[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





                      REMITTANCES: REDUCING COSTS,
                         INCREASING COMPETITION
                         AND BROADENING ACCESS
                             TO THE MARKET

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 1, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-55

92-335              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          CHARLES A. GONZALEZ, Texas
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California                 HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin                KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania      JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona             STEVE ISRAEL, New York
VITO FOSSELLA, New York              MIKE ROSS, Arkansas
GARY G. MILLER, California           CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania        JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia  JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota           ARTUR DAVIS, Alabama
TOM FEENEY, Florida                  RAHM EMANUEL, Illinois
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania              
GINNY BROWN-WAITE, Florida           BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 1, 2003..............................................     1
Appendix:
    October 1, 2003..............................................    55

                               WITNESSES
                       Wednesday, October 1, 2003

Abernathy, Hon. Wayne, Assistant Secretary for Financial 
  Institutions, Department of the Treasury.......................     5
Herrera, John A., Board Chairman, Latino Community Credit Union 
  on behalf of the Credit Union National Association and the 
  World Council of Credit Unions.................................    40
Levine, Ezra, Partner, Howrey Simon Arnold and White on behalf of 
  Non-Bank Funds Transmitters Group..............................    42
Orozco, Manuel, Project Director, Central America Inter-American 
  Dialogue.......................................................    35
Perez, Alice, Vice President, Hispanic Market Manager, US Bank on 
  behalf of the Consumer Bankers Association.....................    38
Suro, Roberto, Director, Pew Hispanic Center.....................    33
Valenzuela, David, President Inter-American Foundation...........    36

                                APPENDIX

Prepared statements:
    Emanuel, Hon. Rahm...........................................    56
    Gillmor, Hon. Paul E.........................................    57
    Gutierrez, Hon. Luis V.......................................    58
    Abernathy, Hon. Wayne........................................    61
    Herrera, John A..............................................    67
    Levine, Ezra.................................................    76
    Orozco, Manuel...............................................    85
    Perez, Alice (with attachments)..............................   100
    Suro, Roberto................................................   119
    Valenzuela, David............................................   121

              Additional Material Submitted for the Record

Abernathy, Hon. Wayne:
    Written response to questions from various Members...........   125
    Written response to questions from Hon. Brad Sherman.........   128
Perez, Alice:
    Written response to questions from Hon. Luis V. Gutierrez....   129
    Written response to questions from Hon. Melvin Watt..........   131
Suro, Roberto:
    Written response to questions from Hon. Luis V. Gutierrez....   132
National Association of Federal Credit Unions, prepared statement   133

 
                      REMITTANCES: REDUCING COSTS,
                         INCREASING COMPETITION
                         AND BROADENING ACCESS
                             TO THE MARKET

