By Brad Banyas and Dominic Suszek, OMI
Member Communication is Key to Compliance
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act became law. Many of the details were unclear when Dodd-Frank was enacted two years ago. But today it is clear that the core principles of consumer protection embedded in Dodd-Frank are setting the direction for the financial services industry. Financial institutions that don’t take an aggressive approach to compliance may be at risk of being left behind.
The Remittance Transfer Rule
Consumers in the United States send billions of dollars abroad each year. These transactions are referred to as “remittance transfers” and are subject to a new Dodd-Frank rule that takes effect on February 7, 2013. The remittance transfer rule requires companies that provide remittance transfers to give their customers certain disclosures and establishes cancellation and error resolution procedures. Many consider the remittance transfer rule to be the most complex piece of legislation seen in the banking industry in modern times. Indeed, not since Regulation CC in 1987 has there been such an intricate redefinition of banking terms affecting consumers.
The remittance transfer rule applies to most international remittance transfers sent by people or companies regardless of the purpose of the transaction. As a result, the rule impacts all segments of the financial services industry — from commercial banks to private equity funds – that execute 100 remittance transfers or more per calendar year. But it’s not just banks that must be in compliance; consumers must be in compliance as well. Remittance transfers over $15 requested by consumers in the United States and sent to people or companies in foreign countries are also affected.
The rule affects the following:
- Electronic wire transfers
- Outgoing international ACH transactions
- Online bill payments that a sender schedules in advance as long as they are sent by a person to a party located in a foreign country
- Transactions originated by money transmitters
- Additions of funds to prepaid cards, and mobile device transfers.
The remittance transfer rule has a number of disclosure requirements that will add complexity and cost for most financial institutions, especially when it comes to the creation and management of customer correspondence. New disclosure requirements include a prepayment disclosure at the time the person initiates the transfer transaction and a written receipt within a twenty-four hour period after the transaction is processed. These resulting customer documents can be sent by regular mail or via email as long as the consumer is able to print and retain the disclosure. Oral disclosures are permitted only if the transaction is conducted entirely by telephone. There are further disclosure requirements and exemptions for transactions originated by mobile devices.
One example of how the Dodd-Frank remittance transfer rule impacts customer documents is found with a pre-payment disclosure. This disclosure must be provided to a sender when any remittance transfer is requested. The disclosure must be clear and conspicuous, and adhere to specific formatting requirements set by the Consumer Financial Protection Bureau. Each disclosure document must include the following information:
- Electronic wire transfers
- Transfer Amount
- Transfer Fees
- Transfer Taxes
- Total Amount of the transaction
- The sum of the transfer amount plus fees and taxes imposed to the sender
- Other Fees
- Other Taxes
- Total to Recipient. The transfer amount less other fees and other taxes imposed to the recipient.
- Exchange Rate applicable to foreign currency transfers rounded to the nearest 1/100 of a decimal point
These pre-payment disclosures are required to be accurate at the time prior to the sender paying for the transfer.
A receipt disclosure is another example of changing customer communications requirements under the Dodd-Frank remittance transfer rule. A receipt disclosure must be provided to the sender once the payment has been made regardless of whether the payment is made in cash, check, or charged to the sender’s account. The receipt must include the following information:
- Date the funds will be available to the recipient
- Information on recipient
- Statement of sender’s right to cancel and error resolution rights
- Provider’s information
- Statement regarding the provider’s licensing and regulatory agencies
The receipt must also tell consumers the date when the money will arrive, in addition to other specific information.
Meeting these disclosure requirements are the cornerstone to compliance with the Dodd-Frank remittance transfer rule. As a result, banks, credit unions and other financial institutions must consider the implications to the systems that support their customer communications. Proper compliance software and strategies are needed. Organizations that file to consider the practical implications to their customer communications — and the systems used to create and manage those communications — run the risk of not only being out of compliance but also incurring additional risk and unnecessary expense.