THE NEW REGULATORY FRAMEWORK FOR REMITTANCE TRANSFERS UNDER THE DODD-FRANK ACT

Vol. 28 No. 6 June 2012 THE NEW REGULATORY FRAMEWORK FOR REMITTANCE TRANSFERS UNDER THE DODD-FRANK ACT The Consumer Financial Protection Bureau has issued a final rule, as mandated by the Dodd-Frank Act, requiring remittance transfer providers to give detailed disclosures to consumers that initiate cross-border transactions. While the final rule includes provisions regarding exceptions to these detailed disclosure requirements and the use of estimates in certain cases, the ability to rely on such exceptions and estimates is very limited. The final rule also gives consumers cancellation and error resolution rights. Concurrent with the final rule, the Bureau issued a second proposed rule, which seeks to refine certain aspects of the final rule. The authors review the final rule and the issues left open by the proposed rule, and outline steps providers will need to take to secure compliance. By Christina A. LaVera and Stephen Krebs * The Consumer Financial Protection Bureau ( Bureau ) recently issued its first final rule (the Final Rule ), which implements Section 1073 of the Dodd-Frank Act. 1 Section 1073 of the Dodd-Frank Act amended the Electronic Fund Transfer Act ( EFTA ) by adding a new Section 919 entitled Remittance Transfers. This section creates protections for U.S. consumers who send remittance transfers to recipients in foreign countries. The Final Rule implements the consumer protections provided for in Section 1073 by, among other things, mandating that financial institutions give senders of remittance transfers detailed disclosures of certain specified data related to the transfer. Financial institutions that send remittance transfers must also adhere to a new error resolution scheme and are subject to liability for their own acts, the acts of their agents, 1 Electronic Fund Transfers (Regulation E), 77 Fed. Reg. 6194 (Feb. 7, 2012). and, in some cases, acts of consumers. In addition, the Final Rule provides senders with the right to cancel a remittance transfer and the right to a refund in certain circumstances. The Final Rule is substantially similar to although not identical to the proposed rule that was issued in May 2011 (the First Proposed Rule ). 2 Notably, the First Proposed Rule was issued not by the Bureau, but by the Board of Governors of the Federal Reserve ( Board ) prior to the date the Bureau came into existence. When the Bureau was officially established on July 21, 2011, the authority to promulgate rules under the EFTA and its implementing regulation, Regulation E, transferred to the Bureau (along with a range of other consumer protection rules). 2 Electronic Fund Transfers, 76 Fed. Reg. 29902 (May 23, 2011). CHRISTINA A. LAVERA is counsel to and STEPHEN KREBS is an associate at Alston & Bird LLP in Washington, D.C. Their practice covers the full range of federal and state banking, and financial regulatory matters. Their e-mail addresses are christina.lavera@alston.com and stephen.krebs@alston.com. IN THIS ISSUE REMITTANCE TRANSFERS AFTER THE DODD-FRANK ACT June 2012 Page 61

RSCR Publications LLC Published 12 times a year by RSCR Publications LLC. Executive and Editorial Offices, 2628 Broadway, Suite 29A, New York, NY 10025-5055. Subscription rates: $650 per year in U.S., Canada, and Mexico; $695 elsewhere (air mail delivered). A 15% discount is available for qualified academic libraries and full-time teachers. For subscription information and customer service call (866) 425-1171 or visit our Web site at www.rscrpubs.com. General Editor: Michael O. Finkelstein; tel. 212-876-1715; e-mail mofinkelstein@hotmail.com. Associate Editor: Sarah Strauss Himmelfarb; tel. 301-294-6233; e-mail shimmelfarb@comcast.net. To submit a manuscript for publication contact Ms. Himmelfarb. Copyright 2012 by RSCR Publications LLC. ISSN: 1051-1741. Reproduction in whole or in part prohibited except by permission. All rights reserved. Information has been obtained by The Review of Banking & Financial Services from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, The Review of Banking & Financial Services does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions, or for the results obtained from the use of such information. In concert with its issuance of the Final Rule, the Bureau issued an additional proposed rule seeking further public comment regarding discrete areas within the Final Rule (the Second Proposed Rule ). 3 Because the Second Proposed Rule has yet to be finalized, a number of open issues remain with respect to the scope and requirements of the Final Rule. Despite these open issues, the Final Rule is scheduled to take effect on February 7, 2013. This article provides an overview of the Final Rule, outlines the contents of the Second Proposed Rule (including the associated open issues), and discusses practical implications regarding the new remittance transfer requirements. BACKGROUND Every year, consumers in the United States send tens of billions of dollars in remittance transfers to recipients in foreign countries. 4 The term remittance transfer typically refers to payments originated by immigrants who send money to their families in their home countries. 5 However, as noted in the Final Rule, consumer-initiated foreign transfers can be made by any consumers in the U.S., not just immigrants. 6 According to the World Bank, global remittance flows exceeded $440 billion in 2010. 7 These transfers can be made using a variety of channels, although the Final Rule noted that most remittance transfers are made through non-depository money transmitters and wire transfers at depository institutions. 