On April 19, the CFPB issued a final preemption determination regarding whether the Electronic Fund Transfer Act (EFTA) and Regulation E preempt certain unclaimed gift card laws in Maine and Tennessee. The EFTA, as implemented by Regulation E, generally prohibits any person from issuing a gift certificate, store gift card, or general-use prepaid card with an expiration date, though under certain conditions, the card may have an expiration date so long as it is at least five years after the date of issuance (or five years after the date that funds were last loaded). The CFPB determined that the Maine law does not interfere with a consumer’s ability to use a gift cards at point-of-sale for at least as long as guaranteed by the EFTA and Regulation E because it requires the issuer to honor the gift card on presentation indefinitely even if the unused value has been transferred to the state. For Tennessee, the CFPB reached the opposite conclusion because the Tennessee provision permits issuers to decline to honor gift cards as soon as two years after issuance. According to the CFPB, the Tennessee law is inconsistent with federal law because, in effect, the provision allows funds to expire sooner than is permitted under EFTA and Regulation E.
On April 30, the CFPB issued a revised final rule to amend regulations applicable to consumer remittance transfers of over fifteen dollars originating in the United States and sent internationally. Generally, the rule requires remittance transfer providers to (i) provide written pre-payment disclosures of the exchange rates and fees associated with a transfer of funds, as well as the amount of funds the recipient will receive, and (ii) investigate consumer disputes and remedy errors. The revised rule makes optional the original requirement to disclose (i) recipient institution fees for transfers to an account, except where the recipient institution is acting as an agent of the provider and (ii) taxes imposed by a person other than the remittance transfer provider. Instead, the revised rule requires providers to include a disclaimer on disclosures that the recipient may receive less than the disclosed total value due to these two categories of fees and taxes. The revised rule exempts from certain error resolution requirements two additional errors: (i) providing an incorrect account number or (ii) providing an incorrect recipient institution identifier. For the exception to apply, a remittance transfer provider must (i) notify the sender prior to the transfer that the transfer amount could be lost, (ii) implement reasonable measures to verify the accuracy of a recipient institution identifier, and (iii) make reasonable efforts to retrieve misdirected funds. In addition, the revised rule provides institutions more time to comply with the new remittance transfer standards. The final regulations, as revised by this rule, take effect on October 28, 2013.
On December 21, the CFPB proposed revisions to the remittance transfer rule it finalized earlier this year and already once modified. The proposed revisions follow a November 2012 bulletin from the CFPB in which it stated its intent to pursue a fast-track rulemaking to delay the effective date of the rule while addressing certain industry-raised concerns. The proposed revised rule would (i) provide increased flexibility and guidance with respect to the disclosure of taxes imposed by a foreign country’s central government, as well as fees imposed by a recipient’s institution for receiving a remittance transfer in an account, (ii) require disclosure of foreign taxes imposed by a country’s central government, but would eliminate the requirement to disclose taxes imposed by foreign regional, provincial, state, or other local governments, and (iii) require a provider to attempt to recover funds without bearing the cost of funds that cannot be recovered, when the provider can demonstrate that the consumer provided an incorrect account number and certain other conditions are met. The proposed rule also would push back the effective date of the remittance transfer rule from February 7, 2013, to 90 days after the revised rule is finalized. The CFPB is accepting comments on the delayed effective date for 15 days following publication in the Federal Register, and it is accepting comments on the substantive revisions for 30 days following publication in the Federal Register.
On November 29, FinCEN and the Federal Reserve Board announced that they are seeking comments on a proposed rule to amend the definitions of “funds transfer” and “transmittal of funds” set forth in the regulations implementing the Bank Secrecy Act. The proposed rule explains that the changes are designed to ensure that the current scope of the definitions is not expanded, following recent related amendments to the Electronic Fund Transfer Act. Comments on the proposed rule are due by January 25, 2013.
On November 27, the CFPB issued a bulletin announcing that it intends to delay the effective date of the new remittance transfer rule finalized earlier this year and already once modified. Per Bulletin 2012-08, the CFPB plans to pursue a fast-track rulemaking next month to alter provisions of the final rule relating to: (i) situations in which incorrect account numbers are provided by senders of remittance transfers, and (ii) the disclosure of certain foreign taxes and fees charged by financial institutions receiving remittance transfers. The rulemaking also will propose an extension of the February 7, 2013 effective date of the rule until 90 days after the CFPB finalizes the rulemaking. The CFPB’s Bulletin follows pleas from industry groups and Members of Congress to change the rule and the implementation timeline. The CFPB action also follows an announcement this week by the Federal Home Loan Bank of New York (FHLBNY) that it plans to stop processing international wire transfers for its members on December 31, 2012, based on its concern that the CFPB rule would create potential risks that are too great for what the FHLBNY considers a non-core service.
On October 16, the CFPB will host a webinar on the new requirements for remittance transfer providers. The CFPB issued a final remittance rule at the beginning of this year, and subsequently modified the rule to exempt certain institutions from its disclosure requirements. To further assist industry stakeholders with implementation of the remittance rule, the CFPB has also released a list of countries that qualify for the safe harbor exception to the rule’s disclosure requirements. Under the exception, providers may disclose estimates of the amounts to be received in a foreign currency, fees, and taxes for transfers to Aruba, Brazil, China, Ethiopia, and Libya, in lieu of exact amounts. The remittance rule, and its safe harbor exception, becomes effective February 7, 2013.
