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Daily Rules, Proposed Rules, and Notices of the Federal Government

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1005

[Docket No. CFPB-2011-0009]

RIN 3170-AA15

Electronic Fund Transfers (Regulation E)

AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretation.
SUMMARY: The Bureau of Consumer Financial Protection is amending Regulation E, which implements the Electronic Fund Transfer Act, and the official interpretation to the regulation, which interprets the requirements of Regulation E. The final rule modifies a final rule published in February 2012 implementing section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding remittance transfers. The final rule adopts a safe harbor with respect to the phrase "normal course of business" in the definition of "remittance transfer provider," which determines whether a person is covered by the rule. The final rule also revises several aspects of the February 2012 final rule regarding remittance transfers that are scheduled before the date of transfer, including preauthorized remittance transfers.
DATES: This rule is effective February 7, 2013.
FOR FURTHER INFORMATION CONTACT: Eric Goldberg, Counsel, or Andrea Edmonds or Dana Miller, Senior Counsels, Division of Research, Markets, and Regulations, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552, at (202) 435-7700.
SUPPLEMENTARY INFORMATION: I. Overview

Section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)1 amended the Electronic Fund Transfer Act (EFTA) to create a new comprehensive consumer protection regime for remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries. For covered transactions conducted by remittance transfer providers, the statute generally requires: (i) The provision of disclosures prior to and at the time of payment by the sender for the transfer; (ii) cancellation and refund rights; (iii) the investigation and remedy of errors by remittance transfer providers; and (iv) liability standards for remittance transfer providers for the acts of their agents. The Bureau of Consumer Financial Protection (Bureau) published a final rule on February 7, 2012, to implement section 1073 of the Dodd-Frank Act. 77 FR 6194, Feb. 7, 2012 (February Final Rule). The February Final Rule takes effect February 7, 2013. The Bureau concurrently published a proposed rule with request for public comment seeking comment on whether to provide additional safe harbors and flexibility in applying the February Final Rule to certain transactions and persons. 77 FR 6310, Feb. 7, 2012 (February Proposal).2

1Public Law 111-203, 124 Stat. 1376, section 1073 (2010).

2The Bureau issued the February Final Rule and the February Proposal on January 20, 2012. Consequently, when referencing the final rule, the February Proposal used the term “January 2012 Final Rule.” That term is being replaced in today's rule with “February Final Rule” to reflect the date the rule was published in the Federal Register (i.e.,February 7, 2012). Similarly, the term “February Proposal” is being used here in place of the term “January 2012 Proposed Rule,” which was used in the February Final Rule. Additionally, a technical correction to the February Final Rule was published on July 10, 2012. 77 FR 40459. For simplicity, that technical correction is incorporated into the term “February Final Rule.”

The February Proposal addressed two aspects of the February Final Rule. First, the Bureau proposed to adopt a safe harbor for determining whether a person is providing remittance transfers in the “normal course of business,” and thus is a “remittance transfer provider.” Second, it sought comment on possible refinements to disclosure and cancellation requirements for certain remittance transfers that are scheduled before the date of transfer, including “preauthorized remittance transfers,” which are authorized in advance to recur at substantially regular intervals. The Bureau noted that providing further clarification on these issues might reduce compliance burdens for remittance transfer providers and provide better disclosures and cancellation rights to consumers. The Bureau also stated that it expected to complete any further rulemaking on matters raised in the February Proposal on an expedited basis before the February 7, 2013 effective date for the February Final Rule.

The final rule adopts a safe harbor with respect to the phrase “normal course of business” in the definition of “remittance transfer provider,” which determines whether a person is covered by subpart B of Regulation E. The final rule states that if a person provided 100 or fewer remittance transfers in the previous calendar year, and provides 100 or fewer remittance transfers in the current calendar year, then the person is deemed not to be providing remittance transfers for a consumer in the normal course of its business. For a person that crosses the 100-transfer threshold, and is then providing remittance transfers for a consumer in the normal course of its business, the final rule permits a reasonable time period, not to exceed six months, to begin complying with subpart B of Regulation E.

The final rule also modifies several aspects of the February Final Rule regarding remittance transfers that are scheduled before the date of transfer, including preauthorized remittance transfers. First, when a sender schedules a one-time transfer or the first in a series of preauthorized remittance transfers five or more business days before the date of transfer, the final rule permits remittance transfer providers to estimate certain information in the pre-payment disclosure and the receipt provided when payment is made. If estimates are provided under this exception, the provider generally must give the sender an additional receipt with accurate figures after the transfer is made. With respect to subsequent preauthorized remittance transfers, the final rule generally eliminates the requirement that a remittance transfer provider mail or deliver a pre-payment disclosure for each subsequent transfer, unless certain specified information has changed. However, the final rule generally requires a remittance transfer provider to provide accurate receipts after subsequent transfers are made.

The final rule also modifies the February Final Rule in several respects with regard to the disclosure requirements for remittance transfers scheduled at least three business days before the date of transfer and for preauthorized remittance transfers. The final rule generally requires disclosure of the date of transfer on the initial receipt and on any subsequent receipts provided with respect to a particular transfer. For subsequent preauthorized remittance transfers, the final rule also requires the remittance transfer provider to disclose the future date or dates the remittance transfer provider will execute subsequent transfers in the series; in most cases, the final rule offers some flexibility in how such disclosures can be made.

As noted in the February Final Rule, the Bureau intends to continue working with consumers, industry, and other regulators in the coming months regarding implementation issues. In the near future, the Bureau expects to release a small business compliance guide and a list of countries that providers may rely on for purposes ofdetermining whether estimates may be provided under certain circumstances. The Bureau also expects to conduct a public awareness campaign to educate consumers about the new disclosures and their other rights under the Dodd-Frank Act with respect to remittance transfers.

