The Federal Reserve has proposed a new rule that would require remittance companies in the
US to disclose to the sender the exact amount of money received by the recipient, But, asks
Louise Naughton, will it really make a difference?
Go deeper with GlobalData
A proposed rule from the Federal Reserve Board will require remittance transfer providers to make certain new disclosures to senders of remittance transfers. These include information about fees, exchange rates and the amount of currency to be received by the recipient.
In addition, the proposed rule would provide error resolution and cancellation rights for senders.
The primary goal of these new disclosures is to ensure consumers who send remittances are aware of the full cost of sending money outside of the US.
The proposal is being made under Regulation E (Electronic Fund Transfers) to the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law by President Obama in July 2010.
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By GlobalDataAs of 21 July 2011, the Consumer Financial Protection Bureau (CFPB) will assume responsibility of developing and implementing these new disclosure regulations for remittance transfer providers.
Until this transfer date, the Fed will be in charge of developing new regulations, as well as model disclosures that illustrate how the required information can best be provided to consumers.
In light of the switch, the Fed has set a deadline of 20 July 2011 for all comments on the proposed rule to be submitted.
Consumer research
The Fed teamed up with research and evaluation company ICF Macro in November 2010 to research how consumers make decisions related to remittances and what information is useful to them in this context.
Information from focus groups and in-depth interviews across the US was gathered and led to the testing of four categories of disclosure, which were submitted to the Fed in April 2011 via ICF Macros Summary of Findings: Design and Testing of Remittance Disclosures.
The disclosure models that are open for comment are as follows:
- Pre-transaction disclosure: This disclosure, given to the sender before they pay for the transaction, would include the transfer amount, transfer taxes and fees, the exchange rate, and the total amount of money in local currency that would be available to the recipient.
- Post-transaction disclosure: This disclosure would be given to senders after they have completed the transaction. It will take the form of a receipt and re-iterate all of the information provided in the pre-transaction disclosure form.
In addition, it will provide the names, addresses and phone numbers of both sender and recipient, the location at which the recipient will pick up the funds, and the date the funds would be available. - Combined pre/post transaction disclosure: This disclosure combines the timing of the pre-transaction disclosure with the content of the post-transaction disclosure.
- Notification of the confirmation code: This form would be given to consumers after they completed the transaction. It would be a smaller piece of paper than the other forms, containing only the confirmation code associated with the transaction.
Following testing of the disclosure types via in-depth cognitive interviews in New York during January 2011, mostly minor changes were made to the forms. The only major change was the inclusion of a consumers cancellation rights.
As participants assumptions regarding cancellation rights varied widely, the sentence "You may have the right to cancel this transaction within 24 hours of payment" was added to all forms.
This phrase was changed again after a second round of interviews to "the right to cancel for a full refund".
Industry reaction
It is too soon to say what remittance transfer providers plan to do with the Feds proposal, as formal comments are yet to be published, but MoneyGram told EPI: "We recognise this is an important industry issue for consumers and our business.
"We have been engaged in discussions with the Federal Reserve Board since the rulemaking process began in late 2010, and will continue to participate in this.
"MoneyGram is currently reviewing the proposed rule in anticipation of submitting comments to the Fed by the July 20 deadline."
In a similar vein, Western Union has commended the Fed on its "thorough and transparent approach" to this issue. It shares the same belief that providing consumers with the information they need to make an informed decision will benefit its customers if all remittance providers are held to the same requirements.
It said: "While there are a number of important issues addressed in the Federal Reserve Boards proposed rule that we are currently reviewing, Western Unions initial assessment is that we are in agreement with the Feds conclusion allowing for a single written disclosure on fees and exchange rates."
