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Appleseed and several Appleseed centers across the country have submitted comments to the CFPB recommending no repeal of 12 CFR 1005 Subpart B (the “Remittance Rule”). The letter follows below.

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Docket No. CFPB-2017-00004:
FederalRegisterComments@cfpb.gov

May 23, 2017

Monica Jackson
Office of the Executive Secretary
Consumer Financial Protection Bureau
1700 G Street, N.W.
Washington, DC 20552

Re: Request for Information Regarding Remittance Rule Assessment Docket No. CFPB-2017-00004 Dear Ms. Jackson: Appleseed appreciates the opportunity to comment on the Bureau of Consumer Financial Protection (“CFPB”)’s request for comment on its upcoming assessment of the remittance regulations contained at 12 CFR 1005 Subpart B (the “Remittance Rule”). The Remittance Rule is derived from section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Remittance Rule, which originally was adopted in 2012 (and amended since then), deals with consumer remittances disclosures and other consumer protection requirements for consumer remittances.

Appleseed is a nonprofit network of 17 public interest justice centers in the United States and Mexico dedicated to building a society in which opportunities are genuine, access to the law is universal and equal, and government advances the public interest. Our financial access and asset building program is devoted to promoting fairness, transparency, multiple options, financial education, and safe and secure banking and asset building options for low-income persons, including a particular focus on immigrant communities. For many years, Appleseed has been involved in the effort to advocate for greater uniformity and transparency in consumer remittances and commented on the original regulations adopted in 2012, and on other amendments since then.

Appleseed has certain guiding principles in its continuing work to support better transparency and consumer protections in remittance transfers:

  • We believe that pricing for remittance transfers should have remained stable or become lower since full implementation of the Remittance Rule.
  • We believe that remittance transfer providers should offer reasonable local market exchange rates to consumers sending remittances and that the consumer should understand exchange rate variations among providers and that some profit is derived from exchange rate spreads.
  • We believe in a healthy competitive marketplace that can offer a consumer several alternatives for sending remittances, because the Remittance Rule allows consumers the ability to effectively compare costs – both fees and local market exchange rates – in choosing which remittance transfer providers to use.

Summary of our Comments

As will be explained in more detail below, Appleseed believes that the Remittance Rule addressed a clear need for greater uniformity and transparency in consumer remittances and we believe that the Rule works and as our own research has shown, is an example of how effective consumer protections have concrete benefits for society as a whole. We believe that the Remittance Rule is necessary and should continue and not be repealed in part or whole. In response to your request, we would like to offer some comments on sources of data that may be useful in the CFPB assessment, and suggestions on areas to focus on in conducting the assessment.

Specific Areas for Comment

Specifically, you have asked for comments on six different topics:

(1) Comments on the feasibility and effectiveness of the assessment plan, the objectives of the Remittance Rule that the Bureau intends to emphasize in the assessment, and the outcomes, metrics, baselines and analytical methods for assessing the effectiveness of the rule

Because this is the CFPB’s first assessment, it is important that it serve as a template for future assessments. Appleseed would like to see a comprehensive and sophisticated assessment that constitutes a 360 degree review: 1) uses all available data sources, 2) develops new data collection techniques to produce new data where none exists or is inadequate, 3) seeks both industry and consumer input from a variety of parties and approaches parties that don’t speak English, don’t read or use technology, who use varied providers, and who are from various parts of the world with significant and appropriate sensitivity to derive needed information, and 4) actually uses the technologies and services to send and receive test remittances so that assessors fully understand the processes and can observe all required disclosures and language accessibility. Assessors should visit services, use the technology and processes in person and online and test both sender and user satisfaction.

(2) Data and other information that may be useful for executing the Bureau’s proposed assessment plan

Appleseed has been studying immigrant access to financial services, including consumer remittances, for over ten years. For example, Texas Appleseed worked to afford access for immigrants to financial institutions and foster transparency in international remittance markets, with a focus on the U.S.-Mexico market. (Note: Texas adopted remittance consumer protections in 2003.)