                              ----------                              


                       Wednesday, October 1, 2003

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 10:05 a.m., in Room 
2128, Rayburn House Office Building, Hon. Spencer Bachus 
[acting chairman of the committee] presiding.
    Present: Representatives Bachus, Royce, Lucas of Oklahoma, 
Gillmor, Ose, Biggert, Green, Shays, Shadegg, Capito, Tiberi, 
Kennedy, Feeney, Hensarling, Garrett, Brown-Waite, Waters, 
Maloney, Gutierrez, Watt, Sherman, Lee, Inslee, Moore, 
Gonzalez, Lucas of Kentucky, Clay, McCarthy, Baca, Matheson, 
Miller and Emanuel.
    Mr. Bachus. [Presiding.] Good morning. The Committee on 
Financial Services will come to order.
    This hearing today is entitled ``Remittances: Reducing 
Costs, Increasing Competition, and Broadening Access to the 
Market.'' Today, the committee meets to learn more about a 
growing business line that was long dominated by a few players. 
Remittances describe the funds sent from U.S. residents to 
friends and loved ones in other countries. Wire transfer 
companies now compete with banks, credit unions and other small 
businesses in the remittance market. Because of this 
competition, access to these services has increased, prices 
have fallen, and innovative products have been developed.
    It has long been my belief that competition in the free 
market is the best way to increase quality and improve 
services. The average cost of remittances has fallen 
approximately 50 percent over the past four years. In some 
areas, it currently only costs about $13 to send $300 to 
Mexico. Money transfers by individuals living and working in 
the U.S. to Latin America are currently estimated at $10 
billion annually, and should more than double to $25 billion by 
2010.
    Every year, millions of people come to our great country to 
find good paying jobs and embark on the quest for the American 
Dream. Many must leave their family and loved ones at home when 
they come to the U.S., but they are able to share a measure of 
prosperity through remittances. It is important that we ensure 
an environment that enables people to have access to safe and 
low-cost remittance services and that any abusive operators 
seeking to prey upon unsophisticated consumers are subject to 
rigorous enforcement action.
    Remittances have grown from just a wire transfer of funds. 
Products such as debit cards and shared accounts have increased 
the ways in which funds can move more easily to other 
countries. Some have called for increased government oversight 
of the remittance industry. Others have expressed concern that 
excessive disclosures, artificially reduced fees and other 
intrusive regulations will only stifle improvements and 
increase costs.
    The purpose of today's hearing is to hear from proponents 
of these viewpoints and to highlight those innovations in the 
remittance market that hold the promise of making these vital 
products available to more consumers at lower cost. I want to 
especially thank Ranking Member Frank and Representative 
Gutierrez for bringing this issue to the committee's attention, 
and want to welcome the witnesses. I look forward to your 
testimony.
    At this time, I will recognize the gentleman from Illinois, 
Mr. Gutierrez, who actually spearheaded the move to hold this 
hearing today. I commend your concern and watchfulness over 
this issue.
    Mr. Gutierrez. Thank you very much, Acting Chairman Bachus. 
It is a great pleasure to be here today to talk about this 
important issue. I would like to start by thanking the majority 
for agreeing to hold this hearing. I would also like to thank 
Ranking Member Frank, a steadfast supporter of the remittance 
legislation throughout the years.
    During the past 20 years, remittances to Latin American 
countries have increased not only in volume, but also as a 
share of income and total imports. Last week, President Fox 
announced that remittances sent from Mexican workers in the 
United States to their families back home reached a record $12 
billion, representing Mexico's largest source of income, more 
than oil, tourism or foreign investment. However, such 
transfers can be unnecessarily costly for consumers in the U.S. 
due to a range of fees, many of them hidden.
    Wire transfer companies aggressively target audiences in 
immigrant communities with ads promising low rates for 
international transfers. However, such promises are often 
grossly misleading because the companies do not always clearly 
disclose extra fees charged for converting dollars into local 
currency. That is why I, along with Representative Frank, 
introduced H.R. 2074, the International Money Transfer 
Disclosure Act. My bill requires financial institutions and 
money transmitting businesses to, (A) disclose any fees to be 
charged to the recipient, including exchange rate or currency 
conversion fees, a final itemization of all costs, including 
all fees charged, and the exact amounts of foreign currency to 
be received by the recipient in the foreign country.
    Finally, the bill requires that disclosures of information 
be made in English and in the same language if other than 
English as the language principally used by financial 
institutions in the recipient country. For those of you who 
think I might be simply adding another language to our money 
markets, let me tell you that financial institutions involved 
iin the money transfer business already spend millions of 
dollars advertising on Univision and Telemundo, so simply 
making sure everyone understands converting the language once 
again is pretty simple. You get it on the front end when you 
get the business; you get it on the back end when they show up 
to your store.
    Over three-quarters of all remittances that come to Latin 
America, approximately $25 billion, originate in the United 
States. Almost 70 percent of Latin American immigrants in the 
U.S. send remittances back home on a regular basis. That means 
approximately 12 million workers are sending money to their 
families back home. The money sent out to the families abroad 
was money earned upon hours of hard work and it was saved with 
great sacrifice from some very low-income taxpaying workers 
here in this country.
    For those living abroad, this money is vital to help pay 
for food and housing and education. This help enriches 
communities in other countries, creating a steady income and 
jobs for those who might otherwise migrate to the United States 
to find work. But a sizable portion of these savings never 
makes it 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 home. The fees 
accompanying remittances made through the wire transfer 
companies can sometimes reach as high as a 20 percent 
difference between the benchmark established here in the United 
States and the exchange rate.
    Money transfers have grown significantly since the 
