The Banking Law Journal VOLUME 128
NUMBER 9
OCTOBER 2011
HEADNOTE: DOES DODD-FRANK WORK? Steven A. Meyerowitz
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THE DODD-FRANK ACT ORDERLY LIQUIDATION AUTHORITY: A PRELIMINARY ANALYSIS AND CRITIQUE — PART I Paul L. Lee
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THE OCC REAFFIRMS ITS RULES ON FEDERAL PREEMPTION OF STATE LAW Gregory Pulles
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THE FFIEC’S SUPPLEMENT TO AUTHENTICATION IN AN INTERNET BANKING ENVIRONMENT: THE NEW MINIMUM LEGAL STANDARD? Scott Fryzel
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FEDERAL RESERVE ISSUES REGULATIONS FOR SAVINGS AND LOAN HOLDING COMPANIES Lee A. Meyerson, Stacie E. McGinn, and Gary Rice
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LENDING TO COMMUNITY ASSOCIATIONS Paul Albus
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REGULATION OF CERTAIN WIRE AND ACH TRANSFERS TO PERSONS ABROAD IS IMPENDING IN THE GUISE OF REGULATION OF CONSUMER “REMITTANCE TRANSFERS” Julius L. (Jerry) Loeser, Christine A. Edwards, and Jacob Calvani 851 REGIONAL BANKING OUTLOOK James F. Bauerle
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EDITOR-IN-CHIEF Steven A. Meyerowitz President, Meyerowitz Communications Inc. BOARD OF EDITORS Paul Barron Professor of Law Tulane Univ. School of Law George Brandon Partner, Squire, Sanders & Dempsey LLP Barkley Clark Partner, Stinson Morrison Hecker LLP John F. Dolan Professor of Law Wayne State Univ. Law School Stephanie E. Kalahurka Hunton & Williams, LLP Thomas J. Hall Partner, Chadbourne & Parke LLP Michael Hogan Ashelford Management Serv. Ltd. Mark Alan Kantor Washington, D.C.
Satish M. Kini Partner, Debevoise & Plimpton LLP
Stephen B. Weissman Partner, Rivkin Radler LLP
Douglas Landy Partner, Allen & Overy LLP
Elizabeth C. Yen Partner, Hudson Cook, LLP
Paul L. Lee Partner, Debevoise & Plimpton LLP
Bankruptcy for Bankers Howard Seife Partner, Chadbourne & Parke LLP
Jonathan R. Macey Professor of Law Yale Law School Martin Mayer The Brookings Institution Julia B. Strickland Partner, Stroock & Stroock & Lavan LLP Heath P. Tarbert Senior Counsel, Weil, Gotshal & Manges LLP Marshall E. Tracht Professor of Law New York Law School
Regional Banking Outlook James F. Bauerle Keevican Weiss Bauerle & Hirsch LLC Recapitalizations Christopher J. Zinski Partner, Schiff Hardin LLP Banking Briefs Donald R. Cassling Partner, Quarles & Brady LLP Intellectual Property Stephen T. Schreiner Partner, Goodwin Procter LLP
The Banking Law Journal (ISSN 0005 5506) (USPS 003-160) is published ten times a year by A.S. Pratt & Sons, 805 Fifteenth Street, NW., Third Floor, Washington, DC 20005-2207. Periodicals Postage Paid at Washington, D.C., and at additional mailing offices. Copyright © 2011 THOMPSON MEDIA GROUP LLC. All rights reserved. No part of this journal may be reproduced in any form — by microfilm, xerography, or otherwise — or incorporated into any information retrieval system without the written permission of the copyright owner. Requests to reproduce material contained in this publication should be addressed to A.S. Pratt & Sons, 805 Fifteenth Street, NW., Third Floor, Washington, DC 20005-2207, fax: 703-528-1736. For subscription information and customer service, call 1-800-572-2797. Direct any editorial inquires and send any material for publication to Steven A. Meyerowitz, Editor-in-Chief, Meyerowitz Communications Inc., PO Box 7080, Miller Place, NY 11764, smeyerow@optonline. net, 631.331.3908 (phone) / 631.331.3664 (fax). Material for publication is welcomed — articles, decisions, or other items of interest to bankers, officers of financial institutions, and their attorneys. This publication is designed to be accurate and authoritative, but neither the publisher nor the authors are rendering legal, accounting, or other professional services in this publication. If legal or other expert advice is desired, retain the services of an appropriate professional. The articles and columns reflect only the present considerations and views of the authors and do not necessarily reflect those of the firms or organizations with which they are affiliated, any of the former or present clients of the authors or their firms or organizations, or the editors or publisher. POSTMASTER: Send address changes to The Banking Law Journal, A.S. Pratt & Sons, 805 Fifteenth Street, NW., Third Floor, Washington, DC 20005-2207.
