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by Edmund D. Harllee
On Monday, May 23, the Federal Reserve Board (the
"Board") issued proposed revisions to its Regulation E (Electronic Fund
Transfers) in order to implement changes required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the "Act").
The Electronic Fund Transfer Act and Regulation E
currently govern the rights, liabilities and responsibilities of participants
in electronic fund transfers ("EFTs"). EFTs are payment
transactions that result in a debit or a credit to a consumer's asset
account. Examples are automated teller machine ("ATM")
transactions, point of sale ("POS") payments, preauthorized automatic
transfers and automatic bill payment plans.
The Act creates new protections for consumers who send
"remittance transfers" to designated recipients in foreign countries.
Generally, a "remittance transfer" is one in which a consumer sends funds to a
relative or other individual located in another country. The proposed
rule and the Act regulate transactions currently exempted under Regulation E,
such as consumer wire transfers and electronic transfers that are paid for in
cash. A remittance transfer need not be an EFT to be covered under
Regulation E. Remittance transfers may be sent in a variety of ways, such
as through a "money transmitter." Money transmitters are most often
licensed businesses that send funds directly, or through one or more agents, to
the foreign country. Other common methods of sending remittance transfers
are through international wire transfers and international automated clearing
house ("ACH") transactions. Typically, consumers would send
these through one or more financial institutions. There are other means
of transferring funds to a recipient in a foreign country, such as through the
use of pre-paid cards that are mailed to the recipient, but the three services
described above are the main methods currently in use.
The proposed rule would provide for three general areas
of protection for consumers sending remittance transfers:
As with EFTs currently governed by Regulation E, the proposed rule would
provide for disclosures to the consumer at various stages of the service.
(a) Initial Disclosures. A remittance
transfer provider would be required to provide certain disclosures to the
consumer at the time the consumer requests the transfer, but prior to being
paid for the transfer. Information that would have to be disclosed would
include the currency exchange rate, applicable fees and taxes, and the amount
to be received by the designated recipient. Oral disclosures would be
permitted in the case of a telephone transfer.
(b) Receipt of Payment. A remittance
transfer provider would be required to provide the consumer/sender with a
written receipt upon payment. The information on the receipt would
include the information provided in paragraph (a), above, as well as additional
information such as the date the funds will be available, the recipient's
contact information, and information on the sender's error resolution and
cancellation rights. The receipt would not need to be given where all of
the information required to be on the receipt is on the initial disclosure,
such as in the case of an isolated, "one-off" transaction that is not part of a
recurring payment plan.
The proposed rule also provides for two main exceptions
to the requirement for a disclosure of the amount to be received:
(i) A temporary exception, lasting until five years after
the enactment of the Act (July 21, 2015), would apply only to insured
depository institutions and credit unions that cannot determine certain
disclosed amounts for reasons beyond their control.
(ii) A permanent exception that would apply to any remittance
transfer provider that cannot determine certain disclosed amounts because of
the laws of, or transfer methods used in, the recipient's country.
Generally, this exception would apply where the government or the central bank
of the foreign country sets the exchange rate after the funds are sent, or the
law of the foreign country requires that the exchange rate be set upon receipt.
The proposed rule also requires that remittance transfer
providers give the above disclosures in English and in every language used by
the remittance transfer provider to market its services. As with other
disclosure requirements in Regulation E, the proposed rule contains model
disclosures, in English and Spanish, which may be used to comply with the
2. Error Resolution Procedures.
Currently, Regulation E provides for certain rights and responsibilities for
both the consumer and the EFT service provider. The proposed rule would
extend these rights, in part, to the participants in a remittance
transfer. Generally, when an "error," such as an unauthorized transaction
or a mistake in an authorized transaction, occurs, the consumer has an
obligation to report the error within 180 days. This notice triggers
several responsibilities on the part of the remittance transfer provider to
investigate and resolve the claim within a certain period of time. The
proposal also contains requirements for cancellation and refund rights for
senders and record retention requirements for remittance transfer providers.
3. Liability of Agents.
The proposed rule contains two alternatives for the implementation of liability
standards for remittance transfer providers, including those that act through
one or more agents. Under the first alternative, the remittance transfer
provider would be liable for all actions and inactions of any agent acting on
behalf of the remittance transfer provider. Under the second alternative,
if the remittance transfer provider establishes and maintains policies and
procedures for agent compliance, including appropriate oversight measures, and
the provider corrects any violations, to the extent appropriate, the remittance
transfer provider would not be liable for the acts of its agent.
Financial institutions, "money transmitters," and other
remittance transfer providers, may comment, and should do so if they think that
these changes, or the specifics of the implementation of these changes as
published in the notice, will have an adverse effect on their businesses.
According to the notice of proposed rulemaking, comment letters should refer to
Docket No. R-1419 and RIN No. 7100-AD76 and may be mailed electronically to email@example.com.
The comment period ends July 22, 2011. Since general rulemaking authority
for the Electronic Fund Transfer Act will be transferred to the new Consumer
Financial Protection Bureau in July of 2011, the final rule will be issued by
that agency and not by the Board.
If you have any questions about the
information in this alert, please contact Ed Harllee at firstname.lastname@example.org.
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