Remittance Rules Rankle Some

September 21, 2011

Some might say it's a sign of the times: regulations playing catch-up with technology advances. But the Federal Reserve Board is drawing fire for recent proposals to carry out Congressional dictates regarding consumer electronic payments.

The Dodd-Frank Act contained a litany of new consumer protections, including new requirements for protecting consumers who make remittance payments to foreign countries. Those new requirements - written as amendments to the federal Electronic Funds Transfer Act - were spelled out this summer in proposed amendments to Regulation E (the Fed's consumer EFT rules).

Remittance transfers are generally small-dollar, person-to-person (P2P) payments. The World Bank estimates that remittances totaling $440 billion were sent worldwide in 2010, of which $325 billion went to developing countries.

In 2009, the U.S. had the highest volume of foreign-bound remittances, with $48.3 billion, according to the World Bank.

The proposed changes to Reg E - establishing new disclosures, notice and error resolution procedures for these P2P payments - were published by the Fed in May, along with various proposed model forms for money transmitters to use.

Bankers have raised concerns about the proposal, and most of the roughly five dozen comment letters to the Fed were from bankers. Many contend the rules are too broad and could dampen demand for the interenational funds transfer services banks offer their retail customers. Banks typically use the automated clearinghouse (ACH) and international wire transfer networks (which are closely monitored by regulators and central bankers) to move consumer payments.

Nonbanks weren't very happy with the proposals either. PayPal, for example, raised concerns that the requirements could cut into its business because it does not clearly limit covered transactions to P2P payments. PayPal insisted that the lion's share of payments it processes are for purchases..

Ultimately final rules addressing consumer electronic remittances will need to be implemented by the Consumer Financial Protection Bureau. That's the new federal consumer oversight agency created by the Dodd-Frank Act. Although it officially opened for business on July 21, the Bureau has not yet taken up this issue.

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