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14 February 2014
On January 23 2014 the Consumer Financial Protection Bureau (CFPB) issued a proposed rule that would permit the CFPB to supervise non-bank international money transfer providers that satisfy the proposed rule's definition of a 'larger participant'. According to the CFPB's press release, the proposed rule's impetus is to provide the CFPB with supervisory authority to ensure that non-bank international money transfer providers, which generally are not subject to CFPB oversight, adhere to the CFPB's consumer protection rules for international remittances.(1)
The proposed rule defines a 'larger participant' in the international money transfer market as any "non-bank covered person"(2) that has at least 1 million aggregate annual international money transfers. Under CFPB regulations, a non-bank entity that qualifies as a larger participant remains a larger participant until two years after the first day of the tax year in which the entity most recently qualified as a larger participant. As discussed below, any entity that qualifies as a larger participant(3) is subject to the CFPB's supervisory authority.
The proposed rule is concerned only with international money transfers conducted for consumers, regardless of whether the consumer holds an account with the transfer provider. Thus, the number of international money transfers for businesses performed by an entity does not affect whether the entity qualifies as a larger participant. In addition, the proposed rule requires an entity to aggregate all international money transfers conducted by the entity's agents on its behalf and by its non-bank affiliates. However, an entity should not include any transfers it conducted as agent on another's behalf.(4)
The proposed rule's definitions are modelled on the corresponding terms in the remittance rule and in the Electronic Fund Transfer Act. However, one important distinction is that the remittance rule does not apply to transfers of $15 or less, while the proposed rule considers all transfers towards the numeric threshold in order to determine whether one qualifies as a larger participant.
In determining whether it satisfies the annual threshold, a non-bank entity should calculate the number of international money transfers it has conducted over the past three years (together with its non-bank affiliates and agents) and divide by three. If the non-bank entity has been in business for less than three years, it should calculate the total number of its international money transfers (together with its non-bank affiliates and agents), divide by the number of weeks that the non-bank entity has been in business and multiply by 52.
While non-bank international money transfer providers are generally subject to the remittance rule, the CFPB is usually unable to examine such providers, in the absence of the proposed rule, unless the CFPB has reasonable cause to believe that a provider is engaging, or has engaged, in conduct that poses a risk to consumers. However, under Section 1024 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB has supervisory authority over larger participants(5) in consumer financial products or services markets, which the CFPB may define by rule.(6) The CFPB estimates that approximately 25 non-bank international money transfer providers (responsible for approximately 90% of non-bank international money transfers) would satisfy the proposed rule's 'larger participant' definition, and therefore would become subject to the CFPB's supervisory authority. The proposed rule does not give the CFPB supervisory authority over entities specifically exempted by the Dodd-Frank Act, such as securities broker-dealers regulated by the Securities and Exchange Commission.
Comments are due 60 days after the proposed rule's publication in the Federal Register. Comments are accepted on any portion of the proposed rule, but the CFPB has specifically invited comments regarding whether the threshold of 1 million transfers should be raised or lowered (the CFPB discusses a lower level of 500,000 and a higher level of 3 million transactions), or whether the proposed rule should instead consider annual receipts or annual transmitted dollar volume.
For further information on this topic please contact David E Teitelbaum, Joel D Feinberg or Steven Haidar at Sidley LLP by telephone (+1 202 736 8000), fax (+1 202 736 8711) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Sidley website can be accessed at www.sidley.com.
(1) On April 30 2013 the CFPB released the remittance rule in final form after several amendments. The remittance rule implemented the remittance transfer provisions in Section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, the remittance rule (for further details please see "CFPB finalises remittance rule"):
(2) 'Non-bank covered person' means any person that engages in offering or providing a consumer financial product or service and any affiliate of such person if such affiliate acts as a service provider to such person. 12 CFR § 1090.101.
(4) The preamble to the proposed rule further notes that while agents generally would not qualify as larger participants, the CFPB already has supervisory authority over an agent's performance of services for a larger participant where an agent acts as a service provider to a larger participant. See 12 USC § 5514(e).
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