II. Background A. Summary of February Final Rule

The February Final Rule imposes on remittance transfer providers new disclosure, error resolution, and other substantive requirements relating to remittance transfers. These requirements are set forth in subpart B of Regulation E. Consistent with the statute, the February Final Rule provides that the term remittance transfer provider means 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. 12 CFR 1005.30(f). The February Final Rule provides guidance in the commentary indicating that whether a person provides remittance transfers in the “normal course of business” will be evaluated based on the facts and circumstances, and does not set forth a numerical threshold.

Among other requirements, the February Final Rule imposes several new disclosure requirements on remittance transfer providers. First, the rule generally requires a remittance transfer provider to provide a written pre-payment disclosure to a sender containing information about the specific transfer requested by the sender, such as the exchange rate, applicable fees and taxes, and the amount to be received by the designated recipient. Second, the provider also must provide a written receipt when payment is made for the transfer. The receipt must include the information provided on the pre-payment disclosure, as well as additional information such as the date of availability of the funds, the designated recipient's contact information, and information regarding the sender's error resolution and cancellation rights. Consistent with the statute, which permits remittance transfer providers to provide estimates only in two narrow circumstances, the February Final Rule generally requires that disclosures state the actual exchange rate that will apply to a remittance transfer and the actual amount that will be received by the designated recipient of a remittance transfer.

The February Final Rule also sets forth special requirements for the timing and accuracy of disclosures with respect to “preauthorized remittance transfers,” which are defined as remittance transfers authorized in advance to recur at substantially regular intervals. As discussed in the February Final Rule, 77 FR 6194, 6267, the Bureau recognizes that the market for preauthorized remittance transfers is still developing.

The February Final Rule differentiates between the first and subsequent transfers in a series of preauthorized remittance transfers. The first transfer in a series is treated the same as other standalone remittance transfers. Accordingly, the February Final Rule requires, for the first transaction in a series of preauthorized remittance transfers, that the provider provide a pre-payment disclosure at the time the sender requests the transfer and a receipt at the time payment for the transfer is made, which the commentary explains means when payment is authorized. In addition, the disclosures must be accurate as of when the payment for the transfer is made, unless a statutory exception applies.

However, recognizing the potential risks to providers associated with setting exchange rates and determining the amount to be provided to a designated recipient weeks or months before any subsequent transfer, and the potentially limited utility to consumers of information provided far in advance, the February Final Rule does not require that disclosures for the entire series of preauthorized remittance transfers be provided at the time of the sender's initial request and payment authorization. Rather, the February Final Rule requires providers to issue pre-payment disclosures and receipts for each subsequent transfer near the date of the individual transfer. Specifically, the pre-payment disclosure for each subsequent transfer must be provided within a reasonable time prior to the scheduled date of the transfer. The receipt for each subsequent transfer generally must be provided no later than one business day after the date on which the transfer is made.

Finally, the February Final Rule also provides senders specified cancellation and refund rights. Under the rule, a sender generally has 30 minutes after payment is made to cancel a remittance transfer. The February Final Rule, however, contains special cancellation procedures for any remittance transfer scheduled by the sender at least three business days before the date of the transfer, including preauthorized remittance transfers. In such case, the provider would be required to cancel the remittance transfer if it received a request to cancel the transfer from the sender at least three business days before the date of the transfer.

B. Summary of the February Proposal

Concurrent with the February Final Rule, the Bureau issued a proposed rule that sought comment on two aspects of the February Final Rule. First, the Bureau proposed to adopt in commentary a safe harbor clarifying when certain persons are excluded from the statutory scheme because they do not provide remittance transfers in the normal course of business. Second, the February Proposal sought comment on a possible safe harbor and other refinements to the disclosure and cancellation requirements for remittance transfers that are scheduled before the date of the transfer, including preauthorized remittance transfers. The Bureau indicated that these proposed amendments to the February Final Rule may reduce compliance burden for providers and allow for better disclosure and cancellation rights for senders. The Bureau stated its belief that these issues would benefit from further public comment.

Regarding the first aspect of the February Proposal, the Bureau sought comment on a proposed safe harbor interpreting the phrase “normal course of business.” The Bureau proposed commentary stating that if a person made no more than 25 remittance transfers in the previous calendar year, the person does not provide remittance transfers in the normal course of business during the current calendar year if it provides no more than 25 remittance transfers in that year. The Bureau also specifically solicited comment on whether, if such a safe harbor is appropriate, the threshold number should be higher or lower than 25 remittance transfers, such as 10 or 50 transfers, or some other number.

Regarding the second aspect of the February Proposal, the Bureau sought comment on refinements to the disclosure and cancellation requirements for remittance transfers that are scheduled before the date of transfer, including preauthorized remittance transfers. Specifically, the February Proposal solicited comment on whether estimates should be permitted to be disclosed in the pre-payment disclosure and receipt given at the time the transfer is requested and authorized when: (i) A consumer schedules a one-time transfer or the first in a series of preauthorized remittance transfers more than ten days in advance; or (ii) a consumer enters into an agreement for preauthorized remittance transfers under which the amount of the transfers can vary and the provider does notknow the exact amount of the first transfer at the time the disclosures for that transfer are given. The February Proposal further requested comment on whether a remittance transfer provider that uses estimates in the two situations described above should be required to provide a second receipt with accurate information within a reasonable time closer to the scheduled date of the transfer. In addition, the February Proposal sought comment on whether the second receipt should be provided to senders ten days before the date of the transfer or whether the period should be longer or shorter.

The February Proposal also solicited comment on possible refinements to the disclosure provisions applicable to subsequent preauthorized remittance transfers. For example, the Bureau sought comment on two alternative approaches to the disclosure provisions for subsequent preauthorized remittance transfers: (i) Whether the Bureau should retain the requirement that a remittance transfer provider provide a pre-payment disclosure for each subsequent transfer and provide a safe harbor for what constitutes “a reasonable time” for providing this disclosure; or (ii) whether the Bureau should eliminate the requirement to provide a pre-payment disclosure for each subsequent transfer.

