes of which is the purchase or sale of a security or commodity where the security or commodity is: (i) Regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission; (ii) purchased or sold through a broker-dealer regulated by the Securities and Exchange Commission or through a futures commission merchant regulated by the Commodity Futures Trading Commission; or (iii) held in book-entry form by a Federal Reserve Bank or Federal agency. To effectuate the purposes of the EFTA and facilitate compliance, the Bureau believes it is necessary and proper to use its authority under EFTA sections 904(a) and (c) to adopt a new § 1005.30(e)(2)(ii) to exclude from the definition of “remittance transfer” any transfer that is excluded from the definition of “electronic fund transfer” under § 1005.3(c)(4). This exception is narrow in that it only exempts transfers of funds the primary purposes of which is the purchase or sale of certain securities or commodities, as discussed above. The Bureau believes that use of its authority under EFTA sections 904(a) and (c) in this circumstance is appropriate so as not to impact the purchase or sale of securities or commodities.

Application of the EFTA; Relationship to Uniform Commercial Code

As described above, the statute applies to remittance transfers whether or not they are electronic fund transfers. This raises certain issues with respect to traditional cash-based remittance transfers sent through money transmitters, which have not previously been covered by the EFTA or Regulation E, as well as international wire transfers, which are not EFTs.

The statute outlines the application of the EFTA to remittance transfers that are not electronic fund transfers. Specifically, EFTA section 919(e)(1) states that a remittance transfer that is not an electronic fund transfer is not subject to any of the provisions of EFTA sections 905 through 913. For example, a money transmitter sending a remittance transfer (that is not an EFT) is not subject to the requirement in EFTA section 906(b), as implemented in § 1005.9(b), to provide periodic statements to consumers. The transmitter will, however, generally be subject to other provisions of the EFTA, including provisions on liability under EFTA sections 916 through 918. EFTA section 919(e)(2)(A) also clarifies that a transaction that will not otherwise be an electronic fund transfer under the EFTA, such as a wire transfer, does not become an electronic fund transfer because it is a remittance transfer under EFTA section 919.

Until the Dodd-Frank Act provisions become effective, wire transfers are entirely exempt from the EFTA and Regulation E and instead are governed by State law through State enactment of Article 4A of the Uniform Commercial Code. UCC Article 4A primarily governs the rights and responsibilities among the commercial parties for wire transfers, including payment obligations among the parties and allocation of risk of loss for unauthorized or improperly executed payment orders.

UCC Article 4A-108 provides that UCC Article 4A does not apply “to a funds transfer,

any part of which is governed by the Electronic Fund Transfer Act”

(emphasis added). When EFTA section 919, as implemented by this rule, becomes effective, wire transfers sent on a consumer's behalf that are remittance transfers will be governed in part by the EFTA. As noted in the proposal, EFTA section 919(e)(1) explicitly applies the EFTA to remittance transfers that are not electronic fund transfers, except for certain enumerated provisions. Further, the disclosure and error resolution requirements for remittance transfers are set forth in the EFTA. As a result, by operation of UCC Article 4A-108, the Bureau believes UCC Article 4A will no longer apply to such international consumer wire transfers.

Commercial wire transfers are not affected because a “sender” must be a consumer.

Many commenters, including the Office of the Comptroller of the Currency (OCC), argued that this outcome creates legal uncertainty that will disrupt the long-standing legal framework governing the allocation of risks among financial institutions of wire transfers. Industry commenters urged the Bureau to preempt any provision of State law that prevents a remittance transfer from being treated as a funds transfer under UCC Article 4A based solely upon the inclusion of the remittance transfer provisions in EFTA section 919. Specifically, commenters urged the Bureau to preempt UCC Article 4A-108. Under this suggested approach, the error resolution provisions of EFTA section 919(b)(1) would govern remittance transfers as between a sender and a remittance transfer provider, but the remaining provisions in UCC Article 4A would continue to govern the allocation of risk of loss as between the remittance transfer provider and another financial institution that carries out part of the transfer (to the extent not otherwise inconsistent with the rule).