On September 20, CFPB Director Richard Cordray appeared before the House Financial Services Committee in connection with the CFPB’s Semiannual Report issued July 30, 2012. During the House hearing the Director faced questions on topics covered during prior committee hearings, including (i) the status and potential impact of the CFPB’s qualified mortgage/ability to repay (QM) rule, (ii) whether that rule will provide a safe harbor or a rebuttable presumption, (iii) whether the CFPB will commit to a definition of “abusive” practices, and (iv) whether the CFPB will raise the threshold for banks exempt from compliance with new CFPB remittance rules. Mr. Cordray reiterated that the QM rule will be finalized before the end of 2012, and that while the final regulations are still under consideration, the CFPB intends to provide bright line standards to help limit litigation risk. He continued to avoid offering a definition or description of abusive practices and did not express a willingness to revisit the remittance standards. Mr. Cordray also revealed that the CFPB has determined that it cannot resolve through the issuance of guidance a problem with the application of the Federal Reserve Board’s credit card ability to repay rule that is restricting access to credit for stay-at-home spouses. Mr. Cordray committed to releasing a proposed rule to remedy the problem prior to Congress’ return following the November elections.
On August 16, the CFPB issued a Notice that it intends to make a preemption determination with regard to two state gift card laws. The CFPB is seeking public comment to inform its response to requests that the CFPB address conflicts between the EFTA’s gift card expiration provisions and those in Maine’s and Tennessee’s laws. The Notice explains that Maine’s and Tennessee’s laws presume gift cards to be “abandoned” and release businesses from the obligation to honor the gift cards after two years of inactivity, while federal law generally prohibits the sale of a gift card with an expiration date under five years. The CFPB requests public comment on whether there is any inconsistency between the identified state and federal expiration date provisions and, if so, on the nature of the inconsistency. The CFPB also seeks comment on whether card issuers could comply with the federal and state laws as they currently exist, and whether the Maine and Tennessee laws provide greater consumer protection than the federal law.
On August 16, a group of thirty-two Members of the House of Representatives sent a letter to CFPB Director Richard Cordray asking that the Bureau delay the effective date of recently adopted remittance transfer rules and examine the potential impact of the rules on consumers. The legislators state that the rules, which are set to take effect in February 2013, include “arbitrary and unworkable requirements . . . that will drastically curtail the availability of international transfers to consumers.” Specifically, the letter argues that the final rule (i) includes disclosure requirements that are infeasible for the majority of financial institutions, (ii) will work against the statutory mandate that policymakers expand the use of the automated clearinghouse system, and (iii) risks increasing fees for consumers.
On August 7, the CFPB released a final rule supplementing and modifying a previously issued rule that amends Regulation E and requires remittance transfer providers to (i) deliver written pre-payment disclosures of the exchange rates and fees associated with a transfer of funds, as well as the amount of funds the recipient will receive, and (ii) investigate consumer disputes and remedy errors. With the previous final rule, the CFPB sought comment on additional revisions that would (i) set a specific safe harbor for remittance transfer providers that do not provide such services in the “normal course of business” and (ii) apply the new disclosure and cancellation requirements in cases where the request is made several days in advance of the transfer date. In response to those comments, the modified rule now exempts institutions that do not provide transfers in the “normal course of business” if they consistently conduct 100 or fewer remittance transfers per year. The final rule also modifies several aspects of the prior rule regarding remittance transfers that are scheduled before the date of transfer, including preauthorized remittance transfers.
On July 30, the FTC released staff comments submitted in response to the CFPB’s Advance Notice of Proposed Rulemaking regarding the regulation of prepaid cards. The CFPB issued the Notice in May, noting its intention to extend Regulation E to cover general purpose reloadable gift cards and seeking comment, data, and information about such cards. In response, the FTC staff comments review the current regulation of payment cards, and identify for the CFPB’s consideration several consumer protection issues that may arise with regard to prepaid cards, including (i) liability limits, (ii) disclosure and fees expiration dates, (iii) error resolution procedures, (iv) authorization standards for recurrent payments, and (v) consumer access to account information.
On July 25, the U.S. District Court for the District of Minnesota granted summary judgment to a consumer alleging that the placement of an ATM fee notice on the inside of a “hooded ATM” was not “prominent and conspicuous” as required under the Electronic Funds Transfer Act (EFTA). Brown v. Wells Fargo & Co., No. 11-1362 2012 WL 3030294 (D. Minn. Jul. 25, 2012). The consumer, on behalf of a putative class, alleged that the ATM fee disclosure was placed on the inside of the hood protecting the screen, and not in a more conspicuous position. The consumer did not contest that the disclosure was provided electronically on the screen, as also required by the EFTA, and that he was aware before completing the transaction that he would be charged a fee. Because the EFTA does not define “prominent and conspicuous,” the court looked to other consumer protection statutes to determine that the disclosure must be displayed such that a reasonable person ought to have noticed. In this case, the court held that a reasonable person would not conclude that the notice was prominent and conspicuous because (i) the disclaimer was not in capital letters, (ii) the type and background of the notice were in a coordinating, not contrasting color, (iii) the notice was placed inside the hood as opposed to on top of the machine, and (iv) the notice generally did not stand out relative to other information on or near the ATM. While the court granted the consumer’s motion for summary judgment on the EFTA claims, the court disposed of his claim for unjust enrichment, and refused to certify the class, holding that the consumer failed to meet the requirements of either Rule 23(a) or (b). As we have reported in recent weeks, the U.S. Congress is considering legislation that would eliminate the physical fee disclosure requirement, and instead require that ATM operators only provide an on-screen notice.