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CFPB says remittance provider violated EFTA
On December 22, the CFPB announced a consent order against an international remittance company for multiple alleged violations of the requirements governing electronic money transfers. According to the Bureau, the company allegedly failed to comply with many requirements of the Electronic Fund Transfer Act, including failing to provide refunds to customers after the company made money transfer errors. The Bureau also alleged that the company violated the Remittance Rule by failing to develop and maintain required written policies and procedures for error resolution, and claimed the company violated Regulation E by failing to retain evidence demonstrating compliance with the Remittance Rule’s error-resolution requirements. Under the terms of the consent order, the company is required to provide consumer redress of approximately $30,000 to harmed customers and pay a $700,000 civil money penalty to the Bureau. The company is also required to update disclosure and key transfer information that is provided to customers, as well as its error-resolution policies and procedures.
District Court stays action against remittance provider while Supreme Court weighs CFPB’s funding structure
On December 9, the U.S. District Court for the Southern District of New York stayed an action brought by the CFPB and the New York attorney general against a defendant remittance provider until after the U.S. Supreme Court decides if it will review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution. Last month the DOJ, on behalf of the CFPB, submitted a petition for a writ of certiorari seeking Supreme Court review of the 5th Circuit’s decision during its current term. (Covered by InfoBytes here.) The New York AG and the Bureau sued the defendant in April for allegedly violating the EFTA and its implementing Regulation E, the Remittance Rule, and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws, in its handling of remittance transfers. (Covered by InfoBytes here.)
The defendant argued that the district court should hold off on deciding on its motion to dismiss per the aforementioned argument, but should nonetheless rule on its pending motion to transfer. The Bureau opposed the defendant’s request for a stay, countering “that a stay would not promote efficiency” since the issue of the Bureau’s standing would not affect the claims brought in the current action. The Bureau further asserted “that the public and the parties’ interest weighs against a stay, as it would hinder Plaintiffs’ enforcement of the consumer protection laws and make obtaining evidence down the line more difficult.”
The district court disagreed, stating that the Supreme Court may address the broader issue of the Bureau’s standing to bring enforcement actions in its decision, and that, regardless, the agency’s claims in the current action “are inextricably linked to CFPB rules and regulations, which themselves may be implicated by a Supreme Court decision should it grant the petition.” The district court stayed the case in its entirety and said that it will wait to decide on both motions until after the Supreme Court decides on the Bureau’s filed petition for a writ of certiorari.
Remittance provider hints it may challenge CFPB’s funding structure
On May 20, a global payments provider, which was recently sued by the New York attorney general and the CFPB, filed a pre-motion letter hinting that it will challenge the constitutionality of the Bureau’s funding structure. As previously covered by InfoBytes, the complaint claimed the “repeat offender” defendant allegedly violated numerous federal and state consumer financial protection laws in its handling of remittance transfers. Earlier in the month, the defendant called the allegations “false, inflammatory and misleading,” and took issue with the Bureau’s suggestion that it had “uncovered widespread and systemic issues involving ‘substantial’ consumer harm.” According to the defendant, “data from the CFPB’s own consumer complaint portal strongly suggest otherwise.” (Covered by InfoBytes here.)
The defendant raised several arguments, including that the “CFPB’s funding structure also violates the Appropriations Clause, requiring dismissal”—a nod to a recent en banc decision issued by the U.S. Court of Appeals for the Fifth Circuit (covered by InfoBytes here), in which several dissenting judges argued that the case should be dismissed because the agency’s funding structure violates the Constitution’s separation of powers and “is doubly removed from congressional review.” The defendant’s pre-motion letter also argued that the Bureau’s complaint should be moved to the Northern District of Texas where the company is headquartered and where the Bureau’s examinations were conducted.
In response, the Bureau and New York AG filed their own letter responding to the defendant’s proposed grounds for dismissal, countering, among other things, that the case is “adequately pled,” the claims are timely, and that the Bureau’s funding structure is constitutional. Challenging the defendant’s contention that the Bureau’s statutory method of funding violates the Constitution’s appropriations clause, the letter stressed that the U.S. Supreme Court and the U.S. Court of Appeals for the Second Circuit have held that this clause “simply requires that federal spending be authorized by statute,” adding that “[b]oth the Bureau’s receipt of funds and its use of those funds are so authorized.”
Remittance provider denies CFPB allegations
On May 2, a global payments provider recently sued by the New York attorney general and the CFPB responded to allegations claiming the “repeat offender” violated numerous federal and state consumer financial protection laws in its handling of remittance transfers. As previously covered by InfoBytes, the complaint claimed the defendant, among other things, (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further asserted that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders,” and that the defendant failed to adopt and implement a comprehensive fraud prevention program mandated by a 2009 FTC order for permanent injunction (covered by InfoBytes here).
The defendant refuted the charges, calling the allegations “false, inflammatory and misleading.” According to the defendant, “before the CFPB filed its lawsuit against the Company on April 21, 2022, [it] had never before been subject to any enforcement action by the CFPB, nor had [it] ever been publicly accused of violating any of the laws or regulations under the CFPB’s purview.” The defendant also took issue with the Bureau’s suggestion that it had “uncovered widespread and systemic issues involving ‘substantial’ consumer harm,” contending that “data from the CFPB’s own consumer complaint portal strongly suggest otherwise. For example, a search of the CFPB’s Consumer Complaint Database shows that in the nine years that the Remittance Rule has been in place, only 351 complaints were made to the CFPB against [the defendant] for failing to deliver money when promised. These complaints represent 0.0001% of the over 325 million transactions subject to the Remittance Rule that [the defendant] processed during that time period. In New York, the total number of complaints in the CFPB Database for that time period was 28, approximately three per year. There have simply never been widespread or systemic violations by [the defendant] of the Remittance Rule.”