The February Proposal also sought comment on possible changes to the cancellation requirements for remittance transfers that are scheduled before the date of the transfer, including preauthorized remittance transfers. The February Proposal solicited comment on whether the three-business-day period for canceling such remittances transfers adopted in the February Final Rule is appropriate, or whether the rule should require a deadline to cancel these transfer that is more or less than three business days. Further, the February Proposal solicited comment on three issues related to the disclosure of the deadline to cancel as set forth in the February Final Rule: first, whether the three-business-day deadline to cancel transfers scheduled before the date of transfer should be disclosed to senders, such as by requiring a remittance transfer provider to disclose in the receipt the specific date on which the right to cancel will expire; second, whether a remittance transfer provider should be allowed to describe both the three-business-day and 30-minute deadline-to-cancel time frames on a single receipt and either describe the transfers to which each deadline is applicable, or alternatively, use a checkbox or other method to designate which deadline is applicable to the transfer to which the receipt relates; third, whether the disclosure of the deadline to cancel should be disclosed in the pre-payment disclosure, rather than in the receipt, for each subsequent preauthorized remittance transfer.

C. Overview of Comments and Outreach

The Bureau received more than 50 comments on the proposed rule. The majority of comments were submitted by industry commenters, including depository institutions, credit unions, a money transmitter, and industry trade associations. In addition, letters were submitted by individual consumers, consumer groups, and an association of state banking regulators.

Commenters generally supported, or did not oppose, clarifying the meaning of “normal course of business” with a safe harbor. Consumer group commenters supported the proposed threshold of 25 transfers per year. The majority of industry commenters argued that the proposed safe harbor threshold was insufficient and suggested higher numerical thresholds, ranging from 50 remittance transfers annually to 25 transfers daily. Some industry commenters suggested alternative benchmarks for the safe harbor, including tests based on a percentage of an entity's revenues or transactions processed. A number of industry commenters stated that they or others would cease to offer remittance transfers if they did not qualify for the safe harbor. Some commenters also suggested changes in how any safe harbor was implemented, such as that the Bureau should provide time for an entity to come into compliance if the entity becomes a remittance transfer provider once the safe harbor threshold is exceeded.

Commenters also generally supported revisions to the February Final Rule regarding remittance transfers that are scheduled before the date of the transfer. Commenters generally supported providing additional flexibility in disclosure requirements and expanding the use of estimates in order to reduce risks and costs that might be passed through to senders. Industry commenters cited various operational and financial challenges, as well as legal risks, associated with disclosing an accurate exchange rate for a future transfer. (Although the February Proposal asked about estimates for one-time transfers or the first in a series of preauthorized remittance transfers, most commenters addressed the use of estimates generally for any transfer scheduled before the date of such transfer.) Some industry commenters argued that small remittance transfer providers in particular would not have the scale or expertise to create the risk management practices necessary to comply. Other industry commenters expressed concern about the potential for behavior by consumers that would increase providers' exposure to foreign exchange risk in light of the February Final Rule's three-business-day cancellation period for transfers scheduled before the date of the transfer. Thus, these commenters supported permitting estimates in pre-payment disclosures and receipts provided for remittance transfers scheduled before the date of transfer. Separately, some commenters thought the Bureau should allow providers,in lieuof (or in addition to) providing an estimate of the exchange rate on a disclosure for a transfer scheduled before the date of the transfer, to disclose the formula the provider will use to calculate the exchange rate that will apply to a transfer.

For similar reasons, industry commenters further stated that the proposed ten-day period after which estimates would not be permitted was too long, and should be shortened. Industry commenters suggested shorter time periods ranging from one to seven business days. Several industry commenters suggested that, even if estimates were permitted, remittance transfer providers might respond to the requirement to provide accurate disclosures for other one-time transfers scheduled before the date of the transfer or initial transfers in series of preauthorized remittance transfers scheduled in advance by only offering same-day remittance transfers, or remittance transfers scheduled ten or more days before the date of the transfer.

Consumer group commenters agreed that the use of estimates in disclosures may be appropriate for the first remittance transfers in series of preauthorized remittance transfers, but stated that if remittance transfer providers were allowed to use estimates in disclosures for such transfers, senders should be informed they would not receive actual notice of the price of the transfer or of the amount to be received by the designated recipient during the periods when the senders can cancel the transfers. Alternatively, consumer group commenters suggested requiring providers to later give senders disclosures for such transfers that include accurate information about any amounts previously estimated.

Industry commenters urged the Bureau to eliminate the requirement to provide pre-payment disclosures a reasonable time prior to each subsequent preauthorized remittancetransfer. Commenters stated that such disclosures could cause consumer confusion in cases where senders receive pre-payment disclosures in close proximity to receipts for previous preauthorized remittance transfers. Further, industry commenters argued that many senders scheduling preauthorized remittance transfers are more concerned with the convenience allowed by the scheduling of transfers before the date of the transfer and having transfers made on time than with comparison shopping with pre-payment disclosures for each transfer. Thus, these commenters stated that the cost of providing pre-payment disclosures would outweigh any potential consumer benefit. Industry commenters also stated that if the requirement to provide updated pre-payment disclosures was not eliminated, the Bureau should permit estimates to be provided in those disclosures. Consumer group commenters stated that the Bureau should maintain the requirement to provide pre-payment disclosures before all subsequent preauthorized remittance transfers, but while allowing providers to provide estimates in those disclosures. These commenters also supported the Bureau's proposal that ten days before the date of transfer constitute a “reasonable time.”

Most industry commenters argued that three business days is an appropriate time period for a sender to cancel a remittance transfer that is scheduled at least three business days before the date of the transfer. Some industry commenters conditioned their support for the three-business-day cancellation period on whether a remittance transfer provider would be required to disclose to the sender the exchange rate that would apply to a transfer scheduled more than three business days before the date of such transfer. One commenter suggested that the Bureau adopt a five-business-day cancellation deadline in lieu of the three-business-day deadline adopted in the February Final Rule.