Since that time, Appleseed has conducted and published several immigrant surveys on remittances. [Please see the appendix to this letter for a further discussion of Appleseed’s remittance work and abstracts of our findings.] Appleseed has been consulted by the U.S. Congress and federal agencies on remittances legislative and regulatory proposals and advocated on what finally resulted in section 1073 of the Dodd-Frank Act and the Remittance Rule.

Five Appleseed Centers joined national Appleseed in recent collaborative work to (1) survey immigrants about their remittance experiences under the Remittance Rule, and (2) conduct focus groups to identify ongoing areas of immigrant financial need for our next policy initiatives.

Our most recent remittance work products are “Sending Money: The Path Forward” and “Sending Money: In Their Own Voices” published in 2016. (See appleseednetwork.org). The former report shows that the Remittance Rule is working and is protecting money sent abroad and the U.S. residents who send it. Prior to the Remittance Rule, customers had inadequate consistent up-front information about fees and exchange rates needed to compare the cost of different services. “Sending Money: The Path Forward” is based on data from a survey of international remittance customers’ preferences and behavior administered by Appleseed in five states from September 2015 through December 2015. Appleseed Centers in Connecticut, Kansas, Nebraska, Texas and Washington surveyed a total of 702 customers about their typical remittance transactions, comparison shopping behaviors, past problems with remittances, knowledge of their rights, and overall confidence in remittance services.

Appleseed developed a survey to assess the effectiveness of the new regulations in helping consumers make more informed choices. The questions tested the core purpose of the regulations: Are people comparing prices? Has consumer confidence in the remittance process improved over the last year?

The evidence provided here shows that the CFPB issued fair and achievable regulations based on balanced and effective rulemaking. The CFPB heard and addressed industry and consumer concerns, weighed and carefully factored this information into the final regulations, which mandate that specific information be provided to consumers in a uniform manner so they can make informed choices.

Among the report’s other key findings:

  • Consumers are receiving pricing disclosures. About 84% of consumers confirmed that they receive written disclosures before completing their transactions, and 83% reported that they understand the disclosures either “well” or “very well.” Similarly, 72% of consumers confirmed that they received written receipts following transactions.
  • Customers are choosing lower fees. More than half of customers compare fees between money transfer services and always choose the service that has the lowest fee and two thirds always or sometimes choose the service with the lower fee.
  • Consumers report stable or decreasing prices. Three of four remittance senders report that prices remained stable (69%) or decreased (6%).
  • Consumers say their confidence has improved over last year or stayed the same. When asked if they had experienced a shift in confidence over the past year, 18% of customers reported that their confidence had improved, 74% reported no change in confidence, and only 1% reported that their confidence had worsened. Consumers say that receiving a statement of rights on how to correct errors was the single best predictor of confidence in remittance services.
  • Half of customers do not know how to file a complaint. This results in a small number of complaints filed.
  • Language matters. If information also is provided in the consumer’s primary language, the survey showed an association with greater attention to fees and exchange rates on the disclosures.

People who send remittances, businesses, the CFPB, and nonprofit organizations and academics should adopt a range of recommendations, per the report. These include:

  • Recommendation One: Make certain all customers are given clear and conspicuous Dodd-Frank-required disclosures for all transactions and include prominent error resolution notices/statements of rights required in the Dodd-Frank Act to increase consumer confidence.
  • Recommendation Two: Improve the design of disclosures to help customers understand information on the disclosures.
  • Recommendation Three: Resolve all consumer complaints within the time frames set out by the Dodd-Frank Act and publicize the percentage of complaint resolution rates in favor of the consumer.

The CFPB has indicated in the Federal Register notice that it will seek to compare consumer outcomes to a baseline that would exist if the Remittance Rule’s requirements were not in effect and the challenges the CFPB faces in making such a comparison. Certain pieces of Appleseed’s historical work can serve as a “before the rule” set of statistics. The CFPB can replicate Appleseed’s data on pricing, consumer opinions, changes in pricing during the day, and other important factors. The Appleseed work cited in the Appendix is suitable for CFPB replication to create a longitudinal perspective.

