2020 Remittance Transfer Rule Amendments
The Remittance Transfer Rule under Regulation E affords a variety of protections to consumers who engage in remittance transfers transactions. The Electronic Fund Transfer Act (EFTA) which is implemented by Regulation E, outlines the rights, responsibilities, and the liabilities of both the consumers and the financial institutions who participate in electronic fund transfers and remittance transfers. Over the years, there have been a number of revisions made to Regulation E, including the 2013 and 2014 amendments to the Remittance Transfer Rule. Those amendments established a disclosure and error resolution system for consumers using remittance transfer providers when sending remittances to recipients located in foreign countries. Changes were brought about again on May 11, 2020 when the Bureau of Consumer Financial Protection (CFPB) issued a final rule amending the Remittance Transfer Rule. So, what does the latest amendment mean and how does it impact financial institutions?
The final rule, effective July 21, 2020, provides two major changes to the Remittance Transfer Rule or Subpart B of Regulation E. First, the rule increased the safe harbor threshold, which is used to determine whether remittance transfers are part of the normal course of business, from 100 remittance transfers annually to 500 remittance transfers annually. A person is deemed to be providing remittance transfers for a consumer in the normal course of its business if they exceed 500 remittance transfers annually, likewise, they are deemed not to be providing remittance transfers for a consumer in the normal course of its business if they do not exceed this threshold annually. This means that a person will qualify for safe harbor and the Remittance Transfer Rule requirements will not apply if 500 or fewer remittance transfers were provided in the previous calendar year and in the current calendar year. For example, if a person provided 499 remittance transfers in 2019 and 499 remittance transfers in 2020, they would not be subject to the Remittance Transfer Rule and they would also qualify for safe harbor beginning on the effective date of the final rule. Second, the rule mitigates the effects of the expiration of insured institutions to disclose estimates for certain fees and exchange rates when certain conditions are met. To disclose an estimate of covered third-party fees, the conditions which must be met include: 500 or fewer transfers by an insured financial institutions to a designated recipient’s institution in the prior calendar year; and the insured financial institution cannot determine, at the time the disclosures are required to be provided, the exact amount of the covered third-party fees which will be imposed on a particular transfer. The conditions which must be met to disclose an estimate of the exchange rate for a particular transfer to a country when the designated recipient of the remittance transfer will receive funds in the country’s local currency include: the insured institution made 1,000 or fewer transfers to the country in the previous calendar year; and the exact exchange rate cannot be determined for a particular remittance transfer. One thing to keep in mind about providing estimates is that this is temporary. Exact amounts are required to be provided and the allowance for providing estimates of fees and exchange rates expired on July 21, 2020. However, the CFPB allowed insured institutions a “reasonable period of time” as they transition from providing estimates to providing exact amounts. Exact fees and exchange rates must be provided after a “reasonable time period” (not to exceed six month) setting a deadline of January 21, 2021.
Highlighting the CFPB’s “Supervisory Highlights
On September 4, the CFPB released the latest edition of their “Supervisory Highlights” which gives us insight into recent examiner findings. This recent edition focuses on findings in the areas of consumer reporting, deposits, and fair lending, among others. Since each of these areas play major roles in all banks, let’s take a close look at what the regulators are seeing.
First up, consumer reporting, which falls under FCRA and Regulation V. According to this edition, examiners found deficiencies in user and furnisher compliance with FCRA permissible purpose, accuracy, and dispute investigation requirements. We see lots of questions about whether or not a specific scenario is considered a “permissible purpose” to pull credit. Section 604 of the FCRA tells us that a permissible purpose exists when (a) the consumer has instructed/authorized the bank in writing to pull credit; (b) when ordered by a court or a federal grand jury subpoena; (c) for the extension of credit as a result of an application, or the review or collection of an account; (d) for employment purposes, with the consumer’s written permission; (e) when there is a legitimate business need, in connection with a consumer initiated business transaction; and (f) to review an account to determine whether the consumer continues to meet the terms of the account. In addition, creditors may pull credit making “prescreened” unsolicited offers of credit or insurance. Ensure that your policies and procedures clearly define “permissible purpose” and test to ensure these procedures are followed.