Regulation of Certain Wire and ACH Transfers to Persons Abroad Is Impending in the Guise of Regulation of Consumer “Remittance Transfers” JULIUS L. (JERRY) LOESER, CHRISTINE A. EDWARDS, AND JACOB CALVANI
The authors suggest that, in their zeal to regulate remittance transfers, legislators appear to have potentially undercut the ability of consumers to wire funds abroad.
T
he Dodd-Frank Act, a 2,300 page-plus comprehensive financial regulatory reform law that the president signed into law last July, contains a number of little known and scantily discussed provisions such as Section 1073 that provides for federal regulation of “remittance transfers,” essentially consumer-initiated electronic transfers of funds to persons in foreign countries. While the statute may seem on first blush to address requirements that are traditional consumer protection measures, the provisions in actuality may apply to commercial transactions such as non-personal wires and ACH transfers and, in the case of wires, the language of the Act may confuse current applicable legal rights. Julius L. (Jerry) Loeser, of counsel in the Chicago office of Winston & Strawn LLP, focuses his practice on banking regulation. Christine A. Edwards, a partner in the firm’s Chicago office, represents boards of directors, special committees, chief legal officers, and financial services companies. Jacob Calvani is a corporate associate in the firm’s Chicago office. The authors can be reached at jloeser@ winston.com,
[email protected], and
[email protected], respectively.
851 Published by A.S. Pratt in the October 2011 issue of The Banking Law Journal. Copyright © 2011 THOMPSON MEDIA GROUP LLC. 1-800-572-2797.
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On May 11, the Federal Reserve Board (“Board”) issued a notice of proposed rulemaking to add a Subpart B to its Regulation E to implement the requirements of Section 1073. The notice provided a 60-day comment period. The expectation was that comment letters would be considered, and a final regulation issued, by the newly-established Consumer Financial Protection Bureau.
THE PUBLIC POLICY CONCERNS The language in Section 1073 was apparently motivated by congressional and regulatory concerns regarding confusing disclosures of fees relating to currency conversion transactions. In particular, immigrants are significant users of remittance services and congressional hearings focused on the fact that some immigrants may have language difficulties and be particularly vulnerable to confusing remittance transfer disclosures. Before enactment of Section 1073, some states licensed remittance service firms, and some did not, and, thus, regulation of the activity appeared inconsistent. Concerns were voiced by then-House Subcommittee on Financial Institutions and Consumer Credit Chairman Luis Gutierrez (D-IL) and Congressman Ruben Hinojosa (D-TX) who participated in a hearing on the subject in June, 2009.
THE STATUTE Section 1073 amends the Electronic Fund Transfer Act (EFTA) to insert a new Section 919, which would require new disclosures and notices. The revisions would require that estimates of amounts to be received by beneficiaries would need to be provided and error resolution procedures would need to be established and disclosed. Small-value transactions, below amounts established by rule, would not be covered by the statute.