Appleseed also recommends that the CFPB assessment take into account data contained in its own complaint database. Appleseed believes that such information should be retained to analyze trends geographically, by service, among immigrants from particular countries, or other factors; and the successes of the complaint database should be noted in the assessment report (e.g., over 1.1 million complaints received, the amount of money returned to consumers, and cessation or continuation of patterns of problems geographically, by service, among immigrants from particular countries, or other factors).

Finally, the CFPB has access to examination reports which should provide it with information on the challenges remittance transfer providers have encountered in implementing the rule and the examiners’ observations on whether and how those challenges were met by the remittance transfer provider. Along with CFPB direct outreach to remittance transfer providers as part of the assessment process, these reports should provide data on remittance transfer providers’ activities to comply with the Remittance Rule. (e.g., provision of disclosures and language compliance should be audited.) Appleseed recommends that the assessment report contain a description of those challenges and the industry’s efforts to meet them and the success of these efforts.

(3) Recommendations to improve the assessment plan, as well as data, other information and sources of data that would be useful and available to execute any recommended improvements to the assessment plan including data on the exceptions and provisions discussed at the end of part IV

In addition to our answers to the other questions and our own research in the Appendix, Appleseed recommends that the CFPB consider the following issues that we believe will assist in providing the data the CFPB will need to undertake an effective assessment.

Pre-transaction Disclosure:

  • How are pre-transaction disclosures being provided by large, medium and small remittance transfer providers?
  • Are pre-transaction disclosures consistently provided to customers?

Post-transaction Receipt:

  • How are post-transaction receipts being provided by large, medium and small remittance transfer providers?
  • Are post-transaction receipts consistently provided to customers?
  • Is it more common to separate the pre- and post-transaction disclosures or, as permitted, combine them into one document so long as it is provided when the sender requests the remittance transfer and proof of payment is provided to the sender at the end of the transaction?

Error Resolution:

  • Are consumers identifying specific errors when submitting a complaint to the CFPB complaint database? What are the patterns of problems (e.g., are complaints more common in certain parts of the country? By service? Among immigrants from countries)?
  • Are consumers asking for error resolution? Is error resolution occurring? What are the statistics on error resolution (e.g., percent resolved by type of complaint, part of the country, immigrant groups, or type of service)?
  • Are remittance transfer providers resolving errors within the appropriate timelines or do they generally find the timelines too short to fully investigate an error? How long does it usually take to investigate a reported error?
  • What are outcomes of error reports? In consumers’ favor? In service providers’ favor?
  • What percentages of errors are deemed to be by the consumer? By the provider?
  • If consumers are not exercising error resolution rights, is it because there are no errors or because they do not know their error resolution rights? Is CFPB public information targeted in the correct manner (i.e., can persons not able to read access this information)?

Cancellation:

  • Are consumers taking advantage of the cancellation process?
  • When consumers do attempt to take advantage of the cancellation process, is it usually successful or do they find that the transfers already have been sent?

Agent Liability:

  • What training for agents is given, particularly about agent liability?  We recommend that agents’ (for small, medium and large remittance transfer providers) compliance with the Remittance Rule be specifically tested.

Estimation:

  • Which benchmark exchange rates do remittance transfer providers generally utilize in setting their own exchange rates?
  • Are cited exchange rates tied to the Mexican and U.S. benchmarks or do companies set them irrespective of the marketplace? If the latter, do they change during the day more frequently than the benchmarks? What is the typical fluctuation? Is there coherence to this pricing that can be explained to customers? What is the variation from Mexican and U.S benchmarks?
  • How and why do remittance transfer providers decide to alter prices and exchange rates during the course of one day rather than set one price and exchange rate for that business day at the beginning of the day? Is there predictability as to how and when fees or exchange rates change so a consumer can prepare accordingly?
  • Do remittance transfer providers change the exchange rate during the day because of spikes in an external rate benchmark due to external public events?
  • How often do remittance transfer providers change their fees for a transfer? Once a day? Less often? More often? Can fee changes be explained to customers?

