Comments to the Consumer Financial Protection Bureau 12 C.F.R. Part 1005 Regulation E; Docket No. CFPB-2012-0050; RIN 3170-AA33 Electronic Fund Transfers: Notice of Proposed Rulemaking, Published December 31, 2012, in the Federal Register I. Introduction The Appleseed Foundation ( Appleseed ) appreciates the opportunity to respond to the request of the Consumer Financial Protection Bureau (CFPB) for comments regarding the proposed regulations implementing Section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ( Dodd-Frank Act ) 1 on remittance transfers. Appleseed, a nonprofit network of 17 public interest justice centers in the United States and Mexico, uncovers and corrects social injustices through legal, legislative, and market-based structural reform. To that end, Appleseed has taken a leading role in advocating for consumer protections and transparency in the remittance transfer industry. Appleseed began working on the issue of remittances in Texas and helped pass a state law mandating cost disclosure in 2003. 2 Since then, Appleseed has performed empirical studies on the utility of disclosures for remitting consumers and published reports on the importance of transparency in the remittance market. 3 Appleseed is joined in its comments by these Appleseed Centers: Chicago Appleseed Fund for Justice, Connecticut Appleseed, Georgia Appleseed Center for Law and Justice, Hawai i Appleseed Center for Law and Economic Justice, Kansas Appleseed Center for Law and Justice, Massachusetts Appleseed, Mexico Appleseed, Nebraska Appleseed Center for Law in the Public Interest, New Jersey Appleseed Public Interest Law Center, New York Appleseed, South Carolina Appleseed Legal Justice Center and Texas Appleseed. 1 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111-203, 1073, 124 Stat. 1376; 15 U.S.C.A. 1693o-1 (2010). 2 See, Tex. Fin. Code Ann. 278.051. 3 Appleseed s studies and reports related to remittances can be viewed at http://www.appleseednetwork.org/what-we-do/projects/financial-access/ 727 15th Street, NW, 11th Floor Washington, DC 20005 202.347.7960 www.appleseednetwork.org
II. Comments Appleseed has reviewed the December 31, 2012, Federal Register Notice of Proposed Rulemaking ( NPRM ), 4 which was aimed at responding to industry compliance concerns regarding certain provisions in the Final Rule implementing Section 1073 of the Dodd-Frank Act that was published on February 7, 2012, 5 in the Federal Register (with certain revisions published on August 20, 2012 6 ) (jointly, the Final Rule ) and was scheduled to become effective on February 7, 2013. Appleseed previously submitted a comment dated January 15, 2013, regarding the proposal by the CFPB to temporarily delay the effective date of the Final Rule until the CFPB finalizes the NPRM and then set an effective date for any revisions to the Final Rule for 90 days after such finalization. Appleseed will use this letter to suggest improvements that we feel would balance out the need to be practical against the need to stay true to the reasons for the passage of Section 1073 of the Dodd-Frank Act, i.e., to provide full transparency to remittance transfers through uniform disclosures. A. Congress intended that changes occur in the remittance transfer industry to afford consumers largely immigrant senders of remittances more consumer protection and remedies in case of errors. Data, technology, financial consulting services and legal protocols are now available or could soon be available to make the systemic improvements called for in Dodd-Frank. Sub-national tax information can and should be collected and disseminated electronically for ease of use by the industry and consumers. Sending institutions should assume responsibility for security procedures that enable them to confirm the accuracy of account numbers provided by senders before sending a transfer on behalf of senders. And sending depository institutions can and should create protocols fee schedules or rapid electronic communications that provide sending institutions and consumers with necessary and legally required information on fees charged by recipient institutions before the money is sent. B. Disclosure of all taxes is essential to fulfill the intent of Section 1073 that the full cost of a remittance be disclosed to the remittance sender. Under the NPRM, remittance transfer providers ( RTPs ) would be required to disclose only foreign taxes imposed by a country's central government. The requirement to disclose taxes imposed by foreign regional, provincial, state, or other local governments is proposed to be permanently eliminated. 4 77 Fed. Reg.77188. 5 77 Fed. Reg. 6194. 6 77 Fed. Reg. 50244.