With respect to the content and format of disclosures related to the cancellation period, most industry commenters argued against requiring that remittance transfer providers disclose the specific cancellation deadline in the receipt provided to a sender for a remittance transfer scheduled more than three business days before the date of the transfer. One commenter asserted that requiring disclosure of the specific cancellation deadline would create significant technical challenges for service providers. Commenters, however, generally supported the proposal to permit remittance transfer providers that provide both transfers scheduled at least three business days before and transfers less than three business days before the date of the transfer to include both the 30-minute and three-business-day cancellation periods in their receipts along with a checkbox or other method that allows the provider to designate which cancellation period is applicable to the transfer at issue.

The Bureau received few comments in response to its inquiry regarding disclosure of cancellation requirements for subsequent preauthorized remittance transfers. Among those received, there was little consensus regarding how cancellation rights for subsequent transfers should be disclosed. Some commenters asserted that the cancellation provision should be included on the pre-payment disclosure and one industry commenter supported including it on the receipt.

In addition to the comments received on the February Proposal, Bureau staff conducted outreach with various parties to gather more data regarding issues discussed in the proposal or raised in comments. Records of these outreach conversations are reflected inex partesubmissions included in the rulemaking record (accessible by searching by the docket number associated with this final rule at www.regulations.gov).

III. Summary of the Final Rule A. Normal Course of Business

The final rule provides a new safe harbor clarifying when a person provides remittance transfers in the normal course of business for purposes of determining whether a person falls under the definition of “remittance transfer provider.” The proposed safe harbor was located in the commentary; the final safe harbor is included in regulatory text, with further guidance in the commentary. As adopted, the final rule states that if a person provided 100 or fewer remittance transfers in the previous calendar year, and provides 100 or fewer remittance transfers in the current calendar year, then the person is deemed not to be providing remittance transfers for a consumer in the normal course of its business. For a person that crosses the 100-transfer threshold, and is then providing remittance transfers for a consumer in the normal course of its business, the final rule permits a reasonable time period, not to exceed six months, to begin complying with subpart B of Regulation E.

B. Disclosure Rules for Remittance Transfers Scheduled Before the Date of Transfer

The final rule modifies the February Final Rule with respect to remittance transfers that are scheduled before the date of transfer, including preauthorized remittance transfers. First, when a sender schedules a one-time transfer or the first in a series of preauthorized remittance transfers five or more business days before the date of transfer, the final rule permits remittance transfer providers to estimate certain information in the pre-payment disclosure and the receipt provided when payment is made. If a provider gives disclosures that include estimates under this exception, the final rule also requires that the provider give the sender an additional receipt with accurate figures (unless a statutory exception applies), which generally must be provided no later than one business day after the date on which the transfer is made.

Second, with respect to subsequent preauthorized remittance transfers, the final rule eliminates the requirement that a remittance transfer provider mail or deliver a pre-payment disclosure for each subsequent transfer. A receipt must be sent, however, a reasonable time prior to the transfer if certain disclosed information is changed from what was disclosed regarding the first preauthorized remittance transfer. This receipt may also contain estimates. If estimates are provided or no update is necessary, the final rule also requires a remittance transfer provider to give an accurate receipt to a sender after a transfer is made.

C. Cancellation Period and Disclosures

The final rule modifies the February Final Rule in several respects with regard to the disclosure requirements for remittance transfers scheduled at least three business days before the date of transfer and for preauthorized remittance transfers. First, the final rule requires a remittance transfer provider to disclose the date of transfer in the receipt provided when payment is made with respect to remittance transfers scheduled at least three business days before the date of the transfer and the initial transfer in a series of preauthorized transfers. The transfer date for a given transfer is also required to be disclosed on any subsequent receipts provided with respect to that transfer. The transfer date will enable a sender to identify the transfer to which the receipt pertains, and, when received prior to the date of the transfer,generally calculate the date on which the right to cancel will expire.

Second, for subsequent preauthorized remittance transfers, the final rule requires the remittance transfer provider to disclose the date or dates on which the provider will make those subsequent transfers in the series, with certain other information. The final rule provides providers some flexibility in how they may make these disclosures to senders. However, for subsequent preauthorized remittance transfers for which the date of transfer is four or fewer business days after payment is made for the transfer, the final rule requires disclosure of future dates of transfer in the receipt provided for the first transfer in the series.

Finally, the final rule also permits providers to describe on a receipt both the three-business-day and 30-minute cancellation periods and either describe the transfers to which each deadline applies, or alternatively, use a checkbox or other method to designate which cancellation period is applicable to the transfer. The final rule does not change the three-business-day cancellation period for these transfers.

IV. Legal Authority

Section 1073 of the Dodd-Frank Act creates a new section 919 of the EFTA and requires remittance transfer providers to provide disclosures to senders of remittance transfers, pursuant to rules prescribed by the Bureau. In particular, providers must give a sender a written pre-payment disclosure containing specified information applicable to the sender's remittance transfer. The remittance transfer provider must also provide a written receipt that includes the information provided on the pre-payment disclosure, as well as additional specified information. EFTA section 919(a).

In addition, EFTA section 919(d) directs the Bureau to promulgate rules regarding appropriate cancellation and refund policies. Except as described below, the final rule is adopted under the authority provided to the Bureau in EFTA section 919, and as more specifically described in thisSUPPLEMENTARY INFORMATION.

