Show Me the Money

Last month the Consumer Financial Protection Bureau (CFPB) proposed a revision to its Remittance Transfer Rule that would bring any private or public company conducting more than one million yearly money transfers under its jurisdiction. The reform would require these organizations be subject to the CFPB’s remittance procedures and regulations established last October. It would hold companies accountable for:

  • Disclosing remittance information to customers such as receive date, fees, and exchange rates
  • Allowing customer disputes and refunds over remittance errors
  • Permitting customers to cancel remittance orders within 30 minutes of being sent

images-1According to the CFPB, there are 25 non-bank institutions that make more than one million international money transfers a year, and that send over 80% of yearly remittances. All of these companies would fall under the expansion of the remittance act and would be subject to regulation. The proposed change is a large step forward for remittance protection because it places private companies formerly exempt from the Dodd-Frank Act under the CFPB’s jurisdiction. Previously, only large public institutions such as banks were subject to remittance regulations. This new standard would attempt to level the playing field and prevent companies such as Western Union from improperly exploiting customers with limited access to money transfer locations.

The new legislation is unique in its approach as to what qualifies as a large money transfer company. Instead of monitoring the amount of money transferred, it monitors the number of transfers. The reason the CFPB decided to establish the regulation with a transfer minimum instead of a dollar minimum is due to a lack of knowledge about the remittance market. The CFPB has a better idea of the number of remittances each company sends yearly and is less knowledgeable about how much money each company sends. Setting the threshold at one million international transfers a year allows the regulation to encompass more companies than if the CFPB had tried to establish a monetary quota.

imagesWhat does this proposal mean for US remittances? The regulations could be a step in the right direction and the change could lead to an increase in US remittances or at least a more favorable attitude towards US remittance procedures. They recognize that money transfers are a profitable business that companies can use to exploit people with inelastic demand who want to send money internationally to friends or family members in need. But until the proposal is actually passed, it is difficult to say exactly what impact it will have on US remittances.

Some argue that the new regulations do not go far enough. The change does not impose any regulations on fees or exchange rates across companies, one of the greatest hindrances to remittances. Even with these regulations, it is still the customer’s responsibility to research the exchange rate and fees to find the best price. Companies also still have the power to establish unfavorable exchange rates and fees for the customers with more limited options, knowing that in certain areas there are few other money transfer companies. But this legislation could be a precursor to large scale changes in CFPB remittance policies.

There is no guarantee, however, that this act will actually pass. It faces opposition from the small business community. The Dodd-Frank Act labels any business making less that $19 million a year a small business and small businesses are exempt by law from the regulation of the Dodd-Frank Act. Of the 25 institutions that the proposed changes would encompass, ten make more than one million yearly transfers but still qualify as small businesses. The big question is whether the CFPB has the right to enforce regulations on small businesses even though the regulations may be in the public’s best interests.

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