Next, issues with the deposits regulations; Electronic Funds Transfer Act, Regulation E and Truth in Savings Act, and Regulation DD. Regulation E and the EFTA together establish that consumers have a right to have an error investigated subject only to the requirements set forth in EFTA and Regulation E. Examiners found that some banks were having consumers sign deposit agreements stating that consumers would “cooperate” with the bank’s investigation of any errors by providing affidavits and notifying law enforcement. By forcing consumers to provide this type of information or take these additional steps, these agreements effectively waived the consumers’ rights in violation of EFTA. This is another area that we see a large number of questions about. While you can suggest that the consumer notify law enforcement in cases of theft or fraud, you cannot require that they do so as part of your investigation process and delay the timing until such notification has been made.
Fair lending is next, but this issue is one that many don’t think of…models in advertising and redlining. Examiners observed that lenders were intentionally redlining majority-minority neighborhoods through marketing by engaging in acts or practices directed at prospective applicants that may have discouraged reasonable people from applying for credit. So what were the lenders doing? Their advertisements and marketing materials featured almost exclusively white models. The lenders also included headshots of their mortgage professionals, who appeared to be white, in most of the open house marketing materials. In examining data, evidence showed intent to discourage prospective applicants on a prohibited basis. Be sure that you are diverse in your advertising and be aware of materials that go out to the public. With so many other things that require attention, don’t let this one sneak up on you.
Cost and Benefits of the CARES Act
Congress passed the Coronavirus, Aid, Relief and Economic Security (“CARES”) Act on March 27, 2020, to provide economic relief resulting from strenuous burdens of the COVID-19 pandemic. The Act provides significant relief through programs such as the Paycheck Protection Program (PPP), and relaxing certain requirements of the Fair Credit Report Act (FCRA.) These programs stimulate employment and relieve consumers of credit-related liabilities, beyond what Congress intended when passing the FCRA.
However, despite these benefits, the CARES Act also placed substantial compliance costs on institutions subject to its provisions. For example, under the PPP, the Small Business Administration (SBA) forgives loans made to certain entities when the funds are used for qualifying expenses. To accommodate the purpose of the CARES Act, underwriting requirements for a PPP loan are significantly less onerous than generally applied in small business lending. This factor, coupled with the increased volume of loan applications, resulted in disingenuous applicants submitting fraudulent loan applications to take advantage of funds Congress allocated for emergency relief. Indeed, the United States Department of Justice (DOJ) recently announced a total of $157 million, of total identified fraudulent applications and 57 persons indicted on PPP loan fraud charges, to date.
While the PPP fraud issue is a general national cost, it presents very particular costs to banks and lenders. It limits the ability of lenders to process legitimate applications and increases regulatory compliance burdens. For example, the Bank Secrecy Act (BSA) requires lenders and banks to file Suspicious Activity Reports (SARs), when the institution identifies such activity. However, the pandemic and the CARES Act impacted even the filing of SARs. Many lenders agree that general fraud signs are ineffective to identify suspicious activity related to PPP loans. Legitimate borrowers may not have access to required documentation for valid reasons and certain expenses are also understandable in light of the emergency, which would not otherwise arise. However, quick transfers of money, upon approval, are signs of malfeasance and require additional scrutiny. To ease the burden of BSA compliance, FinCEN issued interpretive guidance, explaining that reasonable delays in complying with SAR related regulations will likely not result in enforcement actions if are done in good faith.
Further, on April 1, 2020, the Consumer Financial Protection Bureau (CFPB), issued guidance, wherein the bureau requires furnishers of credit reports to comply with the CARES Act provisions. Furnishers are generally institutions that report consumer information to credit reporting agencies. Therefore, a lender or a bank is a furnisher and subject to the CARES Act credit protection provisions. For example, the CARES Act requires lenders to grant forbearance to consumers with a federally insured mortgage. Such a forbearance is an accommodation for the purposes of the FCRA. In the event of an accommodation, under the CARES Act, a furnisher cannot report the consumer as delinquent to credit reporting agency or advance an existing delinquency that existed prior to the forbearance.
Further, the FCRA requires the accurate reporting of information. However, the accommodation provisions of the CARES Act are numerous and, in some cases, making it difficult to determine whether a forbearance exists as a form of accommodation. While the consumer protection provisions of the CARES Act are beneficial, the costs of compliance to lenders is significant. Lenders must ensure to adequately adhere to guidelines, while avoiding potential FCRA liability of inaccurate reporting, and violating the CFPB guidance addressing the CARES Act provisions.