Under EFTA section 922 and § 1005.12, the Bureau may determine whether a State law relating to, among other things, electronic fund transfers is preempted by the EFTA or Regulation E. However, the statutory preemption provisions states that a State law may be

preempted only if the State law is inconsistent with the EFTA or Regulation E and then only to the extent of the inconsistency. 15 U.S.C. 1693s. Moreover, the statute and regulation provide that a State law is not inconsistent with any provision if it is more protective of consumers. The Bureau does not believe that UCC Article 4A-108 is inconsistent with the EFTA. No provision of the EFTA conflicts with UCC Article 4A-108, and UCC Article 4A-108 does not require or permit a practice prohibited by the EFTA.

See, e.g.,

§ 1005.12(b)(2)(i). Rather, UCC Article 4A-108 provides when State law applies to fund transfers, including consumer wire transfers, and specifically states that UCC Article 4A does not apply if the EFTA “governs” the transaction. The amendments to the EFTA under the Dodd-Frank Act address consumer wire transfers, but do not address the application of State law to those transfers. Applying the EFTA preemption provisions to effectively require the application of more State laws than would apply in the absence of such action is simply not what the EFTA preemption standard provides.

In the May 2011 Proposed Rule, the Board noted that Congress amended the EFTA's preemption provision to include a specific reference to State gift card laws when it enacted new EFTA protections for gift cards as part of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act).

By contrast, Congress did not amend the EFTA's preemption provision with respect to State laws relating to remittance transfers, including those that are not electronic fund transfers, when it enacted the Dodd-Frank Act.

In response, some commenters argued that Sections 1041(a) and (b) of the Dodd-Frank Act, which discusses the relationship between Title X of the Dodd-Frank Act and State law, separately permit the Bureau to preempt UCC Article 4A-108. These provisions may be invoked, however, only if the Bureau finds an inconsistency between Title X and State law. The Bureau does not believe that such an inconsistency exists. Moreover, Section 1041(b) of the Dodd-Frank Act specifically provides, with one exception not relevant here, that no provision of Title X “shall be construed as modifying, limiting, or superseding the operation of any provision of an enumerated consumer law that relates to the application of a law in effect in any State with respect to such Federal law.”

See

Credit Card Act § 402, Public Law 111-24, 123 Stat. 1734 (2009). The preemption provision was amended to describe how certain State gift card laws may be preempted, to the extent that those laws are inconsistent with the EFTA, in the same manner as State EFT laws.

Several commenters noted that EFTA section 920 is excluded from the list of “enumerated consumer laws” under section 1002(12)(c) of the Dodd-Frank Act. Prior to the Dodd-Frank Act, EFTA section 920 addressed the EFTA's relation to State laws. Section 1075 of the Dodd-Frank Act created a new EFTA section 920 relating to debit interchange fees, which is the provision excluded under Dodd-Frank section 1002(12)(c). The relation to State laws provision is now contained in EFTA section 922.

Several commenters suggested that the Bureau incorporate UCC Article 4A, or a similar framework in place of UCC Article 4A, into Regulation E. The Bureau does not believe it is appropriate to incorporate UCC Article 4A into Regulation E. The EFTA and the UCC generally focus on different relationships. Under EFTA section 902(b), the primary purpose of the EFTA is the provision of individual consumer rights. In contrast, UCC Article 4A is primarily intended to govern the rights and responsibilities among the commercial parties to a funds transfer, that is, the financial institution that accepts a payment order for a funds transfer and any other financial institutions that may be involved in carrying out the transfer.

Consumers currently receive some protections under UCC Article 4A in the event the wire transfer is not completed, or in the event of errors in execution of the transfer, or in connection with an unauthorized transfer. Nonetheless, although consumers who request wire transfers that are remittance transfers may no longer have the protections set forth in UCC Article 4A, these consumers will receive error resolution, refund and cancellation rights and other protections for these transfers as set forth in §§ 1005.33 and 1005.34.

