Remittance Transfer Rule: Depository Institution Exemption

Remittance Transfer Rule: Depository Institution Exemption
Ted Teruo Kitada
Senior Company Counsel
Emerging Payment Systems American Conference Institute Washington Plaza Hotel September 22-23, 2014

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Background
On April 15, 2014, the Consumer Financial Protection Bureau issued a press release in connection with a proposed change to the remittance transfer rule (the “Rule,” Regulation E, subpart B) to extend the insured depository institution temporary exemption to July 21, 2020.
79 Fed.Reg. 23234 (April 25, 2014).
The Bureau additionally proposed several amendments and technical corrections to the Rule.
On August 22, 2014, the Bureau issued the final amendments to the Rule.

Temporary insured depository institution exemption
The Rule generally requires that prepayment, receipt, and combined disclosures must provide, among other things, the Transfer Amount; Transfer Fees and Transfer Taxes; Total; Exchange Rate; Transfer Amount; Other Fees (covered third party fees); and Total to Recipient. Regulation E §§ 1005.31(b)(1)(i)-(vii).
Under a temporary exemption under § 1005.32(a), as to the Exchange Rate, an estimate may be provided by a remittance transfer provider if:
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Temporary insured depository institution exemption
A provider cannot determine an exact amount for reasons beyond its control;
A provider is an insured institution; and
The remittance transfer is sent from the sender’s account with the institution.
“Insured institution” means an insured depository institution.
This exemption expires on July 21, 2015.
The final rule extends the sunset date to July 21, 2020.
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Broker-dealer as an insured institution
Staff of the Securities and Exchange Commission (“SEC”) issued a no-action letter on December 14, 2012, concluding it will not recommend enforcement actions to the SEC under Regulation E if a broker-dealer provides disclosures as though the broker-dealer were an insured institution for purposes of the temporary exception. The letter is available at: http://www.sec.gov/divisions/marketreg/mr- noaction/2012/financial-information-forum- 121412-rege.pdf
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Clarifying and technical changes

U.S. military installations abroad
The Rule applies only when a sender located in a “state” sends funds to a designated recipient at a location in a “foreign country.” §§ 1005.30(c) and (g).
Receipt of funds at a location in a foreign country depends on whether the funds are received at a location physically outside of any state. Comment 30(c)-2.i.
In the case of a remittance transfer to or from an account, the Rule looks to the location of the account rather than an account owner’s physical location at the time of transfer. Comments 30(e)-2.ii (regarding the definition of “designated recipient”) and 30(g)-1 (regarding the definition of “sender”).
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As of 2010, the U.S. had 662 military installations in 90 foreign countries.
Many of these installations host financial institutions (depository institutions, credit unions, and agents of nonbank a money transmission business) that provide services, including electronic transfer of funds.
Depending on whether the financial institution is deemed to be at a location in a “foreign country” or a “state,” the Rule may or may not apply. How should we treat a financial institution located on these foreign installations under the Rule?
There may be a question as to whether the Rule applies when a transfer is sent from an account in the U.S. to an account located at a military installation abroad.
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There may be a question whether a cash transfer from a consumer on a foreign military installation to a recipient in the surrounding country would be covered by the Rule.
If a location on an installation is treated as located in a state for purposes of the Rule, those sending a remittance transfer from the U.S. to a location on an installation would not receive the consumer protections of the Rule.
On the other hand, those sending funds from a location on an installation to the surrounding foreign country would receive these protections.
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Of course, if a location on an installation is treated as located within a foreign country, the reverse would be true: a transfer from the U.S. would be covered, but transfers to the surrounding foreign country would not be.
Comment 30(c)-2(i), “Designated Recipient,” now provides in part: “If it is specified that the funds will be received at a location on a U.S. military installation that is physically located in a foreign country, the transfer will be received in a State.”
Comment 30(c)-2(ii), “Designated Recipient,” now provides in part: “Accounts that are located on a U.S. military installation that is physically located in a foreign country are located in a State.”
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Comment 30(g)-1, “Sender,” now provides in part: “A sender located on a U.S. military installation that is physically located in a foreign country is located in a State.”
Further, in the same comment: “Accounts that are located on a U.S. military installation that is physically located in a foreign country are located in a State.”
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In short, the Bureau determined “…that transfers to individuals and accounts located on U.S. military installation located abroad, as well as transfers from individuals and their accounts located on U.S. military installations abroad to designated recipients in the United States, should be excluded from the Remittance Rule’s application.” Supplementary information at page 28.
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Non-consumer accounts
The Rule only applies when the remittance transfer is requested by a consumer primarily for personal, family, or household purposes. See §§ 1005.30(e) and (g).
For a transfer funded from an account, is the purpose of a transfer determined by the purpose for which the account was established?
Comment (30)(g)-2 explains that for a transfer from an account that was established for personal, family, or household purposes, a remittance transfer provider may generally deem that the transfer is requested for personal, family, or household purposes and the consumer is a sender.
But see supplementary information at 79 Fed.Reg. 23240 suggesting that the Rule covers transfers from an account primarily used for personal, family, or household purposes, but not from a non-consumer account.
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Non-consumer accounts
Also, see the following in the supplementary information in the amended Rule: “Second, the Bureau is clarifying that whether a remittance transfer from an account is for personal, family, or household purposes (and thus, whether the transfer could be a remittance transfer) may be determined by ascertaining the primary purpose of the account.” See page 3.
Also, see comment 30(g)-2, “Sender,” providing in part: “But if the consumer indicates that he or she is requesting the transfer primarily for other purposes, such as a business or commercial purposes, then the consumer is not a sender under § 1005.30(g), even if the consumer is requesting the transfer from an account that is used primarily for personal, family, or household purposes.”
Is the converse true?
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An account under a bona fide trust agreement
Regulation E, subpart A, excludes from coverage an account held under bona fide trust agreement.
Comment 30(g)-3, in part now provides: “Additionally, a transfer that is requested to be sent from an account held by a financial institution under a bona fide trust agreement pursuant to § 1005.2(b)(3) is not requested primarily for personal, family, or household purposes, and a consumer requesting a transfer from such an account is therefore not a sender under § 1005.30(g).”
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Written and electronic disclosures
Except the prepayment disclosure, the disclosures generally under subpart B must be provided in writing.
If a sender electronically requests the transfer, the prepayment can be provided electronically without compliance with E-Sign so long as the sender receives the information in retainable form and so long as the information is clear and conspicuous. §§ 1005.31(a)(1) and (2).
A sender may request a remittance transfer by sending a fax to a provider. Per an informal guidance by the Bureau, the provider may send the required prepayment, receipt, or combined disclosures or disclosures for transfers scheduled before the date of transfer by a return fax as a return fax generally is in paper form.
The Bureau is formally adopting this guidance through a new comment 31(a)-5.
A report of the results of an investigation where no error or a 16