increased acceptance of the matricula consular by financial 
institutions. I want to take this opportunity to commend the 
Department of the Treasury for their recently released rules on 
section 326 of the PATRIOT Act and for the decision to keep the 
rules unchanged as far as the matricula consular. Allowing 
financial institutions to accept the use of matricula consular 
represents an important step in reducing the number of unbanked 
and reducing the cost of transferring money, and also brings 
safety to that money. A study recently conducted by the Pew 
Hispanic Center indicates that reducing the cost to 5 percent 
of the amount remitted would free up more than $1 billion to 
some of the poorest households in the United States, Mexico and 
Central America.
    In conclusion, I hope we could agree, Mr. Chairman, that 
offering basic transparency for these services will provide 
consumers with the ability to make informed and educated 
decisions regarding the services they choose. I look forward to 
the testimony today, and will just end by saying, Mr. Chairman, 
I came about this when I was in Acapulco and I used my ATM 
card. Then I checked the exchange rate that I, a tourist in a 
hotel in Acapulco received, with what I received using my ATM 
card here in the United States, with the exchange rate 
established by MoneyGram and Western Union. On that particular 
date, the difference was 14 percent. That is, I got 14 percent 
more pesos for my dollar than a poor immigrant worker working 
long hours sending money back to their families. I obviously 
did not need it as much, being a tourist on vacation, as a 
hard-working person in the United States. So if that is what's 
going on, we want transparency. We want clarity, so that there 
can be true competition for that huge number of people who want 
to help their families back home.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Hon. Luis V. Gutierrez can be 
found on page 58 in the appendix.]
    Mr. Bachus. Thank you, Mr. Gutierrez.
    At this time, are there other members that wish to make an 
opening statement? Mr. Hensarling? The gentleman from Texas is 
recognized.
    Mr. Hensarling. Thank you, Mr. Chairman.
    Mr. Chairman, the title of this hearing is ``Remittances: 
Reducing Cost, Increasing Competition and Broadening Access to 
the Market.'' It seems to me that these three things exemplify 
what has been occurring in the remittance industry in recent 
years. So it is my opinion that as we examine the role of the 
federal government with regard to remittances, we should also 
celebrate the triumph of free enterprise and competition in 
providing consumers with readily available low-cost access to 
money transfer services.
    According to an article from yesterday's Dallas Morning 
News, my hometown newspaper, remittances from the U.S. to 
Mexico are somewhere in the neighborhood of $1 billion a month. 
As a direct result of competition among banks and credit unions 
and traditional money transfer service providers, commissions 
on these remittances have dropped from approximately 20 percent 
to as low as 4 percent in the last decade. To date, more than 
200 credit unions in the United States have partnered with 
Mexican credit unions to offer money transfer services, 
granting access to parts of Western Mexico that had previously 
been unreachable. Banks continue to form partnerships to help 
them compete with the traditional money transfer companies like 
Western Union and MoneyGram, who alone operate tens of 
thousands of outlets throughout North America.
    In addition, to help serve consumers more efficiently and 
effectively, larger banks like Bank of America and Wells Fargo 
are promoting the use of ATM cards that can be used to withdraw 
money that has been transmitted from the U.S. All of this gives 
the appearance of a fairly robust marketplace. The end product 
of this increase in competition and innovation is what is most 
important to consumers, more choices at lower cost. The free 
market, not the government, has brought about this result.
    Some maintain that price differentials are unseemly and 
perhaps border on fraud, but if I can use an analogy, as the 
father of two small children, I am often asked by my wife to go 
and buy a gallon of milk. Now, sometimes I can drive five miles 
to the local Tom Thumb grocery store, park a long way away from 
the grocery store, and wait in a long line to get my gallon of 
milk. Or I can go to the neighborhood 7-11 where there is one 
on about every other street corner, park right in front of the 
store, wait in no line, but pay 30 cents more for my gallon of 
milk. Often, I choose the convenience of going to the 7-11.
    The point is that a simply higher price for what one may 
view as a commodity should not necessarily be the subject of a 
congressional inquiry. One brand name could be stronger than 
another. One could offer more convenient locations or more 
convenient hours than another. So concerning the federal 
government's involvement in this industry, I have to ask myself 
what could Congress possibly do at this point to benefit 
consumers choosing to use these services. We should be very 
careful, because additional regulatory burdens placed upon 
these companies in this business could limit access for 
consumers to these services, and would almost assuredly result 
in an increased cost in these transfers. To me, the best 
consumer protection is a competitive marketplace, and from what 
I see of the evidence that I have gathered so far, a 
competitive marketplace does exist in this industry.
    Some have used the term ``fraud'' in connection with some 
players in this industry. I take every accusation of fraud 
quite seriously. There is no doubt that the large bulk of the 
population that uses remittances are recent immigrants to 
America and perhaps more susceptible to fraud than others. I 
look forward to hearing the evidence of these charges, and 
should the evidence be persuasive, I will help lead the charge 
in ending any abusive or fraudulent practices in the industry. 
But at the end, Mr. Chairman, we should be very, very careful 
where a competitive industry already exists, that we do not 
make it less competitive.
    I thank the chairman and yield back the balance of my time.
    Mr. Bachus. Thank you. I appreciate that statement, Mr. 
Hensarling.
    At this time, we want to welcome our first panel, which 
consists of our good friend, Honorable Wayne Abernathy, 
Assistant Secretary for financial institutions at the 
Department of the Treasury. We know that this is an extremely 
important issue for the Department of the Treasury and one that 
you all have been spending time on, so we very much look 
forward to your comments, Mr. Secretary. Without objection, 
your written statement will be made a part of the record. At 
this time, you will be recognized to give a summary of your 
testimony.