Posting:

  • How quickly do fees and exchange rates physically posted at the remittance transfer provider location change when changes to the fees and exchange rate are input into the remittance transfer provider’s computer system and reflected in the actual disclosure provided to the consumer?
  • Are techniques and technologies used by other money services businesses to ensure accurate posting of fees and exchange rates not used by these services?

Language:

  • Are translations accurate?
  • Are translations handled in accordance with the Remittance Rule

Transaction Testing:

  • Appleseed recommends that the CFPB should send test transactions of various values through large remittance transfer provider networks and small (independent) remittance transfer providers to destinations in the United States and selected countries to which remittances are most often sent; the CFPB then should audit those transactions against the Remittance Rule’s requirements.

Additional Methods of Transmission:

  • Appleseed recommends that providers using Bitcoin, PayPal and Facebook and other non-traditional methods should be included in the assessment

Complaint Database:

  • As part of the assessment, the CFPB should review the customer complaint database and categorize complaints in the three ways the CFPB has described in the Federal Register Notice: Disclosures, Cancellation and Refund and Error Resolution.
  • In its assessment, the CFPB should summarize major types of money transfer complaints received (e.g., money never received, wrong amount received; unexpected fees not covered on the disclosure and receipt) and indicate how complaints have been resolved, dollar amounts recovered and other factors.
  • The CFPB also should compare the information gathered as a result of its analysis of the complaint database against complaints submitted under the Texas remittance statute and other state statutes.
  • Many immigrants will not access the complaint database due to fear of deportation. The CFPB should devise methods to talk directly to consumers about their complaints about remittance processes that they have not submitted to the CFPB database. This can be done through focus groups or other consumer research methods.

Costs and Availability of Services:

  • Costs are declining internationally. What cost reductions are occurring in the U.S.? By region? Service? Immigrant group? Service?
  • Have remittance transfer providers asserted that the Remittance Rule caused them to cease business? If so, what specific reasons are given for such closure and are they truly related to the Remittance Rule, or related to other compliance costs? Appleseed believes that it is important for the CFPB to understand for purposes of this assessment whether a remittance transfer provider is ceasing business truly because of the Remittance Rule’s requirements. Or, is the remittance transfer provider merely using the Remittance Rule as the reason for closing rather than a reason unconnected with the requirements of the Remittance Rule, such as federal anti-money laundering requirements or additional requirements being imposed by its licensing regulator.

In addition, the CFPB has indicated several areas where it intends to consider the “effects” of the following specific provisions of the Remittance Rule “to the extent feasible:”

  1. Temporary exception allowing insured institutions to estimate certain third party fees and exchange rates that expires in July 2020: Appleseed would prefer that the temporary exception be allowed to expire. Providers should both know and disclose all costs associated with a transaction including accurate information on the total due to recipient.
  2. The 100-transfer safe harbor: Appleseed believes this de minimis safe harbor from being subject to the Remittance Rule is an appropriate balance to exempt those who only do intermittent transfers. Appleseed does not recommend that there be any increase in the 100-transfer threshold.
  3. Exceptions to the rule’s error resolution regime for certain sender mistakes involving incorrect account numbers and recipient institution identifiers: Appleseed feels that an educational campaign by the CFPB to senders regarding the need for the sender to confirm the accuracy of the information submitted to the remittance transfer provider could be useful in lessening the number of those errors.
  4. Optional disclosure of recipient institution fees for remittance transfers conducted over open networks: Appleseed believes that a remittance transfer provider should have knowledge of relevant information about recipient institution fees and disclose this information to the customer much as a retailer selling merchandise internationally would have knowledge of all fees and costs associated with an individual transaction that would be disclosed to the customer.
  5. Optional disclosure of taxes imposed on a remittance transfer by a person other than the remittance transfer provider: Appleseed believes that a remittance transfer provider should have knowledge of relevant information about taxes and disclose this information to the customer. Retailers selling merchandise internationally are required to know and disclose this information.
  6. The requirement to provide foreign language disclosures: Immigrants are a prime source of remittance transfer business and Appleseed believes that this requirement should be continued and strongly enforced. Under the Remittance Rule, a remittance transfer provider must either provide a sender the required disclosures in each of the foreign languages principally used by the remittance transfer provider to advertise, solicit or market remittance transfer services at the office in which a sender conducts a transaction or asserts an error, or provide disclosures in the language primarily used by the sender to conduct the remittance transfer or to assert and error. In addition, the disclosures always must be made in English. We feel that for those consumers whose do not speak English fluently, disclosures in the relevant foreign language are critical to these consumers understanding their rights.

