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.
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© 2006, The
Sun-Times Company