  STATEMENT OF HON. WAYNE ABERNATHY, ASSISTANT SECRETARY FOR 
       FINANCIAL INSTITUTIONS, DEPARTMENT OF THE TREASURY

    Mr. Abernathy. Thank you very much, Mr. Chairman. It is a 
pleasure to be here before you again. I appreciate the 
invitation from you and the members of this committee to 
discuss this important issue of the remittance of the hard 
earnings of people who work here in this country to their homes 
and families.
    People working in the United States and elsewhere have been 
sending money back home for centuries. According to some 
estimates, people all around the world send $72 billion to 
their homelands, far exceeding the total amount of official 
development assistance that is provided to poor countries. 
Mexican Americans will send an estimated $13 billion to their 
families in Mexico this year, the largest remittance market.
    For many countries, remittances are a substantial share of 
national income. In Nicaragua, for example, it equals something 
in the neighborhood of 16.2 percent of gross domestic product. 
There is a rather paternalistic view that remittances are used 
for so-called ``non-productive'' purposes. This idea is wrong. 
Remittances are used for the same variety of purposes that 
people here in this country use their income. They are used 
first and foremost for improving the living standards of their 
own families. One study has shown that families in El Salvador 
that receive remittances keep their children in school longer 
than families that do not receive remittances.
    Whatever the natural barriers to remittances, our 
experience has shown that market forces are remarkably adept at 
surmounting these barriers. More stubborn to surmount are 
governmental barriers. A significant element in the progressive 
improvement in service and reduction in cost of remittances to 
Mexico has been the removal of barriers to financial commerce 
under the North American Free Trade Agreement. Our focus at 
Treasury has been on promoting competition in remittances as 
the most effective means of reducing costs, while at the same 
time improving services.
    There are three main components to this effort. First of 
all, promoting competition in the United States; second, 
promoting competition in the recipient countries; and third, 
where appropriate, improving the links between the U.S. 
financial system and the financial system in recipient 
countries. In addition, we encourage investments in the 
financial infrastructure that supports each of these three 
goals.
    Promoting competition in the United States has been the 
easiest of the three. There are often many artificial barriers 
in the recipient markets. To cite one example, a country in 
South America forbids credit unions from receiving remittances, 
forcing credit unions in that country to convert to banks in 
order to be a recipient of remittances. We are working to 
identify such barriers and to persuade these governments to 
lower these barriers.
    It is also important to understand the fundamental value of 
good banking policy in the recipient countries. For example, 
Mexico's prompt action to resolve failed banks, Mexico's 
openness to foreign ownership of banks, and other pro-
competitive policies in Mexico are widely credited for the 
relatively low cost of remittances there, and the continuing 
decline in the cost of those remittances. The Federal Reserve 
has been working on extending the International Automated 
Clearinghouse services to several countries. This will make 
available a channel for every bank to send remittances and 
other payments at very low cost. The Treasury Department has 
financial advisers in several countries throughout Africa to 
assist strengthening financial regulatory and supervisory 
practices.
    The goal is to ensure that the flow of remittances is 
handled in a trustworthy and transparent manner, and thereby 
boost the confidence in their banking system and protect 
against fraud and money laundering and the flow of funds into 
the hands of terrorists. Promoting competition works. Recently 
we have seen several major banks enter the remittance market, 
expand their product offerings, and reduce their fees.
    Remittances are quickly becoming the central source of new 
foreign capital for many countries. It is funding that almost 
by definition gets into the hands of those who need it most, 
the families of those whose hard work earned the money. We will 
continue to promote competition and the linkages that 
facilitate it. It is just as important, however, not to kill 
remittances with kindness. Well-intentioned, but ill-advised 
mandates and regulation can raise costs and force suppliers out 
of the market. That, in turn, would likely reduce remittance 
flows, not increase them. Let us build upon our successes that 
we have already achieved and make it easier for families to 
build financial security here at home and abroad.
    Thank you again for the opportunity to discuss this issue 
with you today and for the support that members of this 
committee have given to this important effort to improving this 
important flow of financing. I am available to answer any 
questions that you may have.
    [The prepared statement of Hon. Wayne Abernathy can be 
found on page 61 in the appendix.]
    Mr. Bachus. Thank you.
    At this time, I recognize Mr. Lucas for questions. No 
questions? Mr. Shays?
    Mr. Shays. Thank you very much for being here and for your 
testimony. With regard to remittances, I would like to just 
ask, when the Treasury Department established its rules under 
the PATRIOT Act as it related to the identification of 
individuals who had accounts. Could you explain to me why the 
rule would allow government-issued documents evidencing 
nationality or residence and bearing a photo or similar 
safeguard?
    Mr. Abernathy. We discussed that issue with a number of law 
enforcement experts to find out, is there any particular value 
to be gained by retaining actual photocopies of these 
particular identification documents, or the regulation as 
written, would that be enough? Particularly the feedback we got 
from the local law enforcement people indicated to us that the 
way we have outlined it in the regulation captures what is 
needed for law enforcement purposes, without imposing any 
increased costs on financial services providers.
    Mr. Shays. How is that accurate, when what you are 
basically saying is you can be an illegal alien in the United 
States, get a document from their national government, and then 
we are allowing them to have transactions in the United States. 
Isn't that what you are basically concluding? Wasn't the 
PATRIOT Act attempting to not allow that to happen?
    Mr. Abernathy. The PATRIOT Act, with regard to the 
financial flows, was intended to prevent funding used for 
organized crime, terrorists and other types of activities. It 
was not intended to be an immigration document. We have other 
rules in place and other laws for dealing with immigration 
issues.
    Mr. Shays. I don't understand how you are responding to me. 
You are basically saying that an illegal alien will now be able 
to make financial transactions even though they are in the 
United States illegally. That is basically what you are saying.
    Mr. Abernathy. Almost. What I am saying is that illegal 
aliens in this country will be able to continue to have access 
to financial services, as they have had for the history of this 
country; that we did not see and saw no mandate from Congress 
to say that access to the financial services should be denied 
to people who are in this country illegally, or they are here 
without appropriate documents, the same way we do not put that 
barrier at the grocery store or any other vital services that 
