Good morning Chairman Sarbanes and members of the committee. It's with great pleasure that I appear before this committee today to share my views on an issue that has been among my top legislative priorities during my tenure in Congress: protecting consumers from hideous-and often hidden--practices in the international money transmitting business.
Currently, approximately 28 million foreign-born live in the US., the majority of whom are making enormous contributions to America's stability and security, economic and otherwise.
These people came here seeking a better life and-through their hard work, their wages and, I should add, their taxes-these people are making better lives for all of us in America.
At the same time, they are also working to make life better for people in their home countries, for relatives who use that money for basic necessities such as food and shelter-often in times of crisis.
During the past 20 years, remittances to Latin American countries have increased not only in volume but also as a share of national income and total imports. This year approximately $9 billion dollars will be sent to Mexico via remittances, representing Mexico's third largest source of foreign income. However, such transfers are costly due to a range of fees, many of which are hidden.
Wire Transfer companies aggressively target audiences in immigrant communities with ads promising low rates for international transfers. However, such promises are grossly misleading, particularly for those with ties to Mexico or other Latin American countries, since companies do not always clearly disclose extra fees charges for converting dollars into local currency.
While large wire service companies typically obtain foreign currency at bulk bargain rates, they charge a significant conversion fee to their customers in the US. The exchange rate charged to customers sending US dollars to Mexico routinely varies from the rate set by the Banco de Mexico by as much as 15 percent. The profits from these "currency conversion fees" are staggering, allowing companies to reap millions of dollars more than they make from service fees.
This is why I introduced H.R. 1306, the Wire Transfer Fairness and Disclosure Act, a bill that currently has the support of 70 members. Through the enactment of this bill, we could ensure that each customer who solicits an electronic wire transmission of money is fully informed of all commissions and fees charged on all transactions, and has clearly been quoted the exact rate of exchange available to them.
The bill requires full disclosure of all fees involved in any transaction of money wiring services, including the exchange rate being offered by the company wiring the money. The disclosure shall be made public and posted in all windows and exterior and interior signs, as well as in all advertising. Finally, the bill will also require companies operating and offering money wiring services to present each customer with a receipt for each transaction, clearly stating the exact amount of foreign currency to be received in the foreign country.
During 2000, Latin American and Caribbean countries received about $20 billion dollars in remittances from their family members working abroad. Those $20 billion were sent through 80 million separate transactions, each one charging exorbitant amounts in transaction and conversion fees. In half of these countries, remittances represent more than 10 percent of the GDP.
The money sent out to the families abroad was money earned upon hours of hard-work. It was saved with a great deal of sacrifice by mostly low-income, taxpayers of the US.
Their efforts are compensated by seeing that the money they send to their relatives somehow alleviates some of the immediate financial needs of their relatives.
For those living abroad, this money is vital to help pay for food, housing, education, to start businesses and save for the future. This will enrich communities in other countries, creating a steady income and jobs for people who might otherwise migrate to the US to find work.
But a sizeable portion of these savings never make it from the U.S. to these countries.
Instead, it is claimed as fees--most in the form of punishing exchange rates--that remittance services levy on immigrants who wire money.
The fees accompanying remittances made through wire transfer companies can sometimes reach 30%, excluding the amount loss through the exchange rates. Remittances create dependence and deepened income inequality. Most customers, though, have no alternative. Few have bank accounts.
Most remittance companies advertise low service fees for international transfers-but that cost can double because of hidden fees, charged when dollars are converted to foreign currency at poor exchange rates.
For instance, let's say it costs about 12 cents to buy a Mexican peso. The wire transfer companies, however, charge their customers as much as a penny more for that same peso. The difference, called the foreign exchange spread, is pocketed by the companies. With enough transactions, the money starts adding up.
The two biggest companies who offer wire transfers claim almost 90 percent of the $41 billion a year in money transfer business. Fueling the profits are hefty fees paid by some of the country's lowest-paid workers. The vast majority are immigrants who send money back home to families they have left behind.
And it truly costs them dearly. Using one of the 2 biggest wire transfer services to send $300 from the US to Mexico, for example costs $41 dollars--which is more than a day's pay at minimum wage.
Currently, Wells Fargo, First Bank of the Americas, Credit Unions and other financial institutions offer programs to help more immigrants become part of the banking system.
By accepting identification cards issued by the Mexican consulate, these institutions are helping thousands of people around the nation who would be forced to turn to payday lenders and check cashing vendors, who in most cases, charge outrageous fees for services. At the same time, it protects the unbanked from being targets of crime, robberies and other abuses.
Finally, we must not forget that by helping consumers from being targets of hidden and excessive fees charged by money transmitting businesses, we are helping them save some cash that could then be used by them as a source for investment and future savings here in the U.S.
Thank you again Mr. Chairman for giving me this great opportunity to be here today. I welcome any questions you and the other members may have.
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