Finally, the CFPB has indicated that it plans to reach out to consumers as part of the assessment. As the CFPB well knows, consumer opinions can vary over time – a consumer may be happy the day she sends a remittance but may be unhappy if the remittance is not delivered in full. However, our research indicates that for the most part consumers generally are satisfied with the disclosures and protections provided by the Remittance Rule and we urge the CFPB when surveying the public to interview a variety of consumers and ask the questions in such a way as to elicit answers that provide an overall picture of the consumer’s experiences with remittance transfer providers, not just focus only on any negative experiences of consumers sending remittances.

We also understand that immigrant consumers may be wary of completing surveys in this uncertain time for immigrants living in the United States, whether or not they are fully documented. We recommend that the CFPB utilize surveyors with heightened sensitivity to these concerns who can assure immigrants that the survey results would not in any way affect their status in the United States. Perhaps partnering with immigrant community organizations in approaching and educating consumers about the reasons for the surveys and gaining their trust and willingness to answer the survey would assist in being able to reach the number of necessary respondents.

(4) Data and other factual information about the benefits and costs of the Remittance Rule for consumers, remittance transfer providers, and others; and about the impacts of the rule on transparency, efficiency, access, and innovation in the remittance market

Please see our answers to the other questions and the material in the Appendix.

(5) Data and other factual information about the rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act (section 1021) which are listed in part IV above

Please see our answers to your other questions and the material in the Appendix.

In addition, generally speaking, as regards the Remittance Rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act, Appleseed believes the Remittance Rule has been effective in meeting those purposes and objectives. For example, the Remittance Rule has enhanced the access to markets for consumer financial products and services by allowing consumers to effectively compare remittance products in a fairer and more transparent manner by providing timely and understandable information to consumers to use in sending a remittance. Appleseed also believes that setting such a baseline has led to a more competitive remittance marketplace because all providers must obey the same rules, even insured institutions, giving consumers more choices in deciding how to send a remittance.

(6) Recommendations for modifying, expanding, or eliminating the Remittance Rule

Appleseed strongly recommends retention of the Remittance Rule with the suggested improvements noted herein. The CFPB, the Treasury or the Federal Reserve also might want to consider the price for maintaining a real-time pricing database for consumers to access for comparison purposes against what they are being charged in their own locality. Further, the CFPB and these agencies should examine expanded us of FedGlobal through the Federal Reserve, which promises additional cost cutting for U.S. consumers.

In addition, as related matters, we suggest that the CFPB review the challenges nonbank remittance transfer providers have had obtaining access to the banking services they need in order to stay in business, and how to encourage more nonbank money transmitters to go into business.

Concluding Thoughts

Appleseed again thanks the CFPB for this opportunity to offer comments on your upcoming assessment of the Remittance Rule. We would be happy to discuss with your staff at any time our own research in the consumer remittances area.

If you have any questions, please feel free to contact Annette LoVoi, Director, Financial Access and Asset Building Program, alovoi@appleseednetwork.org

Very truly yours,

Appleseed
Annette LoVoi, Director, Financial Access and Asset Building Program

Alabama Appleseed
Frank Knaack, Executive Director

Georgia Appleseed Center for Law and Justice
Sharon Hill, Executive Director

Hawai’i Appleseed Center for Law and Economic Justice
Victor Geminiani, Co-Executive Director
Gavin Thornton, Co-Executive Director

Kansas Appleseed Center for Law and Justice
Benet Magnuson, Executive Director

Louisiana Appleseed
Christy Kane, Executive Director

New Jersey Appleseed
Renee Steinhagen, Executive Director

New York Appleseed
David Tipson, Executive Director

Texas Appleseed
Ann Baddour, Director, Fair Financial Services Project

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