Dodd-Frank 1073 aims to improve transparency for cross-border payments

Dodd-Frank 1073 aims to improve transparency for cross-border payments

Banks can breathe a sigh of relief following the publication of amendments to US Dodd-Frank Rule 1073 today, which should allay fears that draconian regulation was about to stifle cross-border payments.

The amendments, published by the US Consumer Financial Protection Bureau, state that banks will not have to disclose fees imposed by a designated recipient’s institution, nor will they be required to disclose taxes collected by a person other than the remittance transfer provider. In addition, banks will no longer be liable if a consumer submits the wrong details and the bank makes the transfer as requested.

Dodd-Frank 1073 had raised considerable alarm from major US banks, who had previously argued that the proposed regulation would place an impossible burden on cross-border payments. Under the original draft regulation, payment service providers would be required to disclose all the fees that would apply to a cross-border transaction, including fees at the beneficiary bank and any relevant taxes, to the customer in advance.

Senior bank representatives including Greg Murray, head of US dollar wire and clearing products, global transaction services at BAML, had warned that the provision making the bank responsible for a customer error was unreasonable, and could have provided a window of opportunity for fraudsters to exploit.

Ostensibly, the amendments remove the most difficult elements of that obligation, from a bank perspective. For example, taxes may differ even between different provinces in the recipient country, making it difficult to calculate the exact rate in advance. They also allayed the concerns about bank liability for consumer mistakes.

However, other market observers remain cautious about the actual benefits to the end customer sending and receiving cross-border remittance payments.

“At first glance, it seems to have removed significant barriers to adoption, whilst maintaining a degree of urgency in compliance by imposing an October deadline,” said Gareth Lodge, senior banking analyst at research firm Celent. “What is less clear is the extent to which the consumer will actually benefit. Does the client group that this regulation is aimed at protecting use a bank, and chose their remittance provider on how well regulated they are? No – by price, and where they are. If anything, this regulation may well make the banks even less competitive in this space, and reduce the free market dynamics.”

A feature on worker’s remittances will appear in the May issue of Banking Technology. To receive regular copies of the magazine, register your interest here.