In addition to the statutory mandates set forth in the Dodd-Frank Act, EFTA section 904(a) authorizes the Bureau to prescribe regulations necessary to carry out the purposes of the title. The express purposes of the EFTA, as amended by the Dodd-Frank Act, are to establish “the rights, liabilities, and responsibilities of participants in electronic fund and remittance transfer systems” and to provide “individual consumer rights.” EFTA section 902(b). EFTA section 904(c) further provides that regulations prescribed by the Bureau may contain any classifications, differentiations, or other provisions, and may provide for such adjustments or exceptions for any class of electronic fund transfers or remittance transfers that the Bureau deems necessary or proper to effectuate the purposes of the title, to prevent circumvention or evasion, or to facilitate compliance.

As described in more detail below, the provisions adopted in the final rule in part or in whole pursuant to the Bureau's authority in EFTA sections 904(a) and 904(c)3 include §§ 1005.30(f)(2)(ii), 1005.32(b)(2), 1005.36(a), 1005.36(b) and 1005.36(d).4 The provisions adopted in whole or in part pursuant to the Bureau's authority in EFTA section 919(a)(5)(A) include § 1005.31(a)(3)(iv) and (a)(5)(iv).

3Throughout thisSUPPLEMENTARY INFORMATION, the Bureau is citing its authority under both EFTA section 904(a) and EFTA section 904(c) for purposes of simplicity. The Bureau notes, however, that with respect to some of the provisions referenced in the text, use of only EFTA section 904(a) is needed.

4The consultation and economic impact analysis requirement previously contained in EFTA sections 904(a)(1)-(a)(4) were not amended to apply to the Bureau. Nevertheless, the Bureau consulted with the appropriate prudential regulators and other Federal agencies and considered the potential benefits, costs, and impacts of the rule to consumers and covered persons as required under section 1022 of the Dodd-Frank Act, and through these processes would have satisfied the requirements of these EFTA provisions if they had been applicable.

V. Section-by-Section Analysis Section 1005.30Remittance Transfer Definitions 30(f) Definition of Remittance Transfer Provider Overview

Section 1005.30(f) of the February Final Rule and the accompanying commentary implement the definition of the term “remittance transfer provider” in EFTA section 919(g)(3). Section 1005.30(f) states that a “remittance transfer provider” means 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. A remittance transfer provider is required to comply with subpart B of Regulation E relating to remittance transfers.

As adopted in the February Final Rule, comment 30(f)-2 provides guidance interpreting the phrase “normal course of business” as used in the definition of remittance transfer provider. Specifically, comment 30(f)-2 to the February Final Rule states that whether a person provides remittance transfers in the normal course of business depends on the facts and circumstances, including the total number and frequency of remittance transfers sent by the provider. Comment 30(f)-2 also sets forth illustrative examples.

To provide clearer guidance on whether a person provides remittance transfers in the normal course of business, the Bureau proposed to add to comment 30(f)-2 an express safe harbor further interpreting the phrase “normal course of business.” The proposed safe harbor was based on the number of remittance transfers that a person provides. Proposed comment 30(f)-2 stated that if a person provided no more than 25 remittance transfers in the previous calendar year, the person does not provide remittance transfers in the normal course of business for the current calendar year if it provides no more than 25 remittance transfers in that year. The proposed comment clarified, however, 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 the person is a remittance transfer provider for that transfer and any other transfers provided through the rest of the year.

The Bureau solicited comment on the proposal to adopt a safe harbor interpreting the term “normal course of business.” The Bureau also specifically solicited comment on whether, if such a safe harbor is appropriate, the threshold number should be higher or lower than 25 remittance transfers, such as 10 or 50 transfers, or some other number.

Commenters generally supported or did not oppose clarifying the meaning of “normal course of business” with a safe harbor. Consumer group commenters supported the proposed threshold of 25 transfers per year. Some industry commenters proposed that any safe harbor be based on criteria other than or in addition to the number of transfers provided per year. Furthermore, most industry commenters argued that if the Bureau adopts a safe harbor based on the number of remittance transfers provided per year, that the Bureau should use a threshold number that is higher (and in some cases significantly higher) than 25 transfers per year. Finally, some commenters suggested changes in how any safe harbor would be implemented, such as that the Bureau should provide time for an entity to come into compliance if the person becomes a remittance transfer provider once the safe harbor thresholdis exceeded. These comments are discussed in more detail below.

Regulatory Text

Consumer group commenters suggested that if the Bureau adopted a safe harbor related to the term “normal course of business,” that the safe harbor be included in the text of subpart B to Regulation E rather than in the commentary to the rule in order to help consumers understand when the protections in subpart B of Regulation E will apply to their transactions. Upon further consideration, the Bureau believes that, for clarity, it is appropriate to include the safe harbor regarding the phrase “normal course of business” in the text of subpart B of Regulation E. Consequently, the Bureau redesignates former § 1005.30(f) as § 1005.30(f)(1), and adopts § 1005.30(f)(2)(i), which creates the new safe harbor described below. New § 1005.30(f)(2)(ii) also creates a new transition period, described below. Revised comment 30(f)-2 provides interpretive guidance and illustrative examples.

Facts and Circumstances

Comment 30(f)-2 to the February Final Rule states that whether a person provides remittance transfers in the normal course of business depends on the facts and circumstances, including the total number and frequency of remittance transfers sent by the provider. The Bureau did not propose any modification to this guidance. However, one consumer group commenter suggested a rewording of the proposed safe harbor that would mean that any person who does not qualify for the safe harbor should be subject to the requirements of subpart B of Regulation E, regardless of the facts and circumstances. Furthermore, some commenters appeared to misunderstand the relevance of the Bureau's guidance in proposed comment 30(f)-2 regarding persons that do not qualify for the safe harbor.

