Consumer Financial Protection Circular 2024-02

Question presented

When do remittance transfer providers violate the prohibition on deceptive acts or practices in the Consumer Financial Protection Act (CFPA) in their marketing about the speed and cost of sending a remittance transfer?

Response

Remittance transfer providers may be liable under the CFPA for deceptive marketing about the speed or cost of sending a remittance transfer. Providers may be liable under the CFPA for deceptive marketing practices regardless of whether the provider is in compliance with the disclosure requirements of the Remittance Rule. For example, among other things, it may be deceptive to:

• Market remittance transfers as being delivered within a certain time frame, when transfers actually take longer to be made available to recipients;
• Market remittance transfers as “no fee” when in fact the provider charges fees;
• Market promotional fees or promotional exchange rates for remittance transfers without sufficiently clarifying when an offer is temporary or limited;
• Market remittance transfers as “free” if they are not in fact free.

Background

Remittance Transfer Speed and Costs

Pursuant to the CFPB’s Remittance Rule,¹ the term “remittance transfer” includes most electronic transfers of funds sent by consumers in the United States to recipients in other countries. Consumers in the United States send hundreds of billions of dollars in remittance transfers to recipients in foreign countries each year.² Remittance transfers are often consumer-to-consumer transfers of money by immigrants sending financial support to family and friends in other countries. They also include other types of transfers, such as transfers by consumers in the United States to Americans living temporarily abroad, such as students. Consumers may send remittance transfers regularly as an ongoing source of financial assistance or in other circumstances, such as an occasional or emergency form of support. Remittance transfers also include cross-border consumer-to-business payments for goods or services.

Consumers may choose among a range of bank, credit union, and non-bank money transmitters when sending a remittance transfer. Non-bank money transmitters have traditionally dominated the market for remittance transfers from the United States. In recent years, new money transmitters have emerged offering digital remittance transfer services. Many established money transmitters have also added digital services, in addition to in-person options for consumers to go to a store or agent to send remittance transfers.³

When sending remittance transfers, consumers may consider a number of key factors when deciding among different providers, including the speed of the transfer and its cost as well as convenience, security, reliability, and trust.⁴

The speed of a remittance transfer varies depending on the type of transfer and provider. The World Bank Remittance Prices Worldwide database illustrates that a range of transfer speeds can exist within a given remittance corridor, with some providers, for example, offering delivery in less than an hour, and others offering delivery in three to five days.⁵

Costs can also vary significantly within a remittance corridor. Remittance transfer costs include fees charged by the remittance transfer provider including, if applicable, their agents and third parties. Costs also include any exchange rate costs applied by the provider to the currency conversion and governmental taxes. The exchange rate offered to consumers often reflects a spread – meaning, a percentage difference between the retail exchange rate offered to the consumer and some wholesale exchange rate.⁶ Remittance transfer providers utilize different pricing strategies when determining the fees and exchange rate they charge to consumers for remittance transfers.

Transparency Concerns Around Remittance Transfer Speed and Costs

Prior to the passage of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (“Dodd-Frank Act”), federal consumer protection laws generally did not apply to remittances, and remittance transfer providers were not consistently required to disclose applicable fees, exchange rates, transfer speeds, and the amount to be received in a transaction. Consumers thus did not always know how much money would be received on the other end and were not able to easily comparison shop among providers.

With the Dodd-Frank Act’s amendments to the Electronic Fund Transfer Act and the promulgation of the Remittance Rule, remittance transfer providers are now generally required to disclose certain information to consumers before the consumer pays for a transfer and also when payment is made.⁷ Before the consumer pays for a transfer, the information a remittance transfer provider must disclose includes (but is not limited to): as applicable, the amount that will be transferred to the designated recipient in the currency in which the remittance transfer is funded; any fees imposed and any taxes collected on the remittance transfer; the total amount of the transaction, which is the sum of the amount that will be transferred and any fees imposed and any taxes collected, in the funding currency; the exchange rate used by the provider for the remittance transfer; any covered third-party fees; and the amount that will be received by the designated recipient in the currency in which the funds will be received. The receipt that consumers generally receive when payment is made must contain the same information. In addition, the receipt must disclose the date in the foreign country on which funds will be available to the designated recipient.