Disclosures for oral telephone transactions
Section 1005.31(a)(3) permits providers to make prepayment disclosures orally if the “transaction is conducted orally and entirely by telephone” and if certain other language and disclosure requirements are met. §§ 1005.31(a)(3)(ii)-(iv).
A sender may make requests to a provider to send a remittance transfer in many forms (e.g., fax, email, or mailed letter or similar written or electronic communication).
Depending on the nature of the request and the location of the sender, to communicate with the sender by the same means of communication may be impractical because the sender is far away.
E.g., replying by letter to a mailed request for a transfer may impact disclosed Exchange Rate.
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Disclosures for oral telephone transactions
Under informal guidance, the Bureau had indicated that disclosures may be provided orally by telephone in cases where a transfer is first initiated by fax, mail, or email, if the disclosures for oral transactions are met. § 1005.31(a)(3).
The Bureau is providing through comment 31(a)(3)-2 that a remittance transfer provider may treat a written or electronic communication as an inquiry when it believes that treating the communication as a request would be impractical.
The initial communication is treated merely as an inquiry.
Conforming edits are made to comments 31(a)(3)-2 and 31(e)-1.
What if a provider authenticates a sender at a retail location prior to referring the sender to a telephone to conduct the transfer?
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Disclosure requirements-receipt
At Electronic Fund Transfer Act § 919(a)(2)(B)(ii)(II)(bb), appropriate contact information of the Bureau, including its website, must be include on a receipt.
The Bureau is in the process of creating a single page containing resources relevant to international money transfers at: www.consumerfinance.gov/sending-money.
The new above website may be disclosed in lieu of the Bureau’s website: www.consumerfinance.gov.
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Definition of error
One error under the Rule is 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 occurs due to certain enumerated reasons. § 1005.33(a)(1)(iv).
One of the listed reasons is for delays related to the remittance transfer provider’s fraud screening procedures or in accordance with the Bank Secrecy Act or Office of Foreign Asset Control, or similar laws or requirements.
Section 1005.33(a)(1)(iv)(B) is amended so that this reason would only apply to delays related to an individualized investigation or other special action by the provider or third party as required by the provider’s or third party’s fraud procedures or in accordance with the above laws.
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Definition of error
A new comment 33(a)-7 has been added.
A failure by a remittance transfer provider to deliver funds by a disclosed date of availability is not an error if such delay is related to a provider’s or any third party’s investigation necessary to address potentially suspicious, blocked, or prohibited activity, and the provider did not and could not have reasonably foreseen the delay so as to enable it to timely disclose an accurate date of availability when providing the sender with a receipt or combined disclosure, the exception would not apply.
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Time limits and extent of investigation
Where an identified error is for failure to make funds available to a designated recipient by the disclosed date of availability, § 1005.33(c)(2)(ii) grants the following remedy:
(1) permits a sender to choose either
(a) to obtain a refund of Transfer Amount, or an amount appropriate to resolve the error, or
(b) making available to the designated recipient the amount appropriate to resolve the error, at no additional cost to the sender or the designated recipient and
(2) a refund of any fees imposed and, to the extent not prohibited by law, taxes collected on the remittance transfer.
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If the error resulted from the sender giving the provider incorrect or insufficient information, under the first sentence of § 1005.33(c)(2)(iii) (as amended at 78 Fed.Reg. 49365, August 14, 2013), as a remedy, the provider must within three business days upon providing a report of investigation (1) refund the Transfer Amount, or an amount appropriate to resolve the error, and (2) any fees imposed, and to the extent not prohibited by law, taxes collected on the transfer.
The provider may agree to the sender’s request that the funds be applied towards a new remittance transfer, if the provider has not yet processed a refund. The provider may deduct from the amount refunded or applied towards a new transfer any fees actually imposed on or, to the extent not prohibited by law, taxes actually collected on the remittance transfer as part of the first unsuccessful remittance transfer attempt.
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However, in the final sentence of § 1005.33(c)(2)(iii), a provider is permitted to deduct its own fees if a refund or a new transfer is provided.
Under the rule, § 1005.33(c)(2)(iii) is amended to prohibit a provider from deducting its own fees.
A provider is permitted to deduct third party fees. Comment 33(c)-12.i.
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The Bureau also clarified what should happen when an error occurs (for any reason) pursuant to § 1005.33(a)(1)(iv) [date of availability], but the funds are ultimately delivered to the designated recipient before the remedy is determined.
If the funds ultimately have been delivered, the remedies at § 1005.33(c)(2)(ii) detailed above should not be available: no refund and no new transfer as the funds have been delivered. Comment 33(c)-5.
When the designated recipient receives the “Total to Recipient” belatedly, the amount appropriate to resolve the error is a refund of fees and taxes.
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Remittance Transfer Rule: Depository Institution Exemption
Ted Teruo Kitada
Senior Company Counsel
© 2014 Wells Fargo Bank, N.A. All rights reserved. For public use.