CFPB, New York sue remittance provider
On April 21, the CFPB and New York attorney general filed a complaint against a remittance provider (defendant) for allegedly violating the Electronic Funds Transfer Act and its implementing Regulation E and the Remittance Rule (the Rule) and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws. The Bureau’s announcement called the defendant a “repeat offender” citing that in 2018, the FTC filed a motion for compensatory relief and modified order for permanent injunction against the defendant, which alleged that it failed to adopt and implement a comprehensive fraud prevention program mandated by the 2009 order (covered by InfoBytes here). The CFPB complaint alleges that from October 2018 through 2022, the defendant: (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further noted that the defendant’s “own assessments of consumers’ complaints showed that the dates Defendants disclosed to consumers, repeatedly, were wrong,” and that the defendant “found multiple delays in making funds available to designated recipients, including delays that constituted errors under the Rule,” among other things. Finally, the Bureau claims that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders.” The Bureau’s complaint seeks consumer restitution, disgorgement, injunctive relief, and civil money penalties. According to a statement released by CFPB Director Rohit Chopra, "the remittance market is ripe for reinvention, and the CFPB will be examining ways to increase competition and innovation for the benefit of both families and honest businesses, while also avoiding creating a new set of harms."
Kraninger: ATR/QM, Remittance Rules expected in May
On February 25, in a speech before the Credit Union National Association Government Affairs Conference, CFPB Director Kathy Kraninger discussed the Bureau’s rulemaking approach in the consumer financial marketplace. Specifically, Kraninger reminded attendees that the Bureau’s Advance Notice of Proposed Rulemaking (ANPR) on the Ability to Repay/Qualified Mortgage Rule (ATR/QM rule) issued last July signaled its “intent to allow the patch to expire as intended in January 2021 or shortly thereafter to allow for a smooth and orderly transition.” As previously covered by a Buckley Special Alert, the ANPR solicited feedback on, among other things, whether the debt-to-income ratio should be altered and how Regulation Z and the ATR/QM Rule should be amended to minimize disruption from the so-called GSE patch expiration. Following a review of all received public comments, Kraninger stated that the Bureau has “decided to propose to amend the QM rule by moving away from the 43 percent debt-to-income ratio requirement,” and will instead “propose an alternative, such as [a] pricing threshold to better ensure that responsible, affordable mortgage credit remains available for consumers.” A proposed rule seeking comments on possible amendments will be issued no later than May, Kraninger stated.
Kraninger also discussed possible amendments to the Remittance Rule (Rule), which implements the Electronic Fund Transfer Act and requires financial companies handling international money transfers, or remittance transfers, to disclose exact fees and exchange rates. The Bureau issued a Request for Information last April on two aspects of the Rule (covered by InfoBytes here), and a follow-up Notice of Proposed Rulemaking (NPR) in December (covered by InfoBytes here) to propose a permanent safe harbor for financial companies that provide 500 or fewer remittance transfers a year. According to Kraninger, “[t]his would reduce the burden on over 400 banks and almost 250 credit unions that send a relatively small number of remittances. Ultimately, by allowing the use of estimates in some circumstances and adjusting the threshold for coverage under the rule, . . . [the] proposal was designed to preserve consumers’ ability to send remittances from their bank accounts to certain destinations.” The Bureau plans to finalize the remittances rulemaking in May.
Kraninger also commented on the Bureau’s regulatory review process, and reminded attendees of its “Start Small, Save Up” initiative, which encourages partnerships between financial companies/service providers and the Bureau in order to develop savings products for consumers.
Republican lawmakers urge CFPB to extend Remittance Rule safe harbor
On September 30, 16 Republican members of Congress wrote to CFPB Director Kathy Kraninger to express concern over the upcoming expiration of a safe harbor to the Remittance Rule (the Rule), which allows certain insured depository institutions to estimate exchange rates and certain fees they are required to disclose to customers about remittance transactions. As previously covered by InfoBytes, the CFPB issued a Request for Information (RFI) last April on two aspects of the Rule that require financial institutions handling international money transfers, or remittance transfers, to disclose to individuals transferring money information about the exact exchange rate, fees, and the amount expected to be delivered. The RFI also sought feedback on a possible extension of the current statutory exception, which is set to expire July 21, 2020. While lawmakers recognize the CFPB’s interest in mitigating negative effects that may result from the exception’s expiration, they urged the CFPB to “take every available step” to ensure that consumers may continue to access remittance services. The lawmakers stressed that it is often difficult, if not “virtually impossible,” for depository institutions to calculate the exact cost of certain remittance transactions. The letter further noted that “depository institutions cannot readily covert all foreign currencies at the time a transfer is conducted, and if the currency exchange takes place after the transfer is initiated, a consumer’s financial institution may only be able to estimate the applicable exchange rate.” Accordingly, if the exception expired, it could cause many depository institutions to discontinue providing remittance services due to increased compliance risk, or cease transfers to certain countries or beneficial banks due to non-compliance risks.
The lawmakers urged the CFPB to use its statutory authority under the Electronic Fund Transfer Act or Dodd-Frank to make the exception permanent “so financial institutions are able to make long-term decisions regarding the provision of these services.”