In addition, the Bureau does not believe it is appropriate to incorporate UCC Article 4A into Regulation E because while UCC Article 4A is a uniform code, it may be adopted differently in the various states. Incorporation of UCC Article 4A (presumably, without a similar provision as UCC Article 4A-108) on its own could have the unintended consequence of the Bureau choosing one State's version of the UCC over another. There could also be a lag between updates and revisions to the UCC among the states and the version incorporated into Regulation E, which could create confusion and potential operational conflicts for those institutions that use the same systems to send commercial and consumer wire transfers.

The Bureau recognizes that one consequence of covering remittance transfers under the EFTA could be legal uncertainty under the UCC for certain remittance transfer providers. Specifically, to the extent that providers of international wire transfers were previously able to rely on UCC Article 4A's rules governing the rights and responsibilities among the parties to a wire transfer, they may no longer be able to do so. However, given the factors discussed above, the Bureau believes that the best mechanisms for resolving this uncertainty rests with the states, which can amend their respective versions of UCC Article 4A, with the purveyors of rules applicable to specific wire transfer systems, which can bind direct participants in the system, and with participants in wire transfers who can incorporate UCC Article 4A into their contracts. In addition, the Bureau recommends that Congress adopt legislation to help resolve the legal uncertainty under the UCC for remittance transfers, so parties engaged in remittance transfers will be able to continue to rely on UCC Article 4A, notwithstanding the implementation of these final rules.

The final rule will be effective one year from the date of publication of the rule in the

Federal Register

. Thus, before the final rule becomes effective, states have the opportunity to amend UCC Article 4A to the extent needed or appropriate to address its application to consumer international wire transfers and wire transfer systems have the opportunity to amend their operating rules to incorporate UCC Article 4A, and participants in wire transfer transactions have the opportunity to enter into contracts incorporating UCC Article 4A. For example, the Board has recently issued a proposal to revise its Regulation J, 12 CFR part 210, to ensure the continued application of UCC Article 4A to remittance transfers carried out through Fedwire.

In addition, Congress would have an opportunity to enact legislation to help resolve the legal uncertainty under the UCC for remittance transfers, so parties engaged in remittance transfers will be able to continue to rely on UCC Article 4-A, notwithstanding the implementation of these final rules. The Bureau will continue to monitor developments in this area to evaluate whether these issues are being effectively dealt with by the states, Congress or through private contractual arrangements.

76 FR 64259 (Oct. 18, 2011).

Application of the EFTA; Relationship to Regulations Implementing the Bank Secrecy Act

The Bureau also recognizes that regulations issued by the Financial Crimes Enforcement Network (FinCEN) to implement the Bank Secrecy Act also contain references to the EFTA. These regulations generally set certain requirements applicable to a “funds transfer” and “transmittal of funds.” The definitions of “funds transfer” and “transmittal of funds” in FinCEN's regulations exclude any funds transfers governed by the EFTA.

See

31 CFR 1010.100(w) and (ddd), respectively. When EFTA section 919, as implemented by this rule, becomes effective, certain transactions that have traditionally been outside the scope of the EFTA will be governed by the EFTA, such as consumer-initiated wire transfers. The Bureau has had discussions with FinCEN about the importance of FinCEN amending its rules so that they continue to apply to remittance transfers after the effective date of this rule. The OCC also stated that it will be imperative that FinCEN act quickly to amend their rules. The Bureau does not believe, however, that it can fill the gap by incorporating FinCEN's regulations into Regulation E. The Bureau believes consolidating the requirements of the Bank Secrecy Act and the EFTA in Regulation E would be impracticable under the respective authorities of two agencies.

