Dodd-Frank Alert for Ukrainian Banks

On October 28, 2013 some Ukrainian banks may wake up to the fact that they stopped receiving certain wire transfers from their American counterparts. New regulations taking effect on that date will preclude U.S. companies from making consumer wire transfers abroad unless foreign banks provide them with detailed fee disclosure and implement a procedure for correcting errors in the remittance process.

Introduction

In July 2010, in response to the financial crisis that began in 2007, U.S. Congress adopted and the President Obama signed Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) which is an extensive document spanning 2,300 pages and containing more than 400 new rules and mandates. The Dodd-Frank Act established the Consumer Financial Protection Bureau (“CFPB”) which received the consumer protection powers of the federal banking agencies.

The new regulation adopted by the CFPB pursuant to the Dodd-Frank Act is a remittance transfer rule (amendment to Regulation E) aimed at protecting consumers who send money electronically to foreign countries. A “remittance transfer” is an electronic transfer of money from a consumer in the United States to a person in a foreign country. It can include transfers from retail “money transmitters” as well as banks and credit unions that transfer funds through wire transfers.

Consumers in the United States send billions of dollars in remittance transfers each year. Prior to the passage of the Dodd-Frank Act, remittance transfers generally fell outside existing federal consumer protection regulations. The Dodd-Frank Act expanded the regulatory scope to include protections for consumers sending remittance transfers. The Dodd-Frank Act also mandated the CFPB to issue rules to carry out the new remittance transfer consumer protections. The CFPB has issued a final rule that will go into effect on October 28, 2013.

Disclosures

The rules generally require companies to give disclosures to consumers before they pay for the remittance transfers. The disclosures must contain:

  • The exchange rate;
  • Any applicable fees and taxes, including third-party fees abroad;
  • The amount of money expected to be received by the recipient abroad.

Companies must also provide a receipt that repeats the information in the first disclosure or a proof of payment. The receipt must also tell a consumer when the money will arrive and how the consumer can report a problem with a transfer.

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