Previously, under the Electronic Fund Transfer Act passed in January, only financial institutions with fewer than 25 international transfers, or remittances, a year would have been exempt from the rules, which require banks to disclose associated fees, taxes and exchange rates before international transfers are made.
Remittances from family members living in the United States are a key source of income for many in the developing world, totaling more than $50 billion in 2010, the last year for which data from the World Bank is available. Until recently, consumers were often not told which exchange rate would be used for the transfer or how much the recipient would actually get.
“With these new protections, international money transfers will be more reliable,” Richard Cordray, director of CFPB, said in a statement. “Consumers will know the costs ahead of time and be able to compare prices. Transfer providers will also be held accountable for errors that occur in the process.”
The measures, which go into effect in February, also require banks to tell customers exactly how much money will be deposited into the receiving account.
Critics had argued that banks and credit unions would face high costs to become compliant with the new regulations, and that many smaller banks would be forced to stop offering foreign transfers altogether.
“We’re not just talking calculating federal taxes, we’re also talking local taxes — and there’s no database for that,” said Cary Whaley, vice president of payments and tech policy for the Independent Community Bankers of America. “The industry is really going to have to figure things out by February.”
Lynette Smith, president and chief executive of Washington Gas Light Federal Credit Union in Springfield said she was planning to cancel the credit union’s international transfers program before the latest round of exemptions. The credit union currently facilitates an average of three foreign transfers a month, or about 36 a year.
“We’re OK for now, but this is going to be catastrophic for the industry,” Smith said. “What if our credit union grows and we start doing more than 100 [remittances] a year? I just know that it’s something that I can’t afford.”