How Proposed Bill Can Ensure ADA Compliance for Bank Websites
The Americans with Disabilities Act (ADA) strives to ensure that individuals with disabilities do not get denied full participation or full benefits nor face discrimination by businesses. In an increasingly digital age where technology is constantly evolving, law such as the ADA must also adapt which can present compliance issues for individuals, businesses, and most certainly: banks. Most banks today have a website to ensure an efficient and user-friendly customer experience using the latest technology available. The ADA also applies to business websites, but there has been little official guidance as to the website compliance standards, subjecting banks to potential legal and reputational risks. Compliance Alliance in its efforts to guide banks on this issue published a Website Accessibility Checklist based on recent Department of Justice actions. However, on October 2, 2020, Congressmen Ted Budd (R-NC) and Lou Correa (D-CA) introduced the Online Accessibility Act to help businesses make their websites ADA compliant by establishing national standards.
At its outset, the bill aims to answer the longstanding question for businesses and banks when it comes to making their websites ADA compliant: what is the standard? If this bill becomes law, the standard becomes attaining Level A and Level AA compliance with the Web Content Accessibility Guidelines (WCAG) established by the Accessibility Guidelines Working Group. If a website does not meet WCAG standards, then the business that owns it must provide alternative means of access for individuals with disabilities equivalent to the content available on its website. So, what exactly are these standards and how can banks make sure their websites conform to them? Fortunately, our Website Accessibility Checklist for banks as discussed earlier covers these standards.
Our checklist goes through lists of possible solutions for you to meet web guidelines. One pillar of the guidelines is to provide text alternatives for all non-text content. For example, functional images or other interactive elements on your website should have text alternatives that state the element’s purpose. In providing alternatives for multimedia aspects, you can provide a text transcript of any non-live, web-based audio you have on your website. The guidelines also require you provide input assistance in helping users avoid and correct mistakes. Here, providing labels, instructions, and even examples are crucial when content requires users to input information and they be properly positioned on a page to provide the most clarity. When an input error occurs, it may be good practice to have your website provide suggestions to fix the error in a timely manner.
While the bill also aims to reduce litigation due to a business’s website, a key takeaway is that the WCAG our checklist goes through would transform from suggestive guidelines to required law for ADA website compliance, providing clarity as to how banks should approach this issue. In the meantime, consider working through our checklist for each guideline and implementing solutions to make your sites more accessible. As technology advances, law and compliance must always adapt.
Challenges of the Pandemic
Since the COVID-19 outbreak began, things have been changing rapidly. It impacted many of our lifestyles but has also been changing the way we do business from a day-to-day basis too. For banks specifically, there have been unprecedented challenges including the coin shortage and restricting branch lobbies. There have also been new loan programs such as the Paycheck Protection Program (PPP) loans. With the new discoveries that are made with the coronavirus and the loan programs, there has been so much information to process and convey to the employees of the banks.
As a result of all the recent changes, Fannie Mae surveyed more than 250 senior mortgage executives about the recent challenges and the results show that the health and safety of their staff, lack of clarity on Paycheck Protection Program (PPP) loans and the supply chain disruptions have been the biggest obstacles that has come out of this pandemic.
Aside from the traditional banking compliance regulations and issues, banks had to be mindful of health and safety guidance from the CDC and both the federal and state governments. Additionally, there were many areas where there were more localized restrictions as well to ensure that both the customers and the employees would be safe. Since it isn’t something banks have normally been familiar with, this was a big challenge for our members. To assist in business continuity planning during the pandemic, Compliance Alliance has been developing tools to handle lobby re-openings including a checklist here: https://compliancealliance.com/find-a-tool/tool/covid-19-reopening-checklist And a full pandemic planning resource page here: https://compliancealliance.com/about-us/pandemic-planning-for-banks
The pandemic created many changes, but it also had a slight domino effect in the world of banking. With the CARES Act introducing PPP loans, there have been guidance issued constantly after its implementation to clarify how the loans would work. And once the banks started understanding how to help borrowers apply for the PPP loans, there was a whole new set of problems in figuring out how to apply for loan forgiveness. It didn’t end there either. With the economic impact from the pandemic, interest rates have been near historic lows and have led to many more people pursuing a refinance or a new home equity loan. Together with the PPP loans, banks have been incredibly busy handling all the new inquiries which have been contributing to the supply chain disruptions that these mortgage executives are talking about. To assist our members in tackling these challenges, we have developed a page dedicated to PPP loans that has been constantly updated when new guidance has been published. Available here:https://compliancealliance.com/about-us/paycheck-protection-program-resource
Even though many of our day-to-day environments have changed, we are aware that our members are continuously seeking to help their customers the best that they can. We hope that the tools that we develop will continue to help you make that task a little bit easier.