On April 30, the CFPB announced revisions to Regulation E (Reg E), the soon to be implemented rules that govern international money transfers for consumers. There had been big concerns about the law as it was initially presented and the most important concerns have been
addressed in this revision. The revisions preserve some consumer protections but also will facilitate the banking industry and in particular smaller banks' ability to comply with the rules. An effective date of October 28, 2013 was set to allow providers of international transfers sufficient time to adapt to the new rules.
The original iteration of Reg E required providers of international money transfers such as community banks to disclose to their consumer customers fees related to the provider, its agents, any foreign taxes and fees of the receiving institution that would be charged. It is almost impossible for a provider on one side of a transaction to know the fees being imposed by the other side in order to disclose them. As a result, this part of the rule would have made it quite difficult for banks other than the largest global banks or Western Union to continue to take part in the international business. The new revisions to the rules address this by making the disclosure of foreign taxes and of fees imposed by a recipient institution that is not the provider's agent optional. Providers must include a disclaimer that other fees and taxes may apply, but calculating the numbers to the penny has disappeared.
Another concern over the original rule was over errors that inevitably occur in international money transfers due to a customer providing an incorrect account number or similar information. In the original version of the rule, the bank was responsible and bore the cost even if the error was not the bank's fault. In the revised rule, the bank is required to attempt to recover the funds sent with incorrect information, but it is not required to return the funds if the error was a result of incorrect information provided by the customer (unless the bank is able to collect the funds). These revisions reinforce the ability of community banks to continue to help customers with international wire transfers without all of the risks of the original version.
Regular readers of the Banc Investment Daily know that we have followed this issue with a lot of interest since the rules first came out in February of 2012. It's not just because PCBB is a provider of international services to community banks, but is driven by the fact we strongly feel international transfers are a real area of opportunity for community banks. Banks can provide services that customers want and need in this global world, as they earn fee income and meet customer requirements.
It is clear from yesterday's statement following the FOMC meeting and from continuing economic trends, that we are likely to be in a low interest rate environment for some time. This has created a real challenge for community banks; given about 80% to 90% of earnings tend to be interest rate dependent. The world is getting smaller and your customers require sophisticated services including international transfers.
If your bank doesn't offer international services yet and you want to know how to do it, give us a shout and we will show you how easy it can be to get started. As with every service we offer, making sure the regulatory part is taken care of up front is our first priority.