8 Remittance transfers may also be made through other means, including through credit or debit card transactions, through an Automated Clearing House ( ACH ) debit to a consumer s bank 3 Electronic Fund Transfers, 77 Fed. Reg. 6310 (Feb. 7, 2012). 4 77 Fed. Reg. 6194 95. 5 Board of Governors of the Federal Reserve, Report to the Congress on the Use of the Automated Clearinghouse System for Remittance Transfers to Foreign Countries (July 2011), available at http://www.federalreserve.gov/boarddocs/ rptcongress/ach_report_201107.pdf. 6 77 Fed. Reg. 6194. 7 Board of Governors, Report to the Congress, supra note 5. 8 77 Fed. Reg. 6194, 6195. account, or by sending prepaid cards to recipients abroad. Prior to the Dodd-Frank Act, remittance transfer transactions were generally excluded from federal consumer protection laws. Accordingly, Section 1073 was included in the Dodd-Frank Act to establish minimum protections for remittances sent by consumers in the United States to other countries and specifically to protect immigrants who send substantial portions of their earnings to family members abroad. 9 Notably, the Senate Report on the bill that became the Dodd-Frank Act states that these senders of remittance transfers face significant problems with their remittance transfers, including being overcharged or not having the funds reach intended recipients. 10 THE FINAL RULE Scope and Key Terms Prior to the enactment of the Dodd-Frank Act and issuance of the Final Rule, the term remittance transfer was traditionally understood to mean a cross-border, consumer-to-consumer payment of relatively low value. 11 By contrast, Section 1073 and the Final Rule define the term remittance transfer more expansively than this traditional definition. Specifically, the Final Rule defines the term remittance transfer to mean the electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider. 12 9 S. Rep. 111-176, at 179 (2010), available at http://www.gpo.gov /fdsys/pkg/crpt-111srpt176/pdf/crpt-111srpt176.pdf. 10 Id. 11 The Board acknowledged in the preamble to the First Proposed Rule that traditional remittance transfers often consist of consumer-to-consumer payments of low monetary value. 76 Fed. Reg. 29902. Furthermore, in its report to Congress on the use of the ACH system for remittance transfers to foreign countries, the Board noted that the majority of sources that compile data on remittance transfers focus on transactions that meet this definition. Board of Governors, Report to the Congress, supra note 5. 12 12 C.F.R. 1005.30(e)(2). The Final Rule only includes narrow exceptions from coverage for (1) small value transfers June 2012 Page 62

The term sender is defined to mean 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. The term designated recipient is defined to mean any person specified by the sender as the authorized recipient of a remittance transfer to be received at a location in a foreign country. The Final Rule imposes a range of compliance obligations on remittance transfer providers (or providers ). The term remittance transfer provider is defined to mean 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. 13 As these broad definitions, and the preamble and commentary to the Final Rule make clear, Section 1073 of the Dodd-Frank Act and the Final Rule cover the vast majority of consumer-initiated electronic funds transfers (including wire and ACH transactions) that originate in the U.S. and are sent to designated recipients in foreign countries, despite the fact that not all such transfers are remittance transfers within the traditional sense. 14 In fact, the Final Rule broadly applies to, among other things: (1) funds transfers, whether or not they are electronic funds transfers within the meaning of the EFTA; (2) all providers that satisfy the definitions outlined above regardless of whether the sender maintains an account with the provider; and (3) all crossborder transfers initiated in the U.S. by a consumer to be sent outside of the U.S. (regardless of whether the recipient is a business or natural person); and (4) all such transfers in any amount over $15 (rather than to transfers of relatively low value). Required Disclosures The Final Rule requires remittance transfer providers to give senders of remittance transfers detailed footnote continued from previous page of $15 or less and (2) transfers made for the purpose of purchasing or selling securities or commodities. 13 Id. 1005.30(f). The commentary to the Final Rule contains a facts and circumstances test for determining whether a provider provides remittance transfers for a consumer in the normal course of its business. In the Second Proposed Rule, the Bureau proposed to add a safe harbor 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. 14 12 C.F.R. 1005.30(e)(1). disclosures about the transfer both before and after the transfer. Specifically, a provider must give a sender a written prepayment disclosure when the sender requests the transfer, but prior to payment for the transfer. 15 In general, the provider must also give the sender a written receipt when payment is made for the transfer. 16 As an alternative, a provider may give the sender (at the time the prepayment disclosure is required) a single, combined disclosure containing the information that must be included on both the prepayment disclosure and receipt. 