are needed to conduct your day to day life.
    Mr. Shays. So basically it is the policy of the Treasury of 
the United States of America that it will allow for the 
facilitation of illegal aliens to make financial transactions, 
and the Treasury Department will, under its new regulations, in 
spite of the PATRIOT Act, allow this to continue.
    Mr. Abernathy. Actually, we believe that the regulations 
are in full compliance with the PATRIOT Act, both the word and 
the legislative history that accompanied that statute.
    Mr. Shays. Okay. I just would conclude by saying that when 
I voted for the PATRIOT Act and I voted for this, I thought we 
were instructing the Treasury Department to crack down on an 
abuse that has happened for a long time. For you to suggest 
that because it has happened in the past, somehow makes it 
consistent, therefore you are going to be consistent. I thought 
when we passed the PATRIOT Act, we were going to begin to crack 
down on what we thought were illegal transactions.
    Mr. Abernathy. Yes, and I believe we do. The concept of the 
PATRIOT Act is to try to get as much of the financial flows 
that occur in this country to happen within the mainstream 
financial system so we can monitor them and so we can clamp 
down on the use of those funds for organized crime and 
terrorist purposes. In our view, pushing several millions of 
people into the financial black market would not achieve the 
purposes of that Act. We feel rather, by allowing people that 
are in this country, that are working hard, that are saving 
their money, who want to be able to engage in a financial 
transaction that is no more nefarious than wanting to pay their 
bills, ought to be able to have access to the financial 
services industry.
    Mr. Shays. Isn't it a fact, sir, that you just in a sense 
are facilitating the financial transactions of people who are 
here illegally? Is that not true?
    Mr. Abernathy. We are allowing those transactions to occur. 
That is correct.
    Mr. Shays. Right.
    Mr. Abernathy. Yes, sir.
    Mr. Shays. So when you say you are putting them in the 
light of day, what you are doing is you are facilitating those 
transactions.
    Mr. Abernathy. We are getting them where we can see them; 
bringing them out of the black market.
    Mr. Shays. So is it your testimony by doing that you will 
be able to crack down on terrorist activities by those who are 
here illegally?
    Mr. Abernathy. We think it is easier to crack down on 
something you can see than it is on something that is hidden.
    Mr. Shays. But something that is hidden may not be able to 
take place. Let me just ask this. If it can happen and be 
hidden, that suggests that it is easy to do. Is that your 
testimony? And if it is easy to do, then why would we even need 
to pass an Act to make it easy?
    Mr. Abernathy. I think we are certainly on the record 
saying that the ability for organized crime and others to 
engage in financial transactions, in as much as it occurs, if 
it occurs, is too easy. We want to stop all of those types of 
illegal, nefarious transactions. But we do not think that we 
are achieving that goal by preventing a young worker from being 
able to open a bank account to pay his bills.
    Mr. Shays. Thank you very much.
    Mr. Bachus. Mr. Gutierrez?
    Mr. Gutierrez. Mr. Abernathy, in your testimony you said 
that foreign countries possess barriers that often adversely 
affect transactions. For example, you said that one country did 
not allow credit unions. Can you give us other examples of 
barriers that foreign countries put in place that debilitate a 
transaction?
    Mr. Abernathy. I think one of the most significant problems 
is that their financial systems are opaque and hard to access 
across borders. The ability of financial transactions to occur 
across borders is impaired by a number of procedures and 
restrictions that make it difficult and raise the cost of any 
kind of cross-border transaction. In another country, for 
example, in order to engage in any kind of a cross-border 
transaction, it is considered to be a foreign currency 
transaction. All of those transactions have to be done through 
the central bank or the State-owned bank, in essence 
disenfranchising any other types of financial providers from 
the remittances business and decreasing the competition.
    Mr. Gutierrez. Could you provide the committee with a list 
of those kinds of barriers so that we might look at them?
    Mr. Abernathy. I would be happy to do that. I would say, we 
do not yet have a comprehensive list.
    Mr. Gutierrez. I understand. But the list that you do have, 
I think it would be helpful. As I meet with the ambassadors of 
these countries when they come to visit me, and I am sure other 
members of the House do as well, we might discuss these issues 
with them so that we can suggest they can make the necessary 
reforms and changes.
    Mr. Abernathy. Sure. I would be happy to do that.
    Mr. Gutierrez. It seems to me that hard-working people 
spend a large portion of their salaries sending remittances 
back to their loved ones in their countries. You mentioned 
testimony that competition in the marketplace is a key 
component. How is a consumer able to find the best deal when 
information is often not disclosed? And how can a consumer 
negotiate the best price without proper information? And should 
we do anything so that there is proper disclosure, as we have 
when I buy a home, for instance, or when I buy a car, for 
instance? There are state and federal regulations that dictate 
what I need to know about the interest rate and the what fees 
are charged.
    Mr. Abernathy. As I mentioned, we are working on three 
aspects: promoting competition abroad, promoting competition in 
the United States, and working on removing barriers. I think 
the biggest challenge we have in this country is helping to 
educate people about the variety of financial services that are 
available to them. I recently made a visit to a financial 
institution in North Carolina. You will have the President of 
that organization testifying here later today. They are doing a 
wonderful job in educating the Latino community.
    Mr. Gutierrez. Mr. Abernathy, since I only have five 
minutes, what can we do? What do you propose that we do so that 
we can have disclosure? Do you agree that there is a difference 
in conversion fees, that is from dollars to pesos, that many 
times is not adequately disclosed when a consumer goes to 
transfer money?
    Mr. Abernathy. I understand. I think the key thing is----
    Mr. Gutierrez. I know you understand. Do you agree that 
those conversion fees are not often clearly established and 
stipulated when a consumer walks in?
    Mr. Abernathy. I think there are a number of factors that 
go into the cost of any particular financial product, and there 
is continuing discussion about how much do you need to dissect 
all the pieces to give the consumer adequate understanding of 
what goes into a particular price.
    Mr. Gutierrez. Let me give you an example. There is a 
tragedy in Guadalajara, Mexico, an explosion. A company puts 
ads on Univision and Telemundo saying, send money free, we are 
waiving the fee, that is the $15 fee to send $300 to Mexico. 
But is it really free in your opinion is there is a 14 to 18 
percent difference in the conversion fee from those dollars to 
pesos?
    Mr. Abernathy. In order to provide a financial service, the 
service provider needs to be compensated.
    Mr. Gutierrez. I understand, but if someone says, $15 is 
waived, and put that on the airways, waived, send money for 
free, but if it was 15 percent on $300, that would be a $45 fee 
for transferring it. So I made $45, and it really was not free. 