30(f) Remittance Transfer Provider

Proposed § 205.30(e) incorporated the definition of “remittance transfer provider” from EFTA section 919(g)(3). Proposed § 205.30(e) stated that a remittance transfer provider (or provider) means any person that provides remittance transfers for a consumer in the normal course of its business, regardless of whether the consumer holds an account with such person. To eliminate redundancy, the proposed rule revised statutory references to “any person or financial institution” to “any person,” because the term “person” under Regulation E includes financial institutions. Proposed comment 30(e)-1 clarified that an agent is not deemed to be a remittance transfer provider by merely providing remittance transfer services on behalf of the remittance transfer provider. The proposed regulation is adopted generally as proposed in renumbered § 1005.30(f). Comment 30(f)-1 is revised for clarity to state that a person is not deemed to be acting as a remittance transfer provider when it performs activities as an agent on behalf of a remittance transfer provider. New comments 30(f)-2 and -3 are added as described below. The Bureau notes that this comment 30(f)-1 applies only for purposes of this rule. In other contexts, a person may act as a provider when it performs activities on behalf of a provider.

Normal Course of Business

The Board solicited comment on whether guidance should be adopted interpreting the phrase “normal course of business” based on the number of remittance transfers in a given year. Many industry commenters argued that the final rule should provide for a

de minimis

exception based on the number of remittance transfers sent in a given time period, although one credit union commenter stated that it could be difficult to track numbers. Suggestions ranged from 1,200 or fewer transfers annually to 2,400 transfers annually, per method (

i.e.,

2,400 wire transfers plus 2,400 international ACH transfers).

The commenters did not provide any data on the overall distribution and frequency of remittance transfers across various providers to support treating such high numbers of transactions as being outside the normal course of business. Nor did they suggest other means of determining when remittance transfer providers are engaging in transfers merely as an accommodation to occasional consumer requests rather than part of a business of payment services. Absent significant additional information, the Bureau is skeptical that Congress intended to exclude companies averaging 100 or more remittance transfer providers per month from the statutory scheme. Based on the data presented by commenters, such a range would appear to exclude the majority of providers of open network transfers, such as international wire transfers and ACH transactions, from the rule. For example, one trade association commenter stated that most respondents to an information request said that they make fewer than 2,400 international transactions per year. As discussed above, the Bureau believes that the statute clearly covers open network transfers, such as wire transfers and ACH transactions. Providing an exception based on the ranges suggested by these commenters would allow many financial institutions that arguably regularly and in the normal course of business provide remittance transfers to not be subject to the regulation. The Bureau believes in general that the term “normal course of business” covers remittance transfer activities at a level significantly lower than the ranges suggested by these commenters.

In other contexts, regulatory coverage is triggered by a relatively small number of transactions. For example, under Regulation Z, 12 CFR part 1026, a creditor is a person who regularly extends consumer credit under specified circumstances. A person regularly extends consumer credit when it extends consumer credit more than 25 times in the preceding calendar year or in the current year (and five times for transactions secured by a dwelling, or even one time for certain high-cost mortgages).

See

12 CFR 1026.2(a)(17). Under State law, a single money transmission may trigger a requirement to register as a money transmitter.

The Bureau notes that it has issued a separate notice of request for information in which the Bureau requests comment on whether it should revise these threshold numbers in Regulation Z.

See

76 FR 75825 (Dec. 5, 2011).

The Bureau does not believe it has sufficient information on the frequency with which entities engage in remittance transfers to set a specific numerical threshold based on the current administrative record. Accordingly, the final rule adopts a new comment 30(f)-2 addressing “normal course of business.” Comment 30(f)-2 states that whether a person provides remittance transfers in the normal course of business depends on the facts and circumstances, including the total number and frequency of remittance transfers sent by the provider. For example, if a financial institution generally does not make international consumer wire transfers available to customers, but sends a couple of international consumer wire transfers in a given year as an accommodation for a customer, the institution does not provide remittance transfers in the normal course of business. In contrast, if a financial institution makes international consumer wire transfers generally available to customers (whether described in the institution's deposit account agreement, or in practice) and makes transfers multiple times per month, the institution provides remittance transfers in the normal course of business.