17 The prepayment disclosure must contain, as applicable: the transfer amount (in the currency in which the transfer is funded); fees and taxes imposed by the provider; the total amount of the transaction (in the currency in which the transfer is funded); the exchange rate; the transfer amount (in the currency in which the funds will be received by the designated recipient); other fees and taxes (i.e., those imposed on the transfer by a person other than the provider); and the total amount that will be received by the designated recipient (in the currency in which the funds will be received). 18 In most cases, the prepayment disclosure must be provided to the sender when the sender requests the remittance transfer, but prior to payment for the transfer. 19 The written receipt must contain: the information that must be included in the prepayment disclosure; 15 Id. 1005.31(e)(1). 16 Id. 1005.31(e)(2). Separate timing requirements apply if the transaction is conducted entirely by telephone or if the transfer is a preauthorized transfer. Id. 1005.31(e)(2); 1005.36(a). 17 Id. 1005.31(b)(3). 18 Id. 1005.31(b)(1). 19 Note that separate timing requirements apply to preauthorized remittance transfers. See Transfers Scheduled in Advance infra. June 2012 Page 63

the date the funds will be available to the designated recipient; the name of (and, if provided, contact information for) the designated recipient; a statement about the sender s error resolution and cancellation rights; the name of and contact information for the remittance transfer provider; and a statement that the sender may contact the state agency that licenses or charters the remittance transfer provider and the Consumer Financial Protection Bureau, along with relevant contact information. 20 In most cases, the receipt disclosure must be provided to the sender when payment is made for the remittance transfer, although different timing/delivery rules apply to transfers conducted entirely by phone, as well as transfers conducted entirely by phone where the sender has an account with the remittance transfer provider. 21 As noted above, the combined disclosure must contain information required to be included in both the prepayment disclosure and receipt disclosure, and must be provided to the sender when the sender requests the remittance transfer, but prior to payment for the transfer. The disclosure requirements outlined above create a range of compliance challenges for certain financial institutions due to the operational realities of current international funds transfer systems. For example, many institutions use open networks to send transfers to unaffiliated institutions in foreign countries. Within open networks, funds are transferred from the sending institution to a recipient institution through a network of correspondent and intermediary institutions. A remittance transfer provider that sends a remittance transfer through an open network system often has limited control over and limited access to information regarding the transaction because intermediary institutions along the transmittal route typically have no direct relationship with the sending institution and, at present, no obligation to provide rate, fee, and tax information that is necessary to inform the disclosures required by the Final Rule. 20 12 C.F.R. 1005.31(b)(2). 21 Note that separate timing requirements apply to preauthorized remittance transfers. See Transfers Scheduled in Advance infra. Notably, the preamble to the Final Rule acknowledges that the disclosures required by the Final Rule may pose a particular challenge for providers that send transfers through open networks. The preamble expressly states that the Bureau is aware 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 and for these providers, as well as their operating partners, compliance may require modification of current systems, protocols, and contracts. Exceptions and Estimates The Final Rule provides two limited exceptions that permit certain providers to disclose estimates rather than exact amounts: a temporary exception for insured depository institutions and a permanent exception for transfers to certain countries. The temporary exception permits a provider to disclose estimates of certain information (the exchange rate, the transfer amount, other fees and taxes, and total to recipient) if: a provider cannot determine exact amounts for reasons beyond its control (such as when the exchange rate is set by a person with which the insured institution has no correspondent relationship after the insured institution sends the remittance transfer); a provider is an insured institution; 22 and the remittance transfer is sent from the sender s account with the insured institution. 23 Although the temporary exception was designed to alleviate some of the compliance challenges this new disclosure regime poses, notably, it expires on July 21, 2015. 24 Thus, once it expires, providers will be required to disclose actual amounts as opposed to estimates, unless they qualify for the permanent exception (and unless the Bureau exercises its authority to extend the temporary exception for five years). 22 For purposes of this exception, insured institution means insured depository institutions (which includes uninsured U.S. branches and agencies of foreign depository institutions) as defined in Section 3 of the FDIC Act, and insured credit unions as defined in Section 101 of the Federal Credit Union Act. 23 12 C.F.R 1005.32(a). 24 Section 1073 gives the Bureau the authority to extend the temporary exception for an additional five years (through July 21, 2020) if it determines that termination of the exception would negatively affect the ability of insured institutions to send remittances to foreign countries. June 2012 Page 64