I received $45. What I waived was the $15 fee, but not the 
conversion fee.
    So, Mr. Abernathy, I want competition in the marketplace, 
and we have done that. I think it is part of the government's 
responsibility, even if we have a marketplace, because I think 
the marketplace in many instances is driven to competitiveness 
because of the actions of our judicial system and the actions 
of our executive branch, and the actions of our legislative 
branch. This is the Los Angeles Times, Wednesday, October 10, 
2001, court clears cash wiring settlement, discount coupons for 
as much as $400 million. Western Union, MoneyGram and Orlande 
Volute agree to pay over $5 million to community organizations, 
and they said they would behave themselves. They saw a 10 
percent decrease in their business after they began disclosing. 
So you see, the courts and the people did get involved and that 
is the way our system works. Sometimes when the executive or 
the legislative branch ignores the needs of the people they go 
to court.
    I just want to commend you again because I think what we 
have is disclosure: As we use the matricula consular, we are 
allowing people to go to their bank, open up a bank account, 
that is FDIC-insured and regulated; I know how much money is 
sent to whom and when it was sent and by whom in the United 
States. I think that kind of transparency is good for this 
country.
    Ms. Brown-Waite. [Presiding.] The gentleman's time has 
expired.
    Mr. Gutierrez. Thank you very much. If I could just have 
one additional minute, by unanimous consent.
    Ms. Brown-Waite. Without objection.
    Mr. Gutierrez. Thank you.
    I just think that as we approach these issues, because I 
understand when the gentleman from Connecticut raises this 
issue, that he genuinely feels that there is an issue of 
national security here. I just want to work with members of the 
committee, not on the Banking Committee, but in another 
committee, simply to say if you ate a chicken recently, it was 
probably plucked by the hands of an undocumented worker. That 
is pretty much established. If you had apples or oranges or 
just about anything that we produce agriculturally, it was 
probably picked by undocumented workers. If you had a clean 
dish at your hotel or your bed was nicely made, it was probably 
cleaned by an undocumented worker.
    So we all understand, and I will yield to the gentleman, 
that there are eight to ten million undocumented workers in 
this country. We do not have a program or the political will to 
deport them, nor do we have a program or the assets to do it, 
and if we did it, we do not know what the impact on our economy 
would be. So why don't we integrate them fully so that they 
don't need the matricula consular. They are here. They are 
working. We receive their services. We should address the 
issue.
    Ms. Brown-Waite. The gentleman's time has expired, and 
because it has expired, you cannot yield your time.
    Next, Mr. Hensarling?
    Mr. Hensarling. Thank you, Madam Chair.
    Just for the record, as the son and grandson of chicken 
farmers, I can attest to the fact that a lot of chickens are 
plucked and a lot of eggs are hand-picked by those who are 
American citizens as well.
    I do thank the gentleman for bringing to our attention this 
anecdote about the company advertising free remittance services 
that perhaps are not free. I think that such charges are very 
serious and need to be examined very closely. My first question 
for you, Mr. Secretary, is, in your examination of this 
industry, are such practices which we would commonly view as 
fraudulent and misleading, is this widespread through this 
industry?
    Mr. Abernathy. We have not conducted a survey of the whole 
industry with regard to whether or not there are fraudulent 
practices, but we are aware that there are significant laws on 
the books to deal with fraudulent practices should they occur. 
FTC has resources. There are local laws in place. The federal 
financial regulators when dealing with regulated entities are 
constantly vigilant looking for fraudulent activities. We would 
join with you that where fraudulent activities occur, they need 
to be dealt with expeditiously. They need to be dealt with 
firmly and in a way that sets an example so that you do not 
have further fraudulent activities that spoil the reputation of 
the honest service providers.
    Mr. Hensarling. In looking at this marketplace, then, I am 
trying to figure out what the shortcomings of the marketplace 
may be. For example, in your survey of the industry, is 
accessibility a challenge? Are there not sufficient locations 
and insufficient financial firms offering these services? Is 
accessibility a problem?
    Mr. Abernathy. Accessibility is not a major problem in this 
country. In some of the recipient countries, it is a huge 
problem. In fact, what accounts in many cases for the 
significant transfer costs is the cost not here at this end, 
but of providing the service at the other end in the recipient 
country.
    Mr. Hensarling. Continuing on this line of questioning, do 
you view perhaps financial literacy among, once again it 
appears to be an immigrant population that largely uses these 
services, is financial literacy a significant challenge? If so, 
do you see a role for the federal government in that?
    Mr. Abernathy. That is a major challenge. In my view, 
financial education is probably the number one most significant 
tool we can use to help immigrant populations in this country 
make the best and most efficient use of the financial services 
that we provide. That is one of the main tasks that I have in 
my office. We have a deputy Assistant Secretary for financial 
education who spends his whole time working on that issue. His 
job is to organize the resources of the federal government and 
the private sector to get at the need to helping people 
understand how they can make best use of financial services 
here.
    Mr. Hensarling. Would you agree that some of this financial 
literacy is being handled by the marketplace? I alluded earlier 
to my hometown newspaper, the Dallas Morning News. An article 
yesterday states that Western Union is touting its phenomenal 
network in a new $300 million global ad campaign. Citigroup is 
advertising that it offers a lower transfer fee of $5 to 
Mexico, half the industry average of $10. Bank of America and 
Wells Fargo are advertising a Buddy Card whereby receivers in 
Mexico can use an ATM card to withdraw the money that is 
transmitted. Credit union are teaming with Caja Popular 
Mexicana, or CPM, Mexico's largest credit union. It appears to 
me that a lot of the knowledge as far as prices and services 
are already being disseminated by the players in the 
marketplace.
    Mr. Abernathy. The vast bulk of the resources that are 
available for financial education are private resources. One of 
the tasks that we have set for ourselves at Treasury is helping 
these people, these private sources, that want to invest their 
funds in helping educate populations, helping them recognize 
what is the most effective means of doing that, how they can 
best use their money. That is where most of the resources are.
    Mr. Hensarling. Finally, Mr. Secretary, you mention in your 
testimony that well-intentioned, but ill-advised government 
initiatives in the remittance market could hurt competition. 
Can you elaborate on the potential negative outcomes of 
increased regulation?
    Mr. Abernathy. I think the key is to understand that every 
element of regulation carries a cost with it. In some cases, we 
are willing to pay that cost because there is a greater good. 
One of the areas is with regard to fighting money laundering. 
Every financial service provider in this country has a certain 