Compliance with the Remittance Rule disclosure requirements does not obviate the obligation to refrain from misleading marketing practices. In particular, remittance transfer providers must ensure their marketing practices do not violate the prohibition of unfair, deceptive, or abusive acts or practices in the CFPA.⁸

The CFPB has identified problems with transparency and accuracy in marketing practices about the speed of a remittance transfer in its supervision of remittance transfer providers and enforcement of the CFPA’s prohibition against deceptive acts or practices. In the CFPB’s Spring 2022 Supervisory Highlights, the CFPB discussed examiners’ findings that remittance transfer providers made false and misleading representations about the speed of remittance transfers.⁹ In October 2023, the CFPB issued a consent order against Chime Inc., d/b/a Sendwave, finding that the remittance transfer provider made misleading statements in advertisements about the speed and cost of its services, in violation of the CFPA’s prohibition on deceptive acts or practices.¹⁰ This provider claimed in social media marketing that remittance transfers would be delivered “instantly,” in “30 seconds” or “within seconds,” and would incur “no fees,” when in fact transfers often took much longer, and the provider charged a fee.¹¹

In addition, consumers have reported, and the CFPB has observed, problems with price transparency in the marketing practices of remittance transfer providers, resulting in consumers encountering unexpected costs.¹² The CFPB has received consumer complaints about promotional pricing by remittance transfer providers who do not sufficiently inform consumers that the advertised fee or exchange rate is only a limited scope or temporary offer. The CFPB has also observed marketing claims by remittance transfer providers that may mislead consumers about the scope or duration of a temporary low or “no fee” offer or promotional exchange rate.

The CFPB has also received consumer complaints about marketing that omits or obscures the cost of a remittance transfer. Marketing claims by remittance transfer providers may fail to communicate the full cost of a remittance transfer, such as advertising that transfers are “free” or advertising that prominently emphasizes zero fees while only including a vaguely worded statement that additional costs related to the exchange rate may apply. Some of these statements use technical jargon or feature confusing language.

The CFPB has also received consumer complaints about companies that market “free” remittance transfers through digital wallet and other prepaid products, but that fail to sufficiently disclose costs for currency conversion or for withdrawing funds from the product. Companies that offer remittance transfers through digital wallets and other prepaid products often market them as a faster and cheaper way to send remittance transfers. Certain companies’ websites market “free account-to-account transfers” or that “receiving money from a friend” is free. Providers may disclose only in fine print, however, that these transfers are only free when there is no currency conversion, and that for the recipient to withdraw and use funds in their local currency, they must pay a currency conversion fee. In addition, some digital wallet providers may not make clear that recipients of a remittance transfer must pay a fee to withdraw funds from the digital wallet or other prepaid product. Examples of such fees include fees to transfer funds to an external bank account, credit card, or prepaid card. Consumers have complained to the CFPB that these fees are unexpected when they convert currencies and withdraw funds transmitted through digital wallets and other prepaid products.¹³

Analysis

Under the CFPA, it is unlawful for a provider of consumer financial products or services to engage in deceptive acts or practices.¹⁴ A representation, omission, act, or practice is deceptive if it 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.¹⁵

It is deceptive to market remittance transfers as being delivered within a certain time frame, when transfers actually take longer to be made available to recipients

Remittance transfer providers violate the CFPA’s prohibition on deceptive acts or practices if they market remittance transfers as being delivered within a certain time frame, when transfers actually take longer to reach recipients. The CFPB “presumes that express claims are material.”¹⁶ Furthermore, as noted above, the speed of a remittance transfer is often a crucial consideration for consumers sending remittance transfers.¹⁷ Recipients may rely on remittance transfers for day-to-day expenses or for time-sensitive emergencies.

As illustrated in the CFPB’s action against Chime Inc., d/b/a Sendwave, marketing claims about the speed of remittance transfers may violate the prohibition on deceptive acts or practices under the CFPA when the actual time for delivery is longer than advertised.

In the Sendwave case, the provider told consumers that transfers would be delivered “instantly,” “in 30 seconds,” or “within seconds.” These statements were false and misleading because, although a reasonable customer might expect delivery within the time frame advertised, in many instances, transfers were not actually delivered instantly or within seconds for many consumers.¹⁸ In addition, as an express marketing statement regarding a central characteristic of the product – when funds would be available to a recipient – the misleading representation was material.¹⁹

Providers must thus take care not to engage in deceptive acts or practices in their marketing claims about the speed of a remittance transfer.

It is deceptive to market transfers as “no fee” when in fact the remittance transfer provider charges consumers fees to send the remittance transfer

Remittance transfer providers violate the CFPA’s prohibition on deceptive acts or practices if they market remittance transfers as having “no fee,” when in fact the remittance transfer provider charges consumers fees to send the remittance transfer. The cost of sending a remittance transfer is a central consideration for consumers,²⁰ and, as discussed above, fees are an important component of the cost of a remittance transfer.²¹ Expressly misleading price claims violate the prohibition on deceptive practices.²²

