International Payments Post Dodd-Frank: A Game

ChangerPresented by

Evan Shelan, CEO, eZforex

Breffni McGuire, Vice President, NEACH

Jorge Jimenez, FedGlobal Director, Federal Reserve Bank of Atlanta

Outline of Today’s Presentation

• The Problem

• Explanation of Reg E

• Federal Reserve System’s ACH Approach to Reg E

• Q & A

The Problem• Anxiety within the financial community due to

Dodd-Frank

• Many CU’s have or will discontinue International Payments

• Section 1073 Reg E Mandates…

• Pre-payment disclosures of:

–Exchange rates

–Estimated Fees

–Date of funds availability

• Error resolution support

• 30-minute consumer opt-out

Breffni McGuire, Vice President, NEACH

Dodd-Frank 1073, Final Reg E Remittance Transfer Rule

• Background & highlights

• Evolving requirements in “final” rules

• Status going into the October 28th deadline

• Current industry issues

How we got here

• Dodd-Frank Wall Street Reform & Consumer Protection Act– Section 1073 – Expands Reg E (subpart B) to

all consumer-initiated cross-border transfers

• Consumer Financial Protection Bureau (CFPB) charged with implementation– Remittance Transfer Rule

Definition of a remittance transfer

• “A‘remittance transfer’is defined broadly to include all electronic transfers of funds to designated recipients located in foreign countries that are initiated by a consumer in the United States utilizing a remittance transfer provider’s services”– Designated recipients may be consumers,

businesses, your member

Further Definition

• Consumer-initiated international transfers for personal, household, or family purposes– Cross-border wire transfers– International ACH Transactions (IATs)– Online bill pay– Loads onto certain credit cardsCredit/debit card payments to foreign merchants are not

covered

• Limited exceptions– Transfers of $15 or less– Payments arising from securities trading

Definition of a Remittance Transfer Provider

• An entity providing remittance transfer services in the normal course of business– Credit unions and banks– Money transmitters– Broker/dealers

• Normal course of business defined to be more than 100 transfers a year

• Does not have to hold the consumer’s account (e.g., Western Union)

Safe Harbor Provision

• Credit unions with 100 or fewer remittance transfers a year are granted safe harbor under the Rule– Credit union is not a remittance transfer provider

if it did not exceed 100 remittance transfers in the prior calendar year and provides 100 or fewer remittance transfers in current calendar year

– Credit union exceeding the 100-transfer limit has “a reasonable time period, not to exceed six months” grace period in which to comply

Senders and Recipients

• Sender (your member) must be a consumer (“natural person”) in a State– Focus on the account location (for transfers

made from an account)

• Recipient is a person, business, etc. located in a foreign country– Focus on location of recipient account (for

transfers made to an account)

• May be the same member

Rule Provides Three Consumer Protections Under Reg E

• Disclosures – Credit union’s responsibility– Prepayment disclosure to your member– Receipt discloser to your member; may be

combined into single disclosure w/above

• Cancellation – Consumer’s choice

• Error resolution – Credit union’s responsibility

Disclosure Requirements

- Must be: (1) written; (2) in English and in any foreign language used by the remittance transfer provider to advertise, solicit or market; (3) accurate at the time payment is made

Ability to Use Estimates

• 5 exceptions allow estimates:– Temporary exception: Insured depository

credit union / bank– Permanent exceptions

• Transfers sent via FedGlobal ACH Payments• Preauthorized and recurring transfers• Transfers to (5) nations with laws affecting foreign

exchange rates (“safe harbor”)• Disclosure of foreign taxes and ‘non-covered’ third

party fees* – optional to provide* Non-covered third-party fees are not required to be calculated and disclosed under Reg E, subpart B

Cancellation Right

• Consumer has 30 minutes to cancel a remittance transfer– From time of making / authorizing the transfer

• Refunds must be made in full w/in 3 days

• Specific rules for pre-scheduled transfers– 3 or more days in advance of transfer date– Uncommon in credit unions

Error Resolution

• Sender has 180 days to report error(s)

• Error types include:– Amount– Delay– Documentation

• Credit union must investigate and resolve within 90 days

Evolution of the Final Rule

Key Changes in April Final Rule

• Credit union is not liable if a member provides an incorrect account number or incorrect identifier for recipient’s institution

• Five conditions must be met– CU gave member notice before payment that incorrect data

could cause member to lose the transfer amount– CU can show that member provided incorrect information– The incorrect data caused the transfer to be credited to the

wrong account– CU used reasonably-available efforts to verify that the

recipient institution’s identifier corresponded to its name– CU “promptly used reasonable efforts’ to recover the funds

Extends compliance effective date to Oct. 28, 2013

Key Changes in April Final Rule

• Lifts mandate for credit union to provide disclosure of fees charged by non-covered 3rd party (e.g. bene bank) to the recipient– Unless the foreign institution is acting as an

agent on behalf of the provider

• Lifts mandate for credit union to disclose foreign taxes other than national taxesBut, a credit union must include a disclaimer

that such fees and taxes may apply

Extends compliance effective date to Oct. 28, 2013

Current Issues to Consider

• Are the April 30th changes enough for your credit union to provide remittance services?

