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CUNA Proposal could shut down interntl fund transfers
WASHINGTON (7/26/11)—Many credit unions could cease offering international electronic fund transfer services to their members if a rule intended to protect consumers who use “remittance” services is put into effect without significant revisions, according to the Credit Union National Association (CUNA). CUNA’s Friday comment letter to the Federal Reserve Board highlighted the potential for “unintended consequences” as a result of the broad Regulation E rule drafted in response to Dodd-Frank Wall Street Reform and Consumer Protection Act requirements. Remittance transfers generally involve small amounts of money sent person-to-person through “closed loop” or “stand alone” systems such as Western Union or the World Council of Credit Unions’s (WOCCU) IRnet, comprised of 50 participating credit unions. The proposed rule expands the definition of “remittance transfers,” however, to apply to any consumer-initiated electronic transfer using “open networks,” such as international wire and international automated clearing house (ACH) transactions. International transactions using open networks typically involve three or more financial institutions and, once initiated, the transfer is usually beyond the credit union’s control. The CUNA letter noted the proposed rule’s application to open-network transactions would make credit unions responsible for a problem that occurs at any point in the international fund transfer, including fraud occurring in foreign countries. The resulting high cost of compliance would force many credit unions to discontinue international electronic fund transfer services, increasing costs for consumers who would be forced to shift to higher-cost services provided by storefronts and big banks. CUNA urged the Federal Reserve to exempt international wires and ACH transactions from the proposed rule and issue separate disclosure and error rules for those networks. If the agency does not follow that recommendation, then CUNA recommended that the Federal Reserve exempt transfers that are greater than $1,000 because more than 90% of transfers that are traditionally considered “remittances” are less than that dollar amount. The Fed also should exempt financial institutions that handle relatively few ACH transfers annually, according to CUNA. Most credit unions that provided input for CUNA’s comment letter make fewer than 200 international transactions each month. The letter noted that WOCCUs’s IRnet relies on “closed loop” providers and so would be able to comply with most proposed requirements, although CUNA urged the Federal Reserve to ease rules related to liability for fraud and the proposed “cancellation period” that would allow consumers to halt pending transfers. Critics of the proposed rule include the U.S. Small Business Administration, which has decried its potential negative impact on small businesses. In additional to its own comment letter, CUNA has also signed a joint letter with 10 other bank and credit union trade associations that have serious concerns about the proposed rule. The Consumer Financial Protection Bureau (CFPB), not the Federal Reserve Board, will be the agency finalizing the “remittance transfers” rule because regulatory jurisdiction over Regulation E transferred to the CFPB on July 21.
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