A report to Congress issued Friday on the effectiveness of the consumer financial protection bureau’s remittance rule shows that while money services businesses (MSBs) conduct the lion’s share of consumer remittances – 95.6% of them in 2017 – the average size of remittance transfers through banks and credit unions is typically much larger.
It also estimates that about 80% of banks and 75% of credit unions, respectively, fall under the rule’s safe harbor for those providing 100 or fewer remittances annually in the previous and current calendar years, making them exempt from the rule.
Overall, the bureau reports that consumers in the U.S. during 2017 transferred more than 325 million remittances worth more than $175 billion. It says MSBs conducted 95.6% of all such transfers and accounted for 68.4% of the dollar volume. Banks conducted 4.2% of transfers, but 28.8% of the dollar volume, the report says. Credit unions conducted 0.2% of remittance transfers and, the bureau estimates, 2.8% of the dollar volume based on the average dollar value of remittance transfers by credit unions in an industry survey earlier this year.
The assessment report on the remittance rule, conducted under requirement of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), looks at all remittance rules that took effect through November 2014 and could inform the bureau in future policy decisions on remittance transfers, “including whether to commence a rulemaking proceeding to make the Remittance Rule more effective in protecting consumers, less burdensome to industry, or both,” the report says.
The report draws on a wide variety of sources, including responses to a March 2017 request for information, an April 2018 industry survey, World Bank price data, state data and data from the Nationwide Multistate Licensing System, bank and credit union call reports, information from the bureau’s own supervision data, consumer complaints and other sources.
The bureau’s summary of findings is as follows:
- New and repurposed technologies and new entrants [fintech among them, the report shows later] have had a substantial effect on the remittance transfer market, and these trends began before the rule took effect. Most significantly, the widespread use of mobile phones to access the Internet and the ability to transfer remittances online have changed the way that many consumers send remittances. Against this rapidly changing marketplace, discerning the effect of the remittance rule is difficult.
- The volume of remittance transfers by MSBs was increasing before the effective date of the rule and continued to increase afterwards at the same or higher rate. Similarly, the dollar volume of remittance transfers by MSBs was increasing both before and after the rule became effective. However, many factors other than the rule may affect consumer demand for remittance transfers, and the evidence does not eliminate the possibility that remittance transfers would have increased more rapidly in the absence of the rule.
- The percentage of all banks that transfer more than 100 remittances, and thus generally subject to the rule’s requirements, has been steady or increasing since 2014, the first full year after the rule took effect. The percentage of all credit unions that transfer more than 100 remittances has increased slightly. While a number of banks and credit unions stop transferring more than 100 remittances in each year, about an equal number start transferring more than 100, so the net change is small.
- The number of credit unions that report offering remittance transfers increased in the two years after the rule took effect, compared to the two years before, although that increase is likely driven at least in part by changes in the question used to collect these data. Comparable data for banks are not available before the rule took effect.
- The average price of remittances was declining before the rule took effect and has continued to do so. The available evidence cannot rule out the possibility that prices would have fallen even faster in the absence of the rule. Comparing trends in the U.S. with those in other industrialized countries, the evidence does not seem to support the rule causing either substantial price declines or substantial price increases.
- The bureau’s examinations have uncovered mixed levels of remittance rule compliance across the industry, including general compliance at certain institutions as well both individual violations and wholesale failures to comply at others. The evidence from many of the bureau examinations, however, is consistent with consumers generally receiving disclosures, albeit in many instances with inaccuracies and errors. The evidence from Bureau examinations is also mixed for error resolution because systems to correctly track and investigate error claims were identified as weak at some providers. As of the date of this report, the bureau has not filed any enforcement actions against remittance transfer providers.
- When the rule took effect, remittance transfer providers incurred one-time costs to come into compliance. The bureau estimates these initial compliance costs were between $86 million, based on analysis at the time of the rulemaking, and $92 million, based on estimates from a survey of industry conducted by the bureau. These costs correspond to between $0.30 and $0.33 per remittance transferred in 2014. For context, the average cost to transfer a $200 remittance ranges between approximately $8 and $18 depending on the destination.
- In addition to the one-time costs, remittance transfer providers continue to incur ongoing compliance costs. The limited available evidence for the ongoing costs of compliance suggests a wider possible range from $19 million per year, based on the bureau’s industry survey and largely reflecting the costs of a few large providers, to $102 million per year, based on analysis at the time of rulemaking. These costs correspond to between $0.07 and $0.37 per remittance transfer in 2017. The bureau expects that the actual cost is somewhere in this range.
Remittance rule assessment report (October 2018)