Disclosures and Notices Before the consumer pays for the transfer, the remittance transfer provider is to provide written disclosure of the amount1 that will be received by the designated recipient using the values into which the currency would be 852
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exchanged, the amount of fees, and the exchange rate to the nearest 1/100 of a point. The Board may permit this disclosure to be given orally in the case of telephone transactions. At the time of payment, a second disclosure is to be provided consisting of a receipt repeating the information in the initial disclosure, the promised date of delivery, and the name and contact information of the designated recipient if provided by the sender, along with information about the sender’s error resolution rights and contact information for the remittance transfer provider, its state regulator, and the new Consumer Financial Protection Bureau with its toll-free consumer complaint number. The foregoing disclosures are to be in English and in any language in which remittance services are marketed. In addition, the Board is authorized, after conducting a study, to require the posting in storefronts (and updating) of notices of a model remittance transfer for one or more amounts showing the amount that would be received using exchange rates. If a provider offers remittance services on the Internet, the Board is to require a similar notice on the provider’s home or landing page.
Errors If a remittance transfer provider receives notice from a sender within 180 days of the promised date of delivery that an error occurred, the provider is to investigate the error and resolve it. Within 90 days of notice, the provider is to refund the entire amount of the transfer or the deficient amount, provide such other remedy as the Board may determine by rule, or notify the sender that there was no error with an explanation. The Board is to adopt rules establishing appropriate standards for record keeping, including documentation of sender complaints, responses, and findings. The Board is also to issue rules regarding cancellation of transfers and refund policies. Board rules are to be issued by January 21, 2012, but it is conceivable that the Board could propose rules much sooner. Effective July 21, 2011, the Board’s jurisdiction under the EFTA transferred to the new Consumer Financial Protection Bureau.
THE PROBLEMS
The statute is not limited to small value transactions and, thus, would 853
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cover electronic transfers in multi-million dollar amounts. The statute is also not limited to consumer transactions. Thus, the statute would cover an electronic transfer by a Forbes 400 member to pay for a Picasso painting being sold by a Paris art dealer. This would clearly cover wire transfers and likely would even cover international ACH payments. The problem, for institutions, with this type of disclosure and error resolution or reverse of the payment back to the sender approach is that it may be simply unworkable. Today, the rights and obligations relating to orders for wire transfers are governed by Article 4A of the Uniform Commercial Code. By its terms, Article 4A is not applicable to any funds transfer “any part of which is governed” by the EFTA2. As mentioned above, Section 1073 regulates wires sent by consumers to recipients abroad and does so by amending the EFTA, which suggests that such wires, or at least a part of them, would be governed by the EFTA, thereby apparently taking such wires out of Article 4A and creating enormous uncertainty as to the rights and obligations governing orders for such wires. Also, as mentioned above, the Board is to issue rules governing cancellation and refund policies. Normally, under Article 4A, there is very limited opportunity to cancel a wire transfer. It is not at all clear that the disclosures Section 1073 would require, particularly exact amounts reflecting application of exchange rates and delivery dates can be made under current wire transfer systems. It is also not clear why banks and credit unions should be liable for all errors, including those beyond their control and without any fault on their part. Article 4A does not impose such liability on banks and credit unions where there is an unauthorized transfer if the bank or credit union complied with commercially reasonable security procedures or if the sender did not exercise due care. Section 1073 recognizes no such defenses. Like the subjects of many provisions of the Dodd-Frank Act, remittance transfers had nothing to do with the financial crisis the Act was intended to address. Nonetheless, these transactions would be regulated under the Act. It appears that the rush to legislate, as in the case of other provisions in the Act, may have led to errors in drafting, such as including within the definition of “remittance transfers” large dollar wholesale transfers, with the result that the statute goes far beyond the public policy concerns its original proponents
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had. The rush to legislate also appears to have led to proceeding without careful consideration of all of the consequences of this provision, and, thus, it may even throw into question the applicability of fundamental wire transfer law to any individual’s wire transfer of funds abroad. That law lends certainty to all wire transactions, and, in their zeal to regulate remittance transfers, legislators appear to have potentially undercut the ability of consumers to wire funds abroad altogether if the resulting legal uncertainty dissuades providers from offering remittance transfer services altogether.
NOTES For the first five years (subject to a five year extension), this need only be a reasonably accurate estimate in the case of an insured depository institution or credit union transferring funds for a depositor where the institution or credit union is unable to know for reasons beyond its control the amount that will be made available to the recipient (new Section 919(a)(4)). 2 UCC 4A-108. 1
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