The permanent exception permits a provider to give estimates of certain items when it cannot determine the exact amounts at the time the disclosure is required because: the laws of the recipient country do not permit such a determination, or the method by which transactions are made in the recipient country does not permit such determination. 25 The Bureau has interpreted the method exception to apply only to remittances sent via international ACH on terms negotiated by the U.S. government and the government of a recipient country where the exchange rate is set by the recipient country s central bank after the transfer is sent. The Bureau indicated in the preamble to the Final Rule that it expects to publish a safe harbor list of countries that qualify for the permanent exception, but has not yet done so. A provider that qualifies for either the temporary or permanent exception must comply with certain specified approaches for calculating estimates. 26 Cancellation and Error Resolution The Final Rule generally gives consumers the right to cancel a transfer within 30 minutes of making payment for the transfer. 27 The two conditions on this right set forth in the Final Rule are (i) the sender s oral or written request to cancel must enable the provider to identify the sender and the particular transfer to be cancelled and (ii) the transferred funds must not have been picked up by or deposited into the account of the designated recipient. If these two conditions are satisfied, providers are required to refund to the sender the total amount provided by the sender in connection with the transfer. 28 Providers must make this refund at no additional cost to the sender and must do so within three business days of receiving the request. 29 The Final Rule also requires a provider to investigate and remedy an error if it receives notice of the error no 25 Id. 1005.32(b). 26 12 C.F.R. 1005.32(c). 27 Id. 1005.34(a). Note, however, that the 30-minute cancellation period described in 1005.34(a) does not apply to remittance transfers scheduled at least three business days before the date of the transfer. Id. 1005.36(c). See Transfers Scheduled in Advance infra. 28 Id. 1005.34(b). 29 Id. later than 180 days after the disclosed date of availability of the transfer and certain other conditions are met (such as the notice of error enables the provider to identify the sender, the recipient, and the transfer to which the notice of error applies). 30 The Final Rule defines error to include: an incorrect amount paid by a sender in connection with a remittance transfer; a computational or bookkeeping error made by the provider relating to a remittance transfer; the failure to make available to a designated recipient the amount of currency stated in the receipt or combined disclosures, unless (i) the disclosure stated an estimate and the difference results from the application of the actual amounts rather than estimated amounts or (ii) the failure resulted from extraordinary circumstances outside the provider s control that could not have been reasonably anticipated; the failure to make funds available to a designated recipient by the date of availability stated in the receipt or combined disclosure, unless the failure resulted from (i) extraordinary circumstances outsider the provider s control that could not have been reasonably anticipated; (ii) delays related to fraud, BSA, OFAC, or other similar screening; or (iii) the transfer being made with fraudulent intent by the sender or any person acting in concert with the sender; or the sender s request for documentation (required by the disclosure provisions of the Final Rule), or for additional information or clarification concerning a transfer, including a request to determine whether an error exists. 31 The provider must investigate and determine whether an error occurred within 90 days of receiving a notice of error and report the results to the sender, including notice of any remedies available, within three business days after completing its investigation. 32 A provider is also required to correct the error as designated by the sender in accordance with the remedy provisions contained in the Final Rule. These remedies include refunding to the sender the amount of funds provided by the sender in connection with a transfer that was not properly transmitted (or the amount appropriate to 30 Id. 1005.33(b)(1). 31 Id. 1005.33(a)(1). 32 Id. 1005.33(c)(1). June 2012 Page 65

resolve the error) or making available to the designated recipient, without additional cost to the sender or designated recipient, the amount appropriate to resolve the error. 33 There is a specific provision of the Final Rule applicable to situations in which a provider fails to make funds available to the designated recipient by the disclosed date of availability. Under these circumstances the provider must, as applicable, either (i) give the sender a refund or (ii) make available to the designated recipient the amount appropriate to resolve the error without additional cost to the sender or to the designated recipient. 34 This means that in some circumstances a provider may be required to resend the transfer at no additional cost to the sender or the designated recipient. If, however, the sender provided incorrect or insufficient information to the provider in connection with the transfer, the provider may impose third-party fees for resending the transfer with the corrected or additional information (although the provider may not require the sender to pay the principal transfer amount again). 35 With respect to this type of error, a provider is also required to refund to the sender any fees and, to the extent not prohibited by law, taxes imposed for the remittance transfer, unless the sender provided incorrect or insufficient information to the provider in connection with the transfer. The Final Rule also makes providers liable for any violation of the Final Rule by an agent when the agent acts for the provider. 