significant regulatory burden with regard to fighting money 
laundering, but we have accepted that cost. We try to reduce it 
as much as we can, but it is an acceptable cost.
    But understand that each new regulation has a cost with it. 
Many of these remittance providers are small operations. Their 
margin, their ability to withstand costs, are not infinite. We 
need to be careful to ask that if we are going to impose a 
regulatory cost, is the value of what that regulation is 
bringing worth the service that we are obtaining, and might we 
be driving some people out of that market.
    Mr. Hensarling. I am out of time. Thank you, Mr. Secretary.
    Mr. Abernathy. Thank you.
    Ms. Brown-Waite. The gentlelady from California, Ms. Lee, 
is recognized.
    Ms. Lee. Thank you, Madam Chair, and thank you, Mr. 
Secretary, for being here.
    Let me also thank Mr. Gutierrez for his very strong 
leadership on this very important, but often neglected issue of 
remittances.
    We all understand the nature of predatory lending, just on 
a domestic level. I think part of this disclosure effort with 
regard to H.R. 2637, and I am very proud to be a cosponsor of 
that bill, is to try to make sure that this predatory aspect of 
what we are dealing with domestically here in many of our 
communities is stopped in terms of the remittance industry. I 
would just like to get your take once again as a follow up to 
what Mr. Gutierrez asked with regard to disclosure and what we 
can do to protect our constituents and protect those who 
receive the remittances from this predatory type of practice.
    Secondly, let me just ask you, and I think that this 
hearing rightfully so is focused on Mexico, Central and Latin 
America. But I am also interested in the character and nature 
of the remittance industry as it relates to Haiti and, of 
course, Cuba. That is a separate category because of the 
embargo. What is the nature and character of that financial 
structure? And finally, there are some countries in Africa such 
as Ethiopia where we know that there are huge dollar amounts of 
remittances taking place.
    Then I would like, Madam Chair, to yield the balance of my 
time to Mr. Gutierrez after the Assistant Secretary answers my 
questions. Thank you.
    Mr. Abernathy. Thank you for your questions. Information, 
of course, is very valuable. What is done with the information 
is equally as important. I think in any kind of consideration 
of what kind of information should be available to people who 
are deciding what kind of financial services they want to make 
use of, is making sure that the people getting that information 
understand it; that they know what they are doing with it; and 
that it is the information that they particularly need.
    One of the challenges that we have with government mandates 
for information is there is a constant struggle to discover 
whether or not the information that is being provided is 
actually the information that is needed, in a form that is 
usable. As you know, there is a real struggle going on right 
now as we are looking at the Gramm-Leach-Bliley privacy 
notices. Congress made a decision, a very good one, that people 
ought to know what the privacy practices are of their financial 
institutions, but I do not think anybody is satisfied that the 
information that is provided subsequent to that law is very 
usable. It is heavily legalistic. It is long. It is provided in 
an inconvenient way, and it generally has just increased the 
costs of financial services without really benefiting 
consumers. The financial regulators are looking at that right 
now to find out if there is a way to put that into a usable 
form.
    I think that is the same thing when looking at any kind of 
financial service and trying to find out what is it that 
consumers are really interested in, and how can we make sure 
that that information is provided in a way that they can 
understand. We would be interested in continuing to have a 
dialogue with you on trying to discover just what are the 
answers to those questions, but I think those are the 
principles that govern, as well as making sure that any kind of 
information requirement can be done in a way that encourages 
and promotes competition, rather than increasing the cost of 
it.
    Within those boundaries, I think we are happy to have a 
particularly detailed conversation with you to find the answers 
to those.
    Ms. Lee. How about as it relates to Cuba, the nature and 
character of the remittance industry, as well as countries in 
Africa and Haiti?
    Mr. Abernathy. As you mentioned, Cuba is a particularly 
special case because of the embargoes that we have in place. 
The ability to send U.S. dollars abroad and keep them out of 
the hands of a very repugnant regime is a challenging one. I do 
not think we have the right answer for that, frankly, in any 
kind of an ongoing basis. We had similar problems with regard 
to countries in Southeast Asia for a time, terrible stories of 
families that in essence were held hostage to try to get 
remittances from this country that would ostensibly be going to 
help the families abroad in these Southeast Asian countries, 
but that would be actually gobbled up by the government. That 
was not helping anybody.
    Ms. Lee. How about the countries in Africa, such as 
Ethiopia?
    Mr. Abernathy. Countries in Africa, what we are trying to 
do there is introduce a regulatory regime in those countries 
that will allow financial services to thrive. If we can develop 
financial services that reach the consumers, then we can get 
remittances into the hands of the families themselves. That is 
the biggest challenge there, and the success varies. In some 
countries we are having greater success than others. I would 
have to get back to you on Ethiopia. I just do not know exactly 
what the status is.
    Ms. Lee. Okay. Thank you. May I yield what time I have left 
to Mr. Gutierrez?
    Ms. Brown-Waite. Your time has expired.
    Ms. Lee. Oh. Sorry.
    Ms. Brown-Waite. The gentleman from Arizona, Mr. Shadegg, 
is recognized.
    Mr. Shadegg. Thank you, Madam Chairman, and thank you for 
this interesting hearing.
    Let me begin by asking, as I understand it there has been a 
substantial increase in competition in this market in the last 
few years. Is that your understanding?
    Mr. Abernathy. Very significant. It is almost each month we 
find a new product that is offering remittances at lower cost 
and increasing variety that meets the needs of people in this 
country and in the recipient countries.
    Mr. Shadegg. There are companies that specialize in 
remittances, and then I take it these companies are getting 
into the business. Is that correct?
    Mr. Abernathy. You have some specialized companies that do 
little more than money transfers. Now, you are having an 
increase of regular mainstream financial institutions that are 
offering remittance products not only as a sideline, if you 
will, as a package of other financial products that they offer 
to consumers here.
    Mr. Shadegg. Are there some small businesses getting into 
this market and doing just a niche market in various areas?
    Mr. Abernathy. There are a number of small businesses, a 
number of mom-and-pop operations that are providing services 
that I have to say must be meeting the need because they 
continue to thrive. Customers are using them.
    Mr. Shadegg. I understand the gentleman's concern about 
competition. One of the concerns I have is, as you have pointed 
out, any regulation we might add could in fact be a barrier to 
entry and stifle competition. One of the concerns I would have 
about any legislation would be if we impose a regulatory burden 
which then drives out the small players, we are actually 