Emerging Payments System – Balancing Innovation with Consumer Protections – The CFPB Accepts Complaints About Bitcoin and other Virtual Payments
Keith J. Barnett - Partner September 22, 2014

©2014 Sutherland Asbill & Brennan LLP
August 2014 CFPB Announcement Concerning Virtual Currencies
•Risks Highlighted by the CFPB
Hackers – Access to Your Computer Versus Access to a Large Network of Transactions
Scams – New Ponzi Schemes versus Traditional Ponzi Schemes
Costs – Understanding the costs
Fewer Protections – FDIC and chargebacks to the Merchant versus Possible Less Certainty

Consumers, Merchants, and Transaction Fees

The CFPB Virtual Currency Complaint Database

Are Enough Consumers Using Bitcoin/Virtual Currencies Sufficient to Warrant the CFPB’s Attention?

Reported Bitcoin Usage
•Overstock – Bitcoin accounts for .25% of sales ($12,000 to $15,000 per day) according to the New York Times.
•Expedia – Bitcoin accounts for less than 1% of sales according to the New York Times.

Bitcoins in Circulation and Consumers

Bitcoin Transactions and Consumers

Questions?
•Keith J. Barnett - Partner
404-853-8384
keith.barnett@sutherland.com
www.cfpaguide.com

#ACIPayments
ACI’s 8th National Forum on Balancing Innovation with Consumer Protection in Emerging Payment Systems
Heidi Wicker
Schwartz & Ballen LLP
Update on the CFPB and Emerging Payment Systems
September 22-23, 2014
Tweeting about this conference?

#ACIPayments
Continued Expansion of CFPB’s Scope of Scrutiny
•Mobile Financial Services
•General Purpose Reloadable (GPR) Prepaid Cards
•Privacy Disclosures
•What’s Next?