Appleseed recommends permanent retention of the requirement to disclose all taxes including those imposed by foreign regional, provincial, state, or other local governments as essential to the intent of Section 1073 that the full cost of a remittance be disclosed pre-transaction and in a post-transaction receipt. Once exceptions are made to disclosing the total amount available for pick-up, consumers would be back to where they are before the rule not knowing if they ve received the full, accurate amount. We respectfully suggest two different ways that industry could obtain information on subnational taxes: (1) The CFPB should establish a database of national and sub-national taxes, a solutionbased approach to addressing a need that is a classic government public good. Appleseed recommends that RTPs be responsible for disclosing to senders all sub-national tax information available to them upon implementation of the Final Rule. The CFPB should require that RTPs that disclose sub-national taxes report this tax information to the CFPB to initially populate the database and keep it up to date. With this reporting scheme, the CFPB will be able to identify in what jurisdictions tax information is available and in what jurisdictions the CFPB should seek tax information and provide it to RTPs. We recommend this requirement be implemented with recognition that a best efforts guideline govern tax disclosure during the first year of implementation as the CFPB establishes a public tax database that would be expected to become operational one year from any revised effective date of the Final Rule that is established as a result of this NPRM. (2) If the CFPB is not able to establish the database, then we recommend that RTPs rely on industry-developed databases of national and sub-national taxes applicable to remittances. The private sector is likely to recognize the money-making opportunities here and one or more vendors could devise a proprietary tax database for sale to institutions that offer remittances. An example of this is the private sector development of computer programs to screen accounts/transactions for compliance with economic sanctions. In addition, large accounting firms offer global tax services and may be in a position to add to their current services and databases to develop such a comprehensive database. In sum, Appleseed recommends that RTPs be responsible for disclosing to senders all subnational tax information available to them upon implementation of the Final Rule as recommended above. The CFPB should require that RTPs that impose sub-national taxes report this tax information to the CFPB which will, in turn, provide this information to other RTPs, the public and vendors planning to devise a proprietary tax database for sale to institutions. We recommend this requirement be implemented with recognition that a best efforts guideline govern tax disclosure during the first year of implementation as the private sector stands up a tax database. In either (1) or (2) above, the CFPB should diligently monitor disclosure of tax information to make certain that RTPs that have access to sub-national tax information are disclosing it to
consumers upon implementation and not delaying to make these disclosures where information is available. We very much appreciate the CFPB s stated concern with facilitating compliance and hope that it will adhere to the statute s requirement that RTPs disclose all fees and taxes, rather than relying on EFTA exemption authority of Section 904(c). We further believe that the alternative of adding the word estimated and a disclosure that more sub-national taxes may be imposed would be confusing and would deter consumers from inquiring or complaining when they did not receive the amount promised. With regard to Section 1005.32, we further appreciate the complications arising from taxes that may or may not be imposed depending on various factors and support the idea of disclosure of the highest possible tax rate, rather than requiring providers to engage in a colloquy with the sender on matters such as applicable tax brackets. The CFPB sought comment on the appropriate grace period when taxes change in a foreign country and there was no or little advance warning of such a change. We urge that such grace periods be kept to a minimum, perhaps 30 days, and believe that central tax databases, whether maintained by the government or private sector, should be able to adjust to changes in this giant industry in short order hours, days or weeks not many months. C. Appleseed recommends adhering to the Final Rule that treats remittances sent to an incorrect account number as errors. Appleseed recommends retention of the errors provision as currently in place in the Final Rule. Under the Final Rule, an error occurs, when, among other circumstances, the recipient does not receive the remitted funds by the stated date of availability because they are credited to an account other than the one maintained by the recipient because the sender provided the wrong account number. Error rights are triggered when a remittance recipient notifies a sender in the U.S. that funds were not received and the sender notifies the RTP. The RTP then must investigate. Because of a concern of the potential for fraud through intentional mismatching of name and account by senders, under the NPRM, an error would not have occurred when the RTP can demonstrate that the sender provided an incorrect account number and certain other conditions are satisfied. The RTP would be required to attempt to recover the funds but would not be required to re-send the funds if the funds could not be recovered. Depository institutions are rightly concerned about fraud, but they have tools to protect their institutions. Financial institutions have fraud detection and mitigation practices in place and, at a more systemic level, once they submit suspicious activity reports, the government can investigate and potentially stop fraud schemes. These protective mechanisms can be adapted and applied to remittance transmission. Depository institutions have the latitude to alter their own practices, policies and procedures and decline to send remittances under certain conditions
(i.e., suspicious destination, size of transfer or frequency of transfers). They may monitor patterns of transfers they believe to be suspicious and adapt current anti-fraud practices required by federal and state law and their own practices to address their concerns. Moreover, as the commentary to the Final Rule noted, the CFPB staff acknowledged that industry is in a better position to confirm the accuracy of account numbers and names and to bear any loss. 7 Moreover, in the Supplemental Information in the NPRM, the CFPB staff note that even the industry considers as generally rare situations where funds are deposited into the wrong account because of sender error regarding the account number and they cannot be retrieved despite reasonable attempts to do so by the RTP. 8 Appleseed believes that the Final Rule itself contains protections for the industry in the case of fraud. However, once the Final Rule is in effect, the industry may indeed find it is vulnerable to new fraud schemes. At this time, Appleseed believes that the industry has yet to demonstrate that its concerns over fraud merit changing the remedial structure of the rule and that no changes are necessary at this time. The CFPB should collect from RTPs quarterly information on (i) how many mismatches involving incorrect account numbers provided by the sender occurred, (ii) to what jurisdictions these mismatched remittances were sent, (iii) the dollar amount of each mismatched remittance, (iv) whether the RTP was able to retrieve the funds sent to the incorrect account, and (v) how many of these mismatches were the result of fraud. In this way, the CFPB will be able to determine if additional regulatory action is required. Should the CFPB determine to make a change at this time, as an alternative, unlike the NPRM, credit to the wrong account due to the accountholder providing the wrong account number still could be considered to be an error; it would just be the remedial measure that would be different if the four conditions were satisfied. Again, here may be an opportunity for the private sector to develop data matching capabilities to isolate these problems. D. While Appleseed agrees that all fees imposed as a result of a remittance being credited to a customer s accounts need not be considered related to the transaction, there should be close scrutiny to ensure that true transaction-related fees are not re-characterized as account fees so as to avoid the disclosure requirement. The NPRM would provide increased flexibility and guidance with respect to the disclosure of fees imposed by a recipient's institution for receiving a remittance transfer in an account. We appreciate the wide variety of practices as to account fees and the CFPB s careful parsing of various scenarios to distinguish between remittance-transaction fees and account fees. Appleseed is concerned over two features of the NPRM s treatment of account fee disclosure.