36 Transfers Scheduled in Advance The Final Rule contains modified requirements for preauthorized remittance transfers. A preauthorized remittance transfer is defined to mean a remittance transfer authorized in advance to recur at substantially 33 Id. 1005.33(c)(2). In the case of a sender s request for documentation or for additional information or clarification concerning a transfer, including a request to determine whether an error exists, the provider must provide the requested documentation, information, or clarification. 34 Id. 1005.33(c)(2)(ii). 35 Id. Furthermore, when this type of error has occurred, the provider must also refund to the sender any fees and (to the extent not prohibited by law, taxes) imposed for the transfer, unless the sender provided incorrect or insufficient information to the provider in connection with the transfer. Id. 1005.33(c)(2)(ii)(B). 36 Id. 1005. 35. regular intervals. 37 Notably, however, these requirements are subject to change as a result of the Second Proposed Rule, which is discussed in more detail below. For the first in a series of preauthorized transfers, a provider must provide the prepayment disclosure and receipt in accordance with the general timing requirements for all remittance transfers (i.e., when the sender requests the transfer, but prior to payment for the transfer, and when payment is made for the transfer, respectively). 38 For subsequent transfers in a series, the prepayment disclosure must be mailed or delivered within a reasonable time prior to the scheduled date of the transfer. 39 Furthermore, the receipt must be mailed or delivered to the sender no later than one business day after the date on which the transfer is made. 40 If the transfer involves the transfer of funds from the sender s account held by the provider, the receipt may be provided on or with the next regularly scheduled periodic statement for the account, or within 30 days after payment is made if a periodic statement is not provided. 41 In addition, the Final Rule provides that for remittance transfers scheduled by the sender at least three business days before the date of the transfer, a provider must comply with a request to cancel that is received at least three business days before the scheduled date of the transfer. 42 THE SECOND PROPOSED RULE As noted above, the Bureau issued a separate notice simultaneously with the Final Rule seeking additional input with respect to discrete issues within the Final Rule. In particular, the Second Proposed Rule sought comment on two primary areas: (1) how to set the parameters of a safe harbor from coverage for those providers that are not engaged in providing remittance transfers in the normal course of business; and (2) how to address a range of issues that relate to remittance transfers that are scheduled by a consumer in advance of the transfer date. 43 Each of these topics is discussed 37 Id. 1005. 30(d). 38 Id. 1005. 36(a)(1). 39 Id. 1005. 36(a)(2). 40 Id. 41 Id. 42 Id. 1005. 36(c). As with transfers that are not scheduled in advance, the request to cancel must also enable the provider to identify the sender s name and address or telephone number, and the particular transfer to be cancelled. 43 77 Fed. Reg. 6310 (Feb. 7, 2012). June 2012 Page 66

below. Comments were due on the Second Proposed Rule on April 9, 2012, and the Bureau has not yet issued a final rule that corresponds to the Second Proposed Rule. Safe Harbor As noted above, the Final Rule defines the term remittance transfer provider to mean 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. Comment 30(f)-2 to the Final Rule provides for a facts-andcircumstances test in determining if an entity is engaged in the normal course of business, which includes, among other factors, the total number and frequency of remittance transfers sent by the provider. In the Second Proposed Rule, the Bureau seeks to revise Comment 30(f)-2 to adopt a bright-line test to determine if someone is engaged in providing remittance transfers in the normal course of business. Under this test, persons that have provided no more than 25 remittance transfers in the previous calendar year will not be deemed to be providing remittance transfers in the normal course of business for the current calendar year if the person provides no more than 25 remittance transfers in the current calendar year. In addition, the Second Proposed Rule seeks to further revise Comment 30(f)-2 to make clear that if that person makes a 26th remittance transfer in the current calendar year, the person would be evaluated under the facts-and-circumstances test to determine whether that person is a remittance transfer provider for that transfer and any other transfers provided through the rest of the year. Thus, the final version of the Second Proposed Rule could result in a change to the way in which institutions determine whether they are remittance transfer providers subject to Section 1073 and its implementing regulations. However, in light of the low threshold offered under the Second Proposed Rule, it is unlikely that this safe harbor would offer much relief to institutions that provide consumer-initiated, cross-border transfers. Transfers Scheduled in Advance As outlined above, the Final Rule includes specific provisions for remittance transfers that are scheduled in advance to recur at substantially regular intervals. These provisions include tailored disclosure and cancellation requirements. The Second Proposed