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CFPB Subjects Large International Money Transmitters to Supervision

Posted in Global Insights, Regulatory and Compliance

The Consumer Financial Protection Bureau (CFPB) finalized its rulemaking defining larger participants in the international money transfer market. Companies that engage in at least one million international money transfers each year are now considered larger participants and will be subject to the CFPB’s supervisory authority effective December 1, 2014. The rule focuses on international money transmitters, and not domestic money transmitters, because of unique challenges related to foreign exchange rates, foreign taxes, and other cross-border legal complexities.

Background on CFPB Supervisory Authority. While the CFPB’s rulemaking powers apply broadly to the provision of consumer financial products and services, the Dodd-Frank Act places limits on the agency’s powers to supervise entities that provide consumer financial products and services. For example, the CFPB has supervisory authority over large banks with more than $10 billion in assets, while banks with $10 billion or less in assets are supervised by their prudential regulator.

With respect to non-banks, the Dodd-Frank Act gave the CFPB supervisory authority over specific classes of institutions, including mortgage brokers, private education lenders, and payday lenders. The law also gave the CFPB discretionary authority to issue rules that identify “larger participants” in other non-bank markets that warrant supervision. Since the CFPB’s creation in 2011, it has issued rulemakings to establish supervisory authority over larger participants in the consumer reporting, consumer debt collection, and student loan servicing markets.

Larger Participant Rulemaking for the International Money Transfer Market. The CFPB issued a final rule this month identifying larger participants in the international money transfer market as companies that engage in at least one million aggregate annual international money transfers. Non-banks meeting or exceeding this threshold will be subject to the CFPB’s supervisory authority effective December 1, 2014.

The CFPB has been active in the internal money transfer market. Last year, the agency issued revised regulations governing international remittances pursuant to its authority under the Electronic Fund Transfer Act (the remittance rule). The CFPB also issued a number of revisions to the rule, including technical corrections, modifications, and a temporary delay. The rule became effective October 28, 2013 and applies to various participants in the money transmission business without regard to their status as a “larger participant” for supervisory purposes. The CFPB issued an “unofficial complete regulation and interpretation” that incorporates all of its revised rules, as well as examination procedures that aid CFPB examiners in assessing compliance with the remittance rule.

Banks subject to the CFPB’s supervisory authority have already been subject to examinations for compliance with the agency’s remittance rule (and other federal consumer financial laws). The CFPB stated that its examiners would use the same examinations procedures to assess compliance with the remittance rule by non-bank international money transfer providers meeting the larger participant threshold.