• Are you on the verge of losing‘safe harbor’ protections under the 100 transfer threshold?

• If you use a correspondent, what is the process for disclosure, cancellation ‘wait time,’ error investigation/resolution?

• If you use a correspondent, ensure you’ve identified international wire transfers

• Does shifting to ACH make sense?

Jorge Jimenez, Director Federal Reserve Bank of Atlanta

Federal Reserve’s ACH Approach

The need today

23

• How do your members make international payments?

International Payments Today

Traditionally only offered by the largest global banks

High fees compared to domestic

Beneficiaries paying beneficiary deductions

Remittances Today

Traditionally offered by Money Transfer Providers in non banking channels

Today many senders have bank accounts

International Consumer Wires are now considered remittances too

ACH

International

Expanding ACH

International ACH benefits

No Beneficiary Deductions

Lower Costs

True Innovation in BankingConsistent Delivery Times

Best Foreign Exchanges

International Offering Accessible to all

institutions regardless of size

FI can also handle own exchange

ACH

International

Improves transparency for customers

Fixed-to-Variable (FV)(USD to Pesos)

Example: Fixed-to-Variable payment to Mexico

28

ODFI FedGlobal Gateway Operator

RDFIBANXICO Gateway Operator

IAT IAT Local

USD USD MXN

FX

02:15 a.m. ETDay 0

Day 1

Domestic vs International ACH

In domestic transactions you can use US ABA# and Account number, but what about International transactions?

Image Source Page: http://howtogeekon.com/2010/05/18/fit/square-peg-in-a-round-hole_0565/

International ACH features

• It offers payment delivery options both for

• Account-to-Account (A2A)• The standard option of distributing payments between two

deposit accounts.

• Account-to-Receiver (A2R) [Outbound Credits Only]

• This option allows funds from accounts at a U.S. depository financial institution to be retrieved by any receiver at either a participating bank location or at a trusted, third-party provider in certain receiving countries.

International

A2A

Gateway RT and

Canada: CPA # and Account number

Panama: RT# and Account number

Mexico: ABM# and CLABE (18 digits)

Europe:BIC# and IBAN

International

A2R

Gateway RT and

Mexico: 647R (ABM)

Password (acc#)

Latin America: CO00212336750000023642

(table from fedglobala2r.com)

525565656511

(phone number)

How does the IAT Work?

Account number abroad

All Consumer originated transactions are now considered Remittances and fall under Reg.E. Consumers need to be provided with the following disclosures at time of origination among other provision

• Exact Foreign Exchange (or Estimated in some FedGlobal® cases)• Exact fees and taxes applied at origination• Exact intermediary fees applied at receipt (optional)• Exact day of funds availability to beneficiary

While Industry impact still uncertain, your Regional Payments Association can help you stay updated

Dodd-Frank’s Impact

FedGlobal® Features

Transaction Information

37

Default: Current DateTotal Charge to

CustomerDriven by Menu Page

Amount Transferred

Estimate of Exchange Rate

Date Funds are Available to Receiver

Estimate After FXEstimate of Foreign Fees and

Taxes Estimate of Amount to be

Received

Working past the Silos

When thinking of implementing FedGlobal we suggest you include representatives from…

YOU have the solution, it is YOUR responsibility

Treasury Product Office Compliance

Community Development International Desk (if present)

Retail Banking ACH Operations

Today’s Takeaways

• Any credit union providing international payment services must determine what obligations it has under the Dodd-Frank 1073, CFPB Final Remittance Rule.

• There is less than 4 months to determine what your credit union will do by the October 28th effective date.

• Resources and Model Forms are available on the CFPB website www.consumerfinance.gov) and NACHA has a 1073 Solutions Center (www.nacha.org/1073-solutions-center/)

• The final, Final Rule eases some major industry pain points but only FedGlobal ACH Payments offers a permanently compliant solution.

• Instead of dismantling your CU’s existing international payment program, consider viable alternatives that provide benefits to both your CU and the members.

Questions?

Contact Information:

Evan Shelan, CEO

Evan.Shelan@eZforex.com

Jorge Jimenez, FedGlobal Director, Federal Reserve Bank of Atlanta

jorge.jimenez@atl.frb.org

Breffni McGuire, Vice President, NEACH

Breffni.McGuire@nacha.org