The CFPB Issues Proposed International Money Transfer Larger Participant Rule

Proposed rule would subject international money transmitters with at least one million aggregate annual transfers to the CFPB's supervision and examination of compliance with federal consumer financial laws

On January 23, 2014, the Consumer Financial Protection Bureau (CFPB) proposed a new rule to define "larger participants" of the international money transfer market who will be subject to the CFPB's supervisory authority. As proposed, entities with at least one million aggregate annual international money transfers will be larger participants under the rule, which the CFPB estimates is approximately 25 international money transfer providers. For the first time, these larger participants will be examined for compliance with federal consumer financial laws.

The CFPB's rulemaking stems from the authority granted under the Dodd-Frank to supervise larger participants of markets for consumer financial products or services. Already, the CFPB has defined larger participants in the consumer reporting, consumer debt collection and student loan servicing industries, with the international money transfer market to be the fourth such industry in which the CFPB has asserted its jurisdiction.

Defining 'Larger Participants' in the International Money Transfer Market

The proposed CFPB rule defines the international money transfer market as one that covers certain electronic transfers of funds sent by nonbanks that are international money transfer providers. To be included in this proposed market, transfers have to be requested by a sender in a state to be sent to a designated recipient in a foreign country. As noted, the proposed rule provides that an entity would be a larger participant if it has at least one million aggregate annual international money transfers. However, the CFPB's proposal requests comment on whether annual receipts, annual transmitted dollar volume, or any other criteria or threshold might be a better measure to determine larger participants in the international money transfer market.

CFPB Supervision and Examination: An Addition to Existing State Regulation

Notably, the examination of larger participants by the CFPB would include examinations for compliance with the Electronic Funds Transfer Act (EFTA) and its implementing regulation, Regulation E, which includes the remittance transfer rule. In addition, larger participants would be examined as to whether they are engaging in unfair, deceptive or abusive acts or practices in the international money transfer market.The CFPB's supervision and examination will be in addition to the existing federal and state money transmitter registration and licensing framework, thereby adding another layer of regulation in the form of consumer protection.

Money transmitters are required to register with the Secretary of the Treasury and 47 states require money transmitters to obtain licenses. Many of those states already actively examine money transmitters and impose requirements beyond those of what the CFPB will require, such as requiring Bank Secrecy Act/Anti-Money Laundering (BSA/AML) policies and procedures as a prerequisite to licensing and examining those policies and procedures on an ongoing basis. The CFPB notes in its proposal that it will coordinate its examinations of larger participants of the international money transfer market with appropriate state regulatory authorities.

Summary of Proposed Rule and Comment Period

The rationale behind the proposed rule is that increasing the rate of compliance with federal consumer financial laws in the international money transfer market will benefit consumers with additional protections mandated by those laws. As a result of the CFPB's supervision of larger participants of the international money transfer industry, those larger participants will be forced to ensure that their compliance policies and procedures comply with applicable laws, which will trigger internal compliance assessments and more rigorous monitoring programs at those entities.

Ultimately, in accordance with applicable federal consumer financial laws, consumers making international money transfers should receive the benefits of required protections such as enhanced disclosures, the option to cancel and error investigation and correction procedures. Comments to the proposed rule may be submitted for 60 days after the rule's publication in the Federal Register.


Timothy R. McTaggart is a partner in the Washington, D.C. office of Pepper Hamilton LLP. McTaggart previously served as the Delaware State Bank Commissioner.

Andrew R. Mavraganis is an associate in the Wilmington, Delaware office of Pepper Hamilton LLP and is in the firm's financial services practice group.

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