Comment 30(f)-2 to the February Final Rule is renumbered and adopted with several non-substantive edits for clarity, and one minor modification, as comment 30(f)-2.i to the final rule. The modification is necessary because as discussed below, the final rule adopts a safe harbor similar to the safe harbor in proposed comment 30(f)-2, but, among other things, increases the threshold for that safe harbor from 25 to 100 remittance transfers per calendar year. For conformity, the Bureau has changed its guidance regarding a person that provides remittance transfers in the normal course of business. Final comment 30(f)-2.i interprets the phrase “normal course of business” to include a financial institution that makes remittance transfers generally available to customers and makes such transfers “many” times per month. Comment 30(f)-2 in the February Final Rule uses the term “multiple” rather than “many.” The Bureau believes that the term “many” is more consistent with the language and approach in the safe harbor as adopted.

A Safe Harbor Based on the Number of Remittance Transfers Provided

Though most commenters did not oppose a safe harbor based on the number of remittance transfers provided, several industry commenters urged the Bureau to create a safe harbor based on other criteria. Some industry commenters suggested that a safe harbor be based on qualitative criteria, such as whether or not persons hold themselves out to be remittance transfer providers. Alternatively, some industry commenters suggested that the safe harbor apply to some or all financial institutions with less than $10 billion in assets, and other industry commenters suggested that the Bureau look to measures of the relative size of a person's remittance transfer business, such as the percent of a person's total transactions that are remittance transfers, or the percent of a person's revenue or net income that is earned from such transfers. Some industry commenters suggested the Bureau define a safe harbor based on these relative size measures alone, while others suggested that the relative size measures should apply only to certain entities or business models, or that entities should qualify for the safe harbor if they satisfy either of two alternative thresholds, such as the number of remittance transfers provided and a relative size measure. For example, one industry commenter suggested a safe harbor that would exclude from coverage of subpart B of Regulation E credit unions that (a) rely on unrelated third parties to send remittance transfers, and do not provide remittance transfers as their primary business, as long as (b) such transfers account for 30 percent or less of the credit unions' total revenues. In general, commenters suggesting relative size thresholds supported such measures because they would take into account the size of a person's overall business, or because the number of remittance transfers that a person provides may vary from year to year.

The final rule adds a safe harbor, which is described in new § 1005.30(f)(2)(i). The safe harbor in the final rule reflects several modifications to the proposed commentary included in the February Proposal, as well as several non-substantive edits for clarity. Similar to the proposed comment, the safe harbor in § 1005.30(f)(2)(i) is based on a single bright line threshold, the number of remittance transfers a person provides. It states that a person is deemed not to be providing remittance transfers for a consumer in the normal course of its business if the person provided 100 or fewer remittance transfers in the previous calendar year and provides 100 or fewer remittance transfers in the current calendar year. Comment 30(f)-2.ii provides additional clarification. It states that a person that qualifies for the safe harbor in § 1005.30(f)(2)(i) is not a remittance transfer provider, and is thus not subject to the requirements of subpart B of Regulation E. The comment also clarifies that for the purposes of determining whether a person qualifies for the safe harbor, the number of remittance transfers provided includes any transfers that are excluded from the definition of “remittance transfer” due simply to this safe harbor. In contrast, the number of remittance transfers provided in a calendar year does not include any transfers that are excluded from the definition of “remittance transfer” for reasons other than the safe harbor, such as the small value transactions and securities and commodities transfers that are excluded from the definition of “remittance transfer” by § 1005.30(e)(2).

As stated in the February Proposal, 77 FR 6310, 6314-15, the Bureau believes that a safe harbor can reduce compliance burden by increasing legal certainty in the market. Without a safe harbor, some persons who currently provide remittance transfers, or are contemplating doing so, may face uncertainty and litigation risk as to whether they meet the definition of “remittance transfer provider” when they provide a small number of transfers in a given year. Increased legal certainty may encourage some such persons to continue providing remittance transfers, when they might not otherwise be inclined to offer such products, due to concerns about legal uncertainty or the cost of compliance with subpart B of Regulation E.

However, the Bureau also recognizes that a safe harbor interpreting the phrase “normal course of business” can limit the protections afforded to some consumers. The adoption of a numerical safe harbor may result in consumers not receiving the disclosures, error resolution, and other protections required by this rule in some instancesin which they might otherwise, because these consumers may be customers of persons who qualify for the safe harbor and, therefore, will have certainty that they are not “remittance transfer providers” for purposes of subpart B of Regulation E.

Based on these considerations, the Bureau believes that the safe harbor should be derived from the phrase “normal course of business,” should provide substantial certainty to potential providers, and should be limited in scope so as to preserve the benefits of the statutory protections as intended by Congress. The Bureau believes that a safe harbor will provide the most certainty if it is based on a bright-line measure that permits persons to identify easily whether or not they qualify.

In addition, the Bureau continues to believe that the provision of only a small number of remittance transfers per year is a reasonable basis for identifying persons that do not provide remittance transfers in the normal course of business. As explained in the February Proposal, 77 FR 6310, 6315, the Bureau believes that the inclusion of the phrase “normal course of business” in the statutory definition of “remittance transfer provider” was meant to exclude persons that provide remittance transfers on a limited basis. As a result, the fact that a person provides only a small number of remittance transfers can strongly indicate that the person is not providing such transfers in the normal course of its business. Furthermore, the number of transfers provided is an objective standard that is easy to apply and should provide substantial certainty to persons regarding whether or not they qualify for the safe harbor.5

5As one industry commenter suggested, given the potential for seasonal variation in the demand for remittance transfers, the Bureau believes that an annual figure is the most appropriate for the safe harbor threshold.

The Bureau does not believe that it is appropriate, based on the current administrative record, to define a safe harbor based on asset size or a relative size measure such as percentage of revenue. Commenters did not provide, and the Bureau does not have, data suggesting, across the remittance transfer industry, why any of the specific asset size or relative size thresholds suggested by the comments would be an appropriate basis for defining normal course of business. Moreover, the Bureau is concerned that there may not be a measure of entity size that is currently used by all segments of the remittance transfer industry. While some providers, such as banks and credit unions, tend to measure their size in assets, in other segments of the remittance transfer market, revenues or some other aspect of a business may be a more widely used measure.

