The CFPB Defines Foreign Remittance Transfer “Larger Participants”

By: David L. Beam, Christopher G. Smith

The Dodd-Frank Act provided the CFPB with examination authority over, among others, “larger participants” of consumer financial product and service markets. Almost three years ago, the CFPB issued an Advance Notice of Proposed Rulemaking targeting various industries whose larger participants it was eyeing for regular examination, including money transmission. In January 2014, the CFPB issued a proposed larger participants rule for a subset of money transmitters – those engaged in foreign remittances.

The proposed larger participants rule is closely intertwined with last October’s Remittance Rule. The Remittance Rule focused on disclosures to be provided to consumers, a “cooling off” period during which a consumer may cancel the transaction, and the correction of errors by companies providing remittance transfers. Through the Remittance Rule, the CFPB sought to improve the predictability of remittances and provide consumers with better price information.

In January, to complement the Remittance Rule, the CFPB proposed a rule declaring certain nonbank entities that provide foreign remittance transfer services “larger participants” of the consumer financial market. Designation as a larger participant would subject entities to the CFPB’s supervisory authority, allowing the CFPB to conduct examinations to assess compliance with the Remittance Rule. Noting the CFPB’s report that over four million households in the United States used a nonbank to transfer funds abroad in 2010, and predicting that number to be relatively steady year over year, the CFPB remarked on the critical role that international money transfers play in the lives of many consumers and the unique challenges of such transfers. The CFPB further noted that the proposed rule would promote the CFPB’s objective of enforcing federal consumer financial law consistently, without regard to whether an entity is a depository institution or not.

Accordingly, the CFPB proposed that any nonbank money transfer provider that provides more than one million international money transfers annually be designated a “larger participant,” and thus subject to the CFPB’s supervisory authority. Based on estimates, the CFPB believes that will capture the 25 largest international money transfer providers, which together account for roughly 90 percent of the nonbank international money transfers. The CFPB believes that, collectively, those 25 providers accounted for approximately 140 million transfers in 2012, making up a total volume of $40 billion in transfers.

The CFPB is also considering alternative methods of identifying “larger participants,” including a different threshold of transfers, a calculation based upon annual receipts, or another method. Lowering the threshold to 500,000 annual transfers, for example, would capture an additional three entities or 1.5 percent of the transfers in the market, while raising the threshold to three million transfers would result in supervision of only the largest 10 entities, accounting for roughly 75 percent of the market. Alternatively, the CFPB could base the determination on annual receipts or annual transmitted dollar volume. Using one of these metrics would be more complicated than the use of number of transfers, but the CFPB is seeking comment on whether one of them would be more appropriate.

Designation as a larger participant subject to the CFPB’s supervisory authority carries important additional responsibilities and concerns. Designated larger participants will be subject to examination proceedings and their intrinsic costs. Should an examination result in an adverse finding, there will be additional costs to become compliant. Finally, entities close to the threshold may incur costs just to discern whether they qualify as larger participants. Without those costs, entities that do not qualify as larger arguably have a competitive advantage. We urge companies to consider the ways in which designation as a larger participant may affect their profitability margins and, if appropriate, to consider submitting a comment to the CFPB. Comments will be accepted until April 1, 2014. We would be happy to answer any questions regarding this proposal and, of course, to aid in drafting any comments.


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