AFR in the News: U.S. Banks Push Consumer Bureau to Postpone Rule on Remittances
U.S. Banks Push Consumer Bureau to Postpone Rule on Remittances
2012-08-16 18:56:17.327 GMT
By Carter Dougherty
Aug. 16 (Bloomberg) — U.S. banks are lobbying the consumer finance bureau to delay rules on international money transfers, saying they can’t meet a Feb. 7 deadline for disclosing costs to customers and might have to exit the business.
Banking trade groups sought the delay at an Aug. 10 meeting with Richard Cordray, director of the Consumer Financial Protection Bureau. In a letter dated today, a bipartisan group of 32 U.S. lawmakers also asked Cordray to push back the “nearly impossible” deadline. The rule, part of the 2010 Dodd-Frank law, requires banks and companies including Western Union Co. and MoneyGram International Inc. to tell consumers sending remittances outside the U.S. what amount will be available at the other end after fees and taxes. It also outlines the rights of consumers to refunds in the event of errors.
“This is really the first rule that tests whether the bureau will write rules that benefit consumers,” said Wayne Abernathy, executive vice president at the American Bankers Association, who attended the meeting with Cordray. “If you decrease the number of providers, you will raise costs.” Besides Abernathy’s group, the meeting included representatives of the Consumer Bankers Association, the Independent Community Bankers of America and The Clearing House. Banks represented by one or more of the groups include JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co., as well as many much smaller players.
Margot Saunders, an attorney with the Boston-based National Consumer Law Center, said in an interview that it’s the responsibility of the industry to determine how to meet the requirements. “It should not be that the law meets the industry. That’s not the point,” Saunders said. Cordray told the banking representatives that the agency would keep the deadline and offered to work with companies to solve the practical problems of implementation, according to a person briefed on the meeting who spoke on condition of anonymity because the discussions weren’t public. The congressional letter, initiated by Representatives Blaine Luetkemeyer, a Missouri Republican, and Yvette Clark, a New York Democrat, asked that the consumer bureau delay the rule and conduct a “comprehensive study” of the impact. “Consumer access to international funds transfers through their banks, credit unions and broker-dealers is now in serious jeopardy due to the nearly impossible compliance challenge that financial institutions must solve by next February,” they wrote.
Remittance companies make money by imposing a flat fee and managing exchange-rate risk. For example, a $100 remittance to Mexico might cost $10 to send. The recipient would get $90 in pesos, while the company would profit from the spread between the wholesale and retail exchange rates. The World Bank has estimated that small remittances worldwide totaled $440 billion in 2010. The U.S. rule covers not
only small remittances, such as one from a migrant worker to family back home, but all international transfers. Abernathy said the banking lobbyists told Cordray that they need more time to develop a system to predict — and disclose to customers — how exchange rates, fees and taxes will affect the final amount of a remittance. Unlike Western Union and MoneyGram, which operate so-called closed networks in which the sender and receiver usually both go to an agent of the company, banks send money through an unaffiliated network of banks, and may not know which ones will have a hand in a given transfer. Calculating the transaction is a particular challenge for smaller banks, the lobbyists argued.
“While these networks enable consumers to send funds account to account almost anywhere in the world, they do not enable a financial institution in the U.S. access to the exact exchange rate, third-party fees and foreign taxes required by the rule,” the lawmakers wrote in their letter to Cordray. Tom Fitzgerald, a spokesman for Western Union, and Patty Sullivan, a spokeswoman for MoneyGram, said the companies aren’t seeking a delay in the rule. “Until somebody says that the date has changed, that is the date for us,” Sullivan said in an interview.
Consumer groups sent their own letter today to leaders of the House and Senate committees overseeing the finance industry, urging that they support the February deadline. They wrote that money transfer providers, including banks, are bluffing about the potential costs to consumers.
‘Find a Way’
“We believe that most banks, credit unions and remittance transfer providers will find a way not only to comply with the rule on time, but also to embrace the transparency and
accountability to their customers without complaint,” wrote Americans for Financial Reform, a coalition of consumer advocates, civil-rights activists and labor unions. Saunders, whose group signed the letter, said that the Dodd-Frank law provides flexibility: a five-year grace period during which firms can estimate the costs to consumers, or not provide estimates at all if it’s too difficult for a given country.
The rule on remittances was the first regulation completed by the consumer bureau, which marked its one-year anniversary on July 21. It approved the regulation in February amid criticism from Republicans that it imposed heavy burdens on providers. On Aug. 7 the bureau added an exemption for companies that provide fewer than 100 remittances per year. The Independent Community Bankers of America, which represents smaller banks, has said the threshold for the exemption is too low.
For Related News and Information:
Today’s top financial stories: FTOP <GO>
On financial regulation: NI FINREG BN <GO>
Stories on Richard Cordray: NI ?15428821 <GO>
–Editors: Lawrence Roberts, Gregory MottTags: press