For example, as alleged in the CFPB’s action against Chime Inc., d/b/a Sendwave, from at least 2021 to 2022, Sendwave’s website advertised that consumers could transfer funds from the United States to Nigeria “with no fees.” In fact, consumers were charged fees on all transfers from the United States to Nigeria, despite Sendwave continuing to promote its product as having “no fees” on its website with no qualification or disclaimer.²³

The CFPB found that Sendwave’s representations were likely to mislead the consumer and that the consumer’s interpretation would be reasonable under the circumstances. Although Sendwave disclosed a 1% transfer fee in the FAQ section of its website, this did not correct the misleading statement or communication made at the top of its webpage and on a graphic depicting its mobile app.²⁴ And as an express marketing statement regarding a central consideration for consumers when sending a remittance transfer – cost –, the misleading representation about transfer fees was material.²⁵

It may be deceptive to market promotional fees or promotional exchange rates for remittance transfers without sufficiently clarifying when the offer is only limited or temporary

Remittance transfer providers may violate the CFPA’s prohibition on deceptive acts or practices by advertising promotional pricing for remittance transfers without sufficiently clarifying that the offer is only limited or temporary in scope, even if the promotional nature of the offer is disclosed in fine print or later in the transaction.²⁶ In such cases, consumers may not understand the pricing is limited and promotional and they may not understand that the cost of sending a remittance transfer through the provider rises after the first or first few transactions.

As the CFPB has articulated, consumers may be reasonably misled when financial service providers fail to clearly and conspicuously disclose material terms in advertising, such as when and by how much charges will increase.²⁷ Written disclosures or fine print in marketing materials would often be insufficient to correct a misleading statement or representation in marketing communications.²⁸ 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.²⁹

Representations in advertising about “no fee” remittance transfers or specific promotional exchange rates without sufficiently clarifying, when applicable, that the offer is only limited or temporary in scope are presumed to be material, as they relate to cost, a key consumer consideration.

In addition, such statements are likely to be material because of their likely impact on a consumer’s initial and subsequent choice of remittance transfer provider. The impact could be particularly significant for promotions offered to first-time customers who seek to continue using the provider to send remittance transfers. Such consumers may face unexpected higher costs after the expiration of the promotion and may also face unexpected hurdles in searching for a different provider. Had they been aware of the limited promotional nature of the offer, a reasonable consumer may have chosen a different provider.

It is deceptive to market remittance transfers as “free” if they are not in fact free

Remittance transfer providers would also violate the CFPA’s prohibition on deceptive acts or practices by marketing remittance transfers as “free” if they are not actually free for the consumer. 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.

The FTC has articulated that, under the FTC Act, offers of “free” services “must be made with extreme care so as to avoid any possibility that consumers will be misled or deceived.”³⁰ “The word ‘free’ is a lure. It is the bait. It is a powerful magnet that draws the best of us against our will ‘to get something for nothing.’” Book-of-the-Month Club, Inc., 48 F.T.C. 1297, 1312 (1952), aff’d, 202 F.2d 486 (2d Cir. 1953).

A consumer should generally expect that a “free” product or service is indeed free, and that the seller “will not directly and immediately recover, in whole or in part, the cost of [] the service.”³¹ The FTC has explained that terms, conditions, and obligations that apply to a “free” item should be set forth clearly, conspicuously, and in close conjunction with the offer of the “free” item, and they should further be made clear at the outset of the offer “so as to leave no reasonable probability that the terms of the offer might be misunderstood.”³² The same analysis applies to the use of terms that are similar to “free,” such as “gift” or “given without charge.”³³

The FTC has recently reiterated that representations of “free” in marketing are deceptive when the offer is not in fact free or when limitations, restrictions, or hidden charges are inadequately disclosed, such that the claim is likely to mislead a reasonable consumer about information important to them when choosing a product.³⁴ As applied here, marketing representations of remittance transfers as free are deceptive under the CFPA if they are not actually free or when limitations, restrictions, or hidden charges are inadequately disclosed.

Marketing a remittance transfer as “free” is likely to cause a reasonable consumer to believe they are sending a remittance transfer without the provider imposing a cost to the consumer. Such interpretation would be incorrect – but reasonable – in instances where the remittance transfer provider is imposing costs through the exchange rate spread for the transfer. In this situation, a remittance transfer provider’s claim that the transfer is “free” would be false and thus likely to be deceptive because there was a cost imposed on the transfer through the exchange rate spread.³⁵

Remittance transfer providers should also be aware of the risk of deception when marketing “free” remittance transfers for digital wallets or other prepaid products. A claim that remittance transfers are “free” may be misleading if the provider in fact imposes costs for recipients to convert funds into a different currency or to withdraw funds from the product. In these circumstances, marketing “free” transfers may constitute a misrepresentation of the terms for the remittance transfer provider’s services that may mislead a reasonable consumer, even with subsequent disclosure of such fees.