On March 27, 2024, the Consumer Financial Protection Bureau (CFPB) released Consumer Financial Protection Circular 2024-02 (the circular). The circular discusses the Consumer Financial Protection Act’s (CFPA) prohibition on deceptive acts or practices when marketing the cost and/or speed of sending remittance transfers. To those unfamiliar with deceptive acts or practices, under the CFPA, a deceptive act or practice is a representation, omission, act, or practice that “misleads or is likely to mislead the consumer; the consumer’s interpretation is reasonable under the circumstances; and the misleading representation, omission, act, or practice is material.”
So, what are remittance transfers and what are the problems the CFPB sees?
The circular focuses on remittance transfers as defined under the CFPB’s Remittance Rule, which can be found in Subpart B of Regulation E. Section 1005.30(e) defines remittance transfer as:
“The electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider. The term applies regardless of whether the sender holds an account with the remittance transfer provider, and regardless of whether the transaction is also an electronic fund transfer…” (Emphasis added).
A remittance transfer provider is defined as a “person that provides remittance transfers for a consumer in the normal course of its business…” This begs the question, what came first, the remittance transfer or the remittance transfer provider? Fortunately, the commentary to Reg. E provides a lengthy discussion on remittance transfers and remittance transfer providers.
Now, what’s the problem? According to the circular, the CFPB has found issues with how remittance transfer providers advertise the speed and cost of remittance transfers. For example, some providers advertised remittance transfers as being delivered instantaneously or for no fees, even though the transfers took much longer, and the provider did charge a fee. The CFPB also notes that some providers use misleading advertising that obscures the cost of a transfer. For example, an advertisement for free transfers with fine print that states the transfer is free only when no currency conversion takes place.
So, what does a credit union need to watch out for? In the circular, the CFPB provides guidance on four scenarios that it has deemed deceptive under the CFPA.
First, the CFPB has found that it is deceptive to advertise that remittance transfers will be delivered within a certain time frame, when in fact, the transfers take longer to be delivered. The CFPB notes that speed is often a “crucial consideration” when consumers are deciding whether to send a remittance transfer.
Second, the CFPB has found that advertising a transfer as “no fee” is deceptive when a fee will be charged to send the transfer. The CFPB notes that this would be deceptive even where a FAQ on the transfer provider’s website discloses a fee.
Third, the CFPB found that it may be deceptive to market promotional fees/rates without clarifying the limitations of the promotion(s). The CFPB provides the following noteworthy guidance:
“Written disclosures or fine print in marketing materials would often be insufficient to correct a misleading statement or representation in marketing communications. When a consumer’s first contact with a remittance transfer provider involves deception, “the law may be violated even if the truth is subsequently made known” to the consumer.”
What credit unions should note is that the CFPB places particular importance on what a consumer first sees and notes that subsequent disclosures may be insufficient to overcome initially deceptive marketing.
Finally, the CFPB found that advertising transfers as free is deceptive if the transfers are not free. The circular explains:
“For example, it may be deceptive to market a remittance transfer as “free” if the remittance transfer provider is imposing costs on consumers through the exchange rate spread for the transfer or, with respect to digital wallets or other prepaid products, if the provider imposes costs to convert funds into a different currency or to withdraw funds from the product.”
Credit unions may note that this is similar in nature to the Truth in Savings Act prohibition on advertising an account as free when it is not free.
However, unlike TISA and Part 707, circulars do not have the force and effect of a law but are “general statements of policy under the Administrative Procedure Act.” What does that mean? Well, it means that there is a law (the CFPA) with certain requirements and a circular provides guidance on when the CFPB believes that those requirements are not being met or when an action violates those requirements. It is, in effect, a warning that the CFPB, assuming they have the authority to do so, could penalize you if you don’t follow the guidance in the circular. Credit unions that are concerned about this guidance or are fighting a potential action from the CFPB, NCUA, or other party may want to speak to legal counsel. For an example of an enforcement action on this issue, credit unions can look to the CFPB’s action against Chime, Inc. d/b/a Sendwave.