Additionally, the Bureau believes that due to the wide variety of business models for offering remittance transfers and lack of currently available data, it would be difficult to craft a single standalone measure of relative size for identifying persons who provide remittance transfers on only a limited basis. For example, a standalone revenue threshold might exclude from the rule's coverage both a person who makes few transfers, but at a high price, and a person who offers many more transfers for free or at a very low price, as a value-added service to its customers. The Bureau is concerned that many persons who fall into the latter category may, in fact, make remittance transfers generally available to customers and make many transfers each month.

The Bureau also believes that a safe harbor based on qualitative criteria could require fact-intensive determinations, and thus, unlike a bright-line threshold, would provide little additional clarity to the market. For instance, a safe harbor based on whether a person “holds itself out” as a remittance transfer provider would require context-specific evaluation similar to the evaluation of whether a person provides remittance transfers in the normal course of business based on the facts and circumstances, in accordance with the guidance in final comment 30(f)-2.i. Thus, such a safe harbor would not accomplish the goals of the February Proposal.

Size of Numerical Threshold

In proposing comment 30(f)-2, the Bureau suggested 25 transfers as a potential threshold, noting that the number would be consistent with the general threshold for coverage under the Bureau's Regulation Z, 12 CFR part 1026, which relates to credit transactions. Under Regulation Z, a creditor is defined as an entity that regularly extends consumer credit under specified circumstances. Generally, under Regulation Z, a person regularly extends consumer credit in the current calendar year when it either extended consumer credit more than 25 times in the preceding calendar year or more than 25 times in the current calendar year.6 See§ 1026.2(a)(17) and comment 2(a)(17)(i)-4.7

6Regulation Z in some cases provides additional protections for credit secured by a dwelling and certain high cost mortgages. For example, with respect to whether a person is a creditor, a person regularly extends consumer credit in the current calendar year if it either extended consumer credit for transactions secured by a dwelling more than five times in the previous calendar year or more than five times in the current calendar year. In addition, a person regularly extends consumer credit if it extends consumer credit for just one high-cost mortgage in a 12-month period.See12 CFR 1026.2(a)(17).

7The Bureau notes that it has issued a separate notice of request for information on whether it should revise these threshold numbers in Regulation Z.See76 FR 75825, Dec. 5, 2011.

The Bureau received a number of comments regarding the appropriate threshold on which to base any safe harbor regarding the definition of “normal course of business.” Consumer group commenters supported the proposed threshold of 25 remittance transfers provided per year. In contrast, most industry commenters suggested a range of higher thresholds. For example, some commenters suggested thresholds based on annual transfer volumes ranging from 50 to 5,000 remittance transfers, or 1,000 remittance transfers per method of transfer. Other commenters suggested thresholds of 75 remittance transfers per month, 25 remittance transfers per day, or other figures. State banking regulators did not suggest a specific threshold, but maintained that the Bureau should base the threshold on data received regarding the number of remittance transfers sent by depository institutions with under $10 billion in assets. These regulators also suggested that the Bureau adopt a threshold for depository institutions that is higher than the threshold for other entities.

Many of the commenters that explained why they believed a higher threshold was appropriate focused on the cost of compliance with subpart B of Regulation E. Both in commenting on the proposed “normal course of business” safe harbor, and more generally, depository institutions, credit unions, and trade associations of depository institutions and credit unions described challenges associated with complying with the February Final Rule. These industry commenters stated that for open network transfers in particular,8 the requirements to estimateor disclose third-party fees and exchange rates, to disclose a transfer's date of availability, and to refund transfers in certain circumstances would be impossible, challenging, risky, or costly to implement. Based on these and related concerns, industry commenters who were focused on the concerns of depository institutions and credit unions generally argued that a threshold higher than 25 was necessary in order to relieve more persons from compliance, to encourage greater continued market participation after subpart B of Regulation E takes effect, or to promote the ability of smaller depository institutions to compete with other providers. A number of industry commenters stated that they expected that some (or many) individual depository institutions and credit unions would limit the number of remittance transfers provided in order to qualify for any safe harbor, or would exit the market for remittance transfers, in order to avoid compliance with subpart B of Regulation E.

8Depository institutions and credit unions have traditionally offered consumers remittance transfers by way of wire transfers, which are generally open network transactions. In an open network, no single provider has control over, or relationships with, all of the participants that may collect funds in the United States or disburse funds abroad. A number of principal providers may access the system. National laws, individual contracts, and the rules of various messaging, settlement, or paymentsystems may constrain certain parts of transfers sent through an open network system. However, any participant may use the network to send transfers to unaffiliated institutions abroad with which it has no contractual relationship, and over which it has limited authority or ability to monitor or control.See77 FR 6194, 6195-97.

Alternatively, some industry commenters urged the Bureau to increase the size of the threshold based on what they described as typical practice among banks. For example, one commenter stated that a typical bank could reach 25 remittance transfers within the first few weeks of a year. It suggested a threshold of 300 remittance transfers per year because, it contended, that figure better represents the number of such transfers that a small institution provides, is still small enough that the excepted transactions would not generate a material source of income for a financial institution, and amounts to, on average, less than one transfer for every 25 accountholders for small banks. That commenter and other industry commenters stated that many or most depository institutions or credit unions are not “in the business” of providing remittance transfers, do not advertise the service, or generally offer remittance transfers only upon request.

Several industry commenters offered other rationales to support thresholds higher than 25 remittance transfers per year. Some industry commenters stated that a threshold of 25 would not be useful because of the complexity of preparing for compliance if the threshold is crossed. One industry commenter advocated for a threshold of 50 remittance transfers, because that figure would constitute approximately one remittance transfer per week. Suggesting a threshold of 75 remittance transfers per year, another industry commenter argued that Regulation Z was an inappropriate reference point for subpart B of Regulation E because financial institutions tend to provide far more fund transfers per year than they do loans. Another industry commenter contended that a threshold of 600 remittance transfers per year was better to exclude institutions that provide remittance transfers infrequently and in response to specific consumer requests.

