Don't allow hidden fees on cross-border money transfers
By Luis V. Gutierrez
29 April 2005

When I go on vacation, I use my bank debit card to get cash in the local currency or to charge purchases. By doing so, I avoid paying the fee a currency exchanger would usually charge, and I can count on getting a good rate from my bank.

Unfortunately, many of our nation's immigrants pay exorbitant and hidden fees to send money to relatives outside of the United States. The money they send isn't being used for vacations, but for food and shelter for their families. When one of these consumers sends $300 back home, he often has no idea how much his family will receive. This is because many money transfer companies fail to disclose significant hidden fees that are very difficult for the consumer to detect.

In 2005, immigrants sent $53.6 billion to Latin America and the Caribbean. When banks and money transfer companies add a couple of dollars to each of these transactions as an exchange-rate markup, it means vast profits.

What consumers don't know can -- and does -- hurt them. A recent survey of the U.S.-Mexico money transfer market by Appleseed, one of the nation's largest legal pro bono networks, found that a full 37 percent of the cost of sending money was the result of the exchange rate spread. Adding in transaction fees, of the $20 billion that immigrants sent in 2005 to their families in Mexico, $948 million never made it home.

Even though market competition has driven these fees slightly downward over the past five years, the fees remain significant -- and problematic because they can be virtually invisible. Too often, uninformed consumers have no idea they are paying a hidden fee. In fact, the study revealed that some customer service agents refused to quote their companies' exchange rate, had difficulty finding the rate, or simply gave out inaccurate information.

The study also revealed a tremendous variation in the rates quoted from city to city, day to day and even from branch to branch. This makes it extremely difficult for consumers, particularly those for whom English is a second language, to shop for the best deal. It's like having to check the rates among all the wireless providers each time you place a call on your cell phone.

This lack of transparency is terrible for consumers, and it is also ultimately bad for the market. Companies can effectively offer whatever exchange rate they choose because they know consumers will have a difficult time finding and comparing rates. Nor does the federal government step in to rationalize the market: There is no regulation that limits how much money transfer organizations can charge or how much they can mark up the exchange rate, or that compels disclosure of their practices or rates to consumers. In a highly interconnected global economy that thrives when information is fast, cheap and easy, we're still relying on the equivalent of the Pony Express.

A number of approaches may be necessary to deal with this serious inequity. But one of the most important things we can do is ensure that consumers have the information they need by mandating disclosure of the total costs.

My legislation, H.R. 928, would require these disclosures regarding fees assessed, including any exchange rate or currency conversion fees.

Competition is effective only if consumers have the relevant information to make informed decisions. Until my disclosure legislation passes, a voluntary disclosure system, coupled with consumer branding, as recommended by the Appleseed report, "Creating a Fair Playing Field for Consumers: The Need for Transparency in the U.S.-Mexico Remittance Market," might help to bridge the gap.

Hardworking immigrants trying to provide a better life for family members back home should be given a fair exchange. We can help by giving this financial Pony Express an information era upgrade.

U.S. Rep. Luis V. Gutierrez is a Democrat who represents the 4th Congressional District in Illinois.