This provision should not create a loophole such that certain remittance fees are re-labeled as account fees, and thus not subject to disclosure. Appleseed believes that Congress and the CFPB intend for RTPs to make arrangements with recipient institutions to secure recipient cost information. If depository institutions fail to adapt their practices to secure this information, they will be at a disadvantage in competing for remittance business when other institutions are providing to senders more detailed cost information which gives the sender a more accurate idea of the amount to be received by the recipient. We further believe it is time for depository institutions to develop protocols to require that receiving institutions provide fee information to the sending institution, or that the sender cap the amount of extra fees that may be imposed down-stream in open-loop systems. We know that institutions seeking to receive remittance deposits are changing their protocols to disclose fees, in line with Section 1073 s requirement that such fees be disclosed. And continuing to receive these funds is in the receiving banks best business interest. At the same time, we recognize, with the CFPB, that open-loop systems make it harder to distinguish remittance charges from account charges. We think the CFPB has generally struck the right balance in offering guidance as to what is an account charge and what is a remittance charge. Obviously, remittance senders cannot be expected to learn all the possible account charges for instance, charges on activity of more than five transactions a month that might possibly be triggered by receipt of a remittance and disclose those charges. We have no objection to clarifications that such genuine account charges, often imposed at the end of a month, are outside the scope of the rule. We do not view these clarifications as exemptions. As with the name-account number mismatch, Appleseed believes that the industry must provide more specific data demonstrating that there is a problem, and the CFPB should establish requirements to collect this information from the industry. The CFPB can then evaluate the data collected to determine whether adjustment is necessary. E. Any exemptions granted by the CFPB as proposed should be brief and temporary and not permanent. In the NPRM, the CFPB is proposing permanent exemptions from compliance from some of the requirements in the Final Rule. Appleseed opposes these permanent exemptions. If the CFPB goes forward with any of the exemptions proposed, Appleseed believes that any exemptions proposed in this NPRM should be brief and temporary to comport with the intent of the law. In any action, the CFPB should assume that the industry ultimately will follow the original rule and that the industry will evolve to such an extent that there will be no continuing need for the exemptions. It would appear easier to extend expiring temporary exemptions than affirmatively seek to repeal a permanent exemption.
F. The CFPB should take an active role in industry and consumer education regarding remittances. Finally, Appleseed believes that the key to good compliance is education of the industry and the consumer from the outset. We appreciate that the CFPB is conducting webinars and conference calls and appearing at events to help industry understand and comply with the new regime. As practices, protocols and databases are being developed to provide consumers with information about their transactions, the CFPB can play an important role in nudging industry towards best practices and allaying misplaced or exaggerated concerns. The work of implementing Section 1073 is vitally important to fair treatment of consumers, particularly immigrants whose finances span national boundaries. We strongly encourage the government to continue to play an active role in business and consumer education in this important new area. Appleseed would be pleased to work with the CFPB to develop appropriate materials and sponsor venues where industry and consumers can interact with the CFPB. Again, Appleseed thanks the CFPB for the opportunity to provide comments on the NPRM. Appleseed is happy to meet with the CFPB at any time to discuss these important issues further. Please feel free to call Betsy Cavendish, President, at 202-347-7960 or BCavendish@appleseednetwork.org or Annette LoVoi, Director, Financial Access and Asset Building Program, at 512-542-9082 or alovoi@appleseednetwork.org Respectfully submitted, Betsy Cavendish President Annette LoVoi Director, Financial Access and Asset Building Program