While the final comment does not include a numerical threshold for “normal course of business,” the Bureau recognizes that a bright-line number may ease compliance. Thus, in the January 2012 Proposed Rule, published elsewhere in the

Federal Register

today, the Bureau is soliciting further comment on a potential safe harbor threshold.

Multiple Remittance Transfer Providers

New comment 30(f)-3 provides guidance where more than one remittance transfer provider is involved

in providing a remittance transfer. The Bureau recognizes that in some situations more than one remittance transfer provider may be involved in providing a remittance transfer. For example, prepaid card programs may involve, among others: (i) A program sponsor that establishes the program relationships, identifies and procures the necessary parties and sets contractual terms and conditions; (ii) a program manager which functions as a day-to-day operations “control center” for the program; and (iii) an issuing bank whose contractual involvement is required to invoke the payment network and which also may serve as the holder of funds that have been prepaid and are awaiting instructions to be disbursed. Any and all of these entities may be a “remittance transfer provider” if they meet the definition as set forth in § 1005.30(f).

Comment 30(f)-3 provides that if the remittance transfer involves more than one remittance transfer provider, only one set of disclosures must be given, and the remittance transfer providers must agree among themselves which provider must take the actions necessary to comply with the requirements that subpart B imposes on any or all of them. Even though the providers must designate one provider to take the actions necessary to comply with the requirements that subpart B imposes on any or all of them, all remittance transfer providers involved in the remittance transfer remain responsible for compliance with the applicable provisions of the EFTA and Regulation E.

30(g) Sender

Proposed § 205.30(f) incorporated the definition of “sender” from EFTA section 919(g)(4) with minor edits for clarity. Specifically, proposed § 205.30(f) defined “sender” to mean “a consumer in a state who requests a remittance transfer provider to send a remittance transfer to a designated recipient.” The final rule adopts the definition largely as proposed in renumbered § 1005.30(g), with additional clarifications and a new explanatory comment.

Several commenters suggested that the Bureau limit remittance transfers to those sent for personal, family, or household purposes. Although Regulation E's applicability is generally limited to such consumer-purpose transactions, the limitation is contained in the definition of “account” in § 1005.2(b). However, the remittance transfer rule applies to more than just account-based transfers. As a result, these commenters stated that an individual who requests a transfer for business purposes could arguably be a “sender” under the rule.

To address these concerns, the Bureau is revising the definition of “sender” in § 1005.30(g) to clarify that a sender is a consumer in a State who primarily for personal, family, or household purposes requests a remittance transfer provider to send a remittance transfer to a designated recipient. This revision is consistent with § 1005.2(b) and clarifies that the final rule does not apply to business-to-consumer or business-to-business transactions or to transactions that are not for personal, family or household purposes. For example, a transfer requested by a sole proprietor on behalf of his or her company would not be covered by the rule.

As with the definition of “designated recipient,” some commenters requested guidance as to how they should determine whether a consumer is located in a State for account-based transfers. Commenters also requested clarification on how to determine where a consumer is located if the transfer request is made electronically or by telephone, and where the consumer's presence is not readily apparent. To address these questions, new comment 30(g)-1 clarifies that for transfers from an account, whether a consumer is located in a State depends on where the consumer's account is located. If the account is located in a State, the consumer will be located in a State for purposes of the definition of “sender” in § 1005.30(g), notwithstanding comment 3(a)-3. Where a transfer is requested electronically or by telephone and the transfer is not from an account, the provider may make the determination of whether a consumer is located in a State on information that is provided by the consumer and on any records associated with the consumer that it might have, such as an address provided by the consumer.

One commenter asked the Bureau to clarify the application of Regulation E's comment 3(a)-3 to subpart B. Comment 3(a)-3 addresses the foreign applicability of Regulation E with respect to EF

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