Rule sought additional input on how these tailored requirements might be modified to further ease compliance burdens associated with preauthorized remittance transfers. Specifically, the Second Proposed Rule solicited comment regarding, among other things: whether use of estimates should be permitted in the prepayment disclosure and receipt in the following two circumstances: (i) a consumer schedules a onetime 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; whether a provider that uses estimates in the prepayment disclosure and receipt 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; and whether possible refinements to the disclosure rules applicable to subsequent preauthorized remittance transfers should be established. In particular here, the Second Proposed Rule solicited comment on two alternative approaches to the disclosures rules for subsequent preauthorized remittance transfers: (i) whether the prepayment disclosure requirement should be retained for each subsequent transfer, but with a safe harbor interpreting the within a reasonable time standard for providing this disclosure, or (ii) whether the Bureau should instead eliminate the prepayment disclosure requirement for each subsequent transfer. The Second Proposed Rule also solicited comment on whether the Bureau should adopt changes to the cancellation requirements for certain remittance transfers that a sender schedules in advance, including preauthorized remittance transfers. That is, under the Final Rule, transfers scheduled in advance may be cancelled if the sender gives notice to the provider at least three business days prior to the scheduled transfer (provided that the transfer itself was scheduled at least three days in advance). The Second 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 Second Proposed Rule seeks additional input with respect to three issues related to the disclosure of the deadline to cancel as set forth in the Final Rule: June 2012 Page 67

whether the three-business-day deadline to cancel transfers scheduled in advance should be disclosed more clearly to consumers, such as by requiring a provider to disclose in the receipt the specific date the deadline to cancel will expire; 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 whether the deadline to cancel should be disclosed in the prepayment disclosure for each subsequent transfer, rather than in the receipt given for each subsequent transfer. As demonstrated by the many areas regarding preauthorized remittance transfers addressed in the Second Proposed Rule, there remain a wide range of open issues for these types of transfers. Accordingly, a great many details are subject to change for remittance transfers scheduled in advance, which makes it difficult for financial institutions to begin developing compliance systems for these types of transfers. OBSERVATIONS AND PRACTICAL CONSIDERATIONS Institutions covered by the Final Rule will need to modify current systems, protocols, and contracts in order to comply with these new requirements. In addition to the challenges associated with disclosing the information that must be disclosed under the Final Rule, another consequence of the new remittance transfer regime may be legal uncertainty for institutions that provide international wire transfer services to consumers. In particular, UCC Article 4A contains a well-established legal framework that determines the respective rights and obligations of the parties to a wire transfer. However, 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. Because international wire transfers initiated by consumers will be governed in part by the EFTA (as a result of Section 1073 and the Final Rule), UCC 4A will no longer apply to those transfers. The Final Rule does not address the interbank rights and obligations set forth in UCC 4A that have traditionally governed the liability of financial institutions involved in a wire transfer. Accordingly, certain rights and obligations among financial institutions that are parties to a wire transfer that is also a remittance transfer may be undefined when the Final Rule takes effect on February 7, 2013. Moreover, given the broad scope of the Final Rule beyond the traditional understanding of remittance transfer transactions, implications will be far-reaching. Ensuring compliance by the Final Rule s effective date will require significant time and effort, and may warrant a range of measures, including: revisions to existing policies, procedures, and practices to ensure overall compliance with the Final Rule, including adequate supervisory oversight and resource allocation, employee training, ongoing compliance monitoring, updates to the compliance program as needed, and third-party oversight (which may warrant changes to vendor management processes); review of current disclosures and disclosure practices, and incorporation of the new remittance transfer disclosures into that process; review of and revisions to processes for disclosing exchange rates and estimating foreign currency amounts to be transferred across business line; establishment of new error resolution procedures to comply with the Final Rule s requirements and integration of those error resolution procedures within the institution s existing error resolution processes; and evaluation and, where necessary, renegotiation of agreements with third parties to ensure sufficient information flow to accomplish the disclosure obligations. Given the breadth and depth of modifications that are likely to be necessary to comply with the Final Rule, we recommend institutions begin developing compliance systems as early as possible. June 2012 Page 68