People who wire money outside the country should have greater protection under a new federal rule that takes effect Monday.
Each year, tens of billions of dollars are wired outside the country. Companies that provide this "remittance transfer" service will be required to disclose the costs before the transaction is made, provide proof of payment and offer a way to resolve disputes.
"People sending money to their loved ones in another country should not have to worry about hidden fees," Director Richard Cordray of the Consumer Financial Protection Bureau said last year when the CFPB adopted the rule. "With these protections, international money transfers will be more reliable."
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The new rule, authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act, applies to international wire transfers of $15 or more handled by a bank, thrift, credit union and most other companies that provide this service. They now must do the following three things:
1. Provide prepayment disclosures
Wire transfer services must disclose the fees, taxes and exchange rate, so customers know the true cost of that transaction before they decide to approve it. This information is free, and the customer is under no obligation to continue with the transaction. They can use it to price shop.
If a transaction is completed, the customer has the right to a receipt that shows proof of payment, the fees and exchange rate, as well as when the money will be available at its destination.
2. Provide an error-resolution process
Customers now have up to six months (180 days) to dispute an error. The company then has 90 days to investigate and tell the customer the results. For certain types of problems—for instance, the money never arrived—the customer can ask for a refund or have the money sent again. Unhappy customers can also file a complaint with the CFPB.
3. Cancellation rights
In most cases, customers will have up to 30 minutes (sometimes longer) to cancel after they pay—at no charge—and receive a full refund. But this right to a refund applies only when the funds have not been picked up by the designated recipient or deposited into their account. If the payment is scheduled in advance, it can be canceled up to three business days before it is made.
Western Union, the biggest player in this industry, told CNBC it supports clear, accurate and transparent financial disclosures to customers. The company said it has already implemented the new rules.
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"We've made point-of-sale enhancements and provided agent and front-line associate training for more than 50,000 U.S. locations," Western Union spokeswoman Anna Alejo said in a statement. "We also added new disclosures, as well as CFPB contact information to our receipts. And we are changing our customer support capabilities to focus on supporting rule requirements around error assertion and resolution."
The new rules should clear up a lot of confusion and help people make better decisions about the cost of wiring money overseas. But it won't stop one of the biggest problems—people who get tricked into wiring money to scammers.
Con artists persuade them to wire large sums of money to claim a nonexistent sweepstakes or lottery prize. Or they pretend to be a friend or family member in distress who needs money wired to them right away.
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Don't do it! Never wire money to someone you don't personally know because in most cases, once the money is picked up, it's gone forever.