#ACIPayments
Mobile Financial Services
•CFPB launched a Request for Information (RFI) from the public on mobile financial services in June 2014
•Information was requested on opportunities and challenges associated with use of mobile financial services
•Including: access for the underserved, real-time money management, customer service, privacy concerns and data security
•The RFI focuses on mobile banking-like services.
•Specifically excludes payments at the point of sale.
•CFPB held hearing in New Orleans in June 2014.

#ACIPayments
Mobile Financial Services, cont’d
•This CFPB initiative overlaps with Federal Trade Commission (FTC) initiatives on mobile services, including mobile payments, more generally.
•The FTC commented on the RFI in September 2014. Issues of concern include:
•Liability protections for consumers for mobile transactions involving prepaid or stored value accounts and dispute resolution procedures
•Unauthorized charges due to cramming (third party billing directly to consumer’s carrier’s bill)
•Privacy and security (e.g., practices by data brokers which buy/sell consumer data and misstatements about how they collect and use consumer data)
•The FTCs’ recent initiatives in the mobile payments and m-commerce space, include:
•Enforcement orders against Apple, Amazon and Google related to in-app payments by minors
•Report on mobile shopping apps
•Guidance for mobile app developers

#ACIPayments
General Purpose Reloadable (GPR) Prepaid Cards
•CFPB issued an advance notice of proposed rulemaking (ANPR) in May 2012 (77 Fed. Reg. 30923)
•Would apply federal Regulation E to GPR cards/devices
•Considerations:
•Scope of Reg E requirements to be applied to GPR cards (e.g., periodic statements);
•potential exceptions for limited use cards;
•timing and content of disclosures (e.g., pre- or post- sale, fees, FDIC pass-through insurance, customer agreements);
•offering credit/savings features;
•efficacy of reporting to credit bureaus.

#ACIPayments
General Purpose Reloadable (GPR) Prepaid Cards, cont’d
•Proposed rule is expected this year.
•CFPB began accepting complaints on prepaid cards and nonbank products in July 2014.
•Federal legislation has been introduced which would provide similar/other protections.
•E.g., Prepaid Card Consumer Protection Act of 2013, S. 1867; Prepaid Card Disclosure Act of 2014, S. 1903
Potential Impact:
Will FDIC insurance become a requirement? Overdraft protection? Limitations on fees?
See recent Visa industry announcement re: “seal” designation for GPR consumer cards meeting certain requirements.

#ACIPayments
Annual Privacy Notice Website Posting
•CFPB has proposed a rule to amend the annual privacy notice requirement under Regulation P, applicable to “financial institutions” under the Gramm-Leach-Bliley Act (GLBA).
•Would permit an alternative delivery method for FIs’ annual privacy notices by posting on website in lieu of mailing if:
•FI does not share customer’s nonpublic personal information with nonaffiliated third parties in a manner that triggers GLBA opt-out rights;
•FI does not include on its annual privacy notice an opt-out notice under Section 603 of the Fair Credit Reporting Act (FCRA);
•FI’s annual privacy notice is not the only notice provided to satisfy the requirements of Section 624 of the FCRA (regarding affiliate marketing);
•Information on the privacy notice has not changed since the customer received the prior initial or annual notice; and
•FI uses the model annual privacy notice provided under Regulation P.

#ACIPayments
Annual Privacy Notice Website Posting, cont’d
•If the FI has changed its privacy practices since the last notice or engaged in information-sharing activities for which consumers have a right to opt-out, cannot use this alternative delivery method.
•This alternative would be available where customers have already consented to electronic delivery of privacy notices (e.g., by email).
•Current Regulation P states that a FI may deliver the notice electronically if the consumer agrees (12 C.F.R. 1016.9(a)).
•But. . . CFPB’s research has indicated that most consumers have not agreed to receive electronic disclosures.
•Comment period closed June 2014.
Potential Impact: Useful to mobile/emerging payment- related providers, since does not require customer’s consent to electronic delivery, unlike current Regulation.

#ACIPayments
Next up . . .
•What other emerging payments products are within the CFPB’s sights(?)
•Mobile Payments at POS
•Potential implications of recent Apple iPay announcement; “service providers” subject to CFPB jurisdiction.
•Domestic Money Transfers
•Enhanced/Broader Substantive Privacy Protections
Discuss: But . . . can CFPB implement new substantive requirements under current Dodd-Frank Consumer Financial Protection Act authority, or is further legislation required?

Remittance Transfer Rule: Depository Institution Exemption

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Remittance Transfer Rule: Depository Institution Exemption