Industry commenters also suggested that the Bureau commit to reevaluating the threshold on which the safe harbor is based. One industry commenter suggested that the Bureau revisit the safe harbor threshold nine months after the effective date of subpart B of Regulation E to determine whether further adjustment is appropriate. Similarly, another industry commenter suggested that the Bureau annually adjust the safe harbor threshold.

The safe harbor described in § 1005.30(f)(2)(i) of the final rule establishes a threshold of 100 remittance transfers per calendar year. The Bureau believes that it is reasonable to set a higher transaction threshold for determining when remittance transfers are provided “in the normal course of business” than for determining when a person “regularly extends” consumer credit under Regulation Z. There are several reasons why remittance transfers are different from extensions of credit. A single extension of credit typically involves an ongoing relationship between a consumer and creditor that may extend over weeks, months, or years. Credit is often provided as a standalone financial product in its own right, and can generate significant per-transaction revenues over time. A remittance transfer, on the other hand, is a one-time transaction, for which the provider generally collects a one-time set of fees. Revenues per transaction are often relatively low; additionally, remittance transfers are sometimes provided as an adjunct to other financial products (such as a long-term account relationship). As a result, a single extension of credit may be more significant to a business than a single remittance transfer would be to the business of a person that provides such transfers. Furthermore, a single extension of credit may meet the demand of a consumer with ongoing credit needs; on the other hand, multiple remittance transfers may be needed to satisfy the annual demand of a consumer with ongoing transaction needs. Similarly, the Bureau believes that because it is not uncommon for consumers who send money abroad to do so 12 or more times per year,9 a change in the demand of just one or two customers might result in significant variance in the number of remittance transfers provided by a person who sends only a small number of transfers. The Bureau believes the same is less likely to be true of extensions of credit.

9 See, e.g.,Bendixen & Amandi,Survey of Latin American Immigrants in the United States22 (Apr. 30, 2008), available at:http://bendixenandamandi.com/wp-content/uploads/2010/08/IDB_2008_National_Survey_Presentation.pdf.

The Bureau believes that a figure of 100 or fewer transfers per year appropriately accounts for the differences between remittance transfers and extensions of credit. It is high enough that persons will not risk exceeding the safe harbor based on the needs of just two or three customers seeking monthly transfers. At the same time, the Bureau believes that a threshold of 100 is low enough to serve as a reasonable basis for identifying persons who occasionally provide remittance transfers, but not in the normal course of their business. One hundred transfers per year is equivalent to an average of approximately two remittance transfers per week, or the number of remittance transfers needed to satisfy the needs of a handful of customers sending money abroad monthly.

Though industry commenters suggested a number of thresholds higher than 100 remittance transfers per year, the Bureau is concerned that a person who provides more than 100 transfers in a calendar year is more likely than other persons to be providing remittance transfers in the normal course of its business, such as by making transfers generally available to its customers, and by providing them more frequently. Furthermore, the Bureau does not have industry-wide information linking commenters' suggested higher thresholds either to the definition of “normal course of business,” or to other factors that commenters suggested were relevant, such as the cost of compliance with subpart B of Regulation E.

Industry commenters provided little data to support their contentions that any particular threshold was the most appropriate. Two trade associations provided high-level summaries of limited surveys of member banks regarding the number of international funds transfers sent. Otherwise, the comments received in response to the February Proposal generally did not provide data on the overall distribution and frequency of remittance transfersacross providers to support treating any particular number of transactions as outside the normal course of business.

Through additional outreach, the Bureau obtained limited data from several sources regarding the number of remittances transfers and similar transactions provided by individual depository institutions and credit unions, money transmitters, and other small businesses that may also send money abroad. The Bureau hoped that such information might enable the Bureau to better evaluate the comments received, and reveal patterns in the numbers of transfers sent by different types of providers.

The data received include results from several limited surveys of depository institutions and/or credit unions regarding the number of remittance transfers that they send; estimates of the number of consumer-initiated outbound international wire transfers conducted by individual banks and/or credit unions provided through one correspondent bank or a corporate credit union; the number of remittances and other transactions conducted by state-licensed money transmitters in California, New York, and Ohio; and estimates of the number of outbound international transfers provided by individual credit unions using a specialized service. The Bureau also discussed with an industry expert the characteristics of several types of small businesses other than depository institutions and credit unions that may send money abroad, including start-up enterprises and small businesses that send money abroad that are not registered or licensed as money transmitters.

The Bureau does not believe that it can extrapolate from any of the data sets received to the remittance transfer market as a whole or any segment of it, due to factors including the small sample sizes and the Bureau's inability to determine whether the institutions covered in any data set are representative of the market as a whole or any segment of it. Also, regarding some segments of the market, the Bureau did not receive any data. Furthermore, in some cases, the data received may overestimate or underestimate the number of remittance transfers provided. For example, the data sets from a correspondent bank and a corporate credit union may underestimate the number of transactions provided by individual institutions, as these data sets reflect only wire transfers sent through either that correspondent bank or corporate credit union, and the institutions covered by the data sets may use other such intermediary institutions, or send remittance transfers by means other than wire. By contrast, the three states' transaction data both underestimate and overestimate the number of remittance transfers sent. On the one hand, one state provided data regarding transactions only from that state to foreign countries, rather than all international transfers that the state-licensed entities may have sent from the United States. On the other hand, all three states' data mix consumer-initiated outbound international transactions with transactions that are not remittance transfers, as defined in subpart B of Regulation E, including transfers initiated by businesses, domestic transfers, and/or sales of certain payment devices or other state-regulated transactions, depending on the state.

As a result of these limitations, the Bureau does not believe it can rely on the data received to describe the number of remittance transfers provided by “