decreasing competition and perhaps driving up prices. Is that 
not correct?
    Mr. Abernathy. Yes, I believe that if we just had the major 
players in this market, you could see an increase in the costs 
prices going back up. I think it is the threat that there could 
be new entrants into the market that caused financial players 
at all levels to try to lower their costs to gain marketshare.
    Mr. Shadegg. To that point of driving up costs, you make 
the point in your testimony that remittances to some countries 
are easier and less expensive and could comply with a 
regulatory scheme, I would assume, more readily than 
remittances to other countries. For example, in your testimony 
you make the point that remitting money to Mexico, where there 
is a pretty established market in the exchange rate and knowing 
it and publishing it or disclosing it would be fairly easy, is 
much easier than making remittances to smaller countries. Could 
you elaborate on that point?
    Mr. Abernathy. The key is, you need to have a commercial 
relationship to get the costs down absolutely as far as they 
can be. One of the goals, I believe, of our effort to establish 
free trade agreements around the world is not only to deal with 
transfer of goods, but also transfer of services, and 
remittance services are an important part of that.
    Mr. Shadegg. The gentleman made the point about this 
advertisement that disclosed they had waived their fee, and 
then they in fact did not use a very favorable exchange rate. 
Exchange rates are published for some countries, but are 
exchange rates published and is there a market for exchange 
rates for every country around the world?
    Mr. Abernathy. A lot of countries fix their exchange rates, 
so they do not float. They are not exchange rates that change 
from time to time. They are either pegged, or in some cases 
they are a hard exchange rate. The same exchange rate that 
prevails today will prevail tomorrow until there is a 
significant government change.
    Mr. Shadegg. But aren't there also countries where it is 
difficult to establish the exchange rate because there is no 
ready market between the United States and that country?
    Mr. Abernathy. Certainly. Yes, there are some currencies 
that are just not convertible, and it is hard to figure out 
what kind of appropriate exchange rate there may be.
    Mr. Shadegg. One of the concerns I have is that some of the 
legislation that is being contemplated turns a kind of a blind 
eye to the differences between countries and says, well, you 
must publish in advance the exchange rate for every country in 
which you do business. As I understand it, that would be, if 
not impossible, at least difficult, maybe in fact impossible, 
and certainly would drive up costs for any business that was 
involved in doing remittances to smaller countries.
    Mr. Abernathy. Yes. I think what we need to be careful of 
is any kind of regulatory regime that has at its heart a model 
that does not apply in these countries. It may be a model that 
might apply better in financial transactions between the United 
States and Britain, than might be the case with a financial 
transaction between the United States and a Caribbean country 
or in a country that may have multiple exchange rates. Which 
one do you publish? There are several countries that have 
exchange rates for domestic transactions, another exchange rate 
for international transactions. The variances and the varieties 
are very wide and would be very difficult to capture by any one 
single rule.
    Mr. Shadegg. Do you know if, for example, requiring the 
publication in advance of the exchange rate of every country 
you did business with would in fact cause some of the major 
players to quit doing remittances to certain small countries?
    Mr. Abernathy. You certainly do not know for sure which 
ones might, but certainly a company would have to ask this 
question: Are remittances a major part of my business or is it 
a sideline? A lot of companies offer it as a sideline. 
Convenience stores might offer it as a sideline. And they might 
consider, I am opening myself up now to a very significant 
regulatory cost by offering this service. Am I going to be a 
day late with my publication of exchange rates? Am I going to 
have the latest list? Am I putting it in the right place? They 
might decide, just forget about that.
    Mr. Ose. [Presiding.] The gentleman's time has expired.
    Mr. Shadegg. Thank you.
    Mr. Ose. The gentleman from Wrigley Field.
    Mr. Emanuel. Thank you, Mr. Chairman. I would like to yield 
my time to my good friend and colleague from Chicago, with one 
caveat, that if I can also just start with a question about 
what we could do to encourage the credit unions and other 
financial institutions to get into this marketplace. What are 
the incentives we need to do that? And I yield the remaining 
part of my time to my friend, Congressman Gutierrez.
    Mr. Abernathy. There are a number of credit unions that are 
already getting involved. We are excited by the number of 
credit unions here in this country that are involved, because 
in many cases credit unions have had the greatest success in 
reaching out to immigrant populations. A lot of people that 
come to this country come from countries where banks were not 
friendly creatures. They were owned by governments or often 
used to expropriate their customers' resources, so these people 
are very reluctant to get into the banking system in this 
country. But they have been open to the mutual concept of a 
credit union and have been willing to join credit unions in 
increasing numbers.
    So the involvement of credit unions in this country is very 
important. We are working with the credit union associations to 
try to encourage that. Moreover, there is an international 
association of credit unions that is working not only with our 
credit unions, but credit unions abroad to increase the use of 
credit unions in recipient countries as recipient venues for 
remittances. I think that is important abroad because in many 
cases a credit union can operate at a lower cost than a larger 
mainstream financial institution can.
    Mr. Gutierrez. Thank you. I thank the gentleman from 
Illinois for yielding the time, and I was very happy with the 
outcome of last night's game.
    [Laughter.]
    The issue is not that we want to curtail activity. The fact 
is that some might extrapolate from comments made here that 
there is this great community and there is all this competition 
and that it all happened in a vacuum. That is to say, everybody 
woke up one day and said, hey, let's be fair and competitive. I 
do not think that is what happened. I think there were lawsuits 
filed in the year 2000; millions of dollars paid out as a 
result of those lawsuits. Of course, as in many lawsuits, 
nobody claimed fault, just millions of dollars were paid. Up to 
$400 million in coupons were offered. There was a settlement 
reached.
    I think what we want to do is have transparency. One of the 
problems is that immigrants do not trust the banking systems 
from the countries that they come from because of the lack of 
transparency. I would like to assure them and to guarantee them 
that in America there is transparency when you make some kind 
of financial transaction. So I look at it, and I say, look at 
our United States Postal Service. It is in the business. Now, 
they charge you a fee. They tell you what the fee is, and they 
partner with the Mexican bank, BancoMER, and they establish the 
exchange rate. The fact is that there are different exchange 
rates, and the public cannot know what it truly is costing them 
to send money.
    We have already established that this is a $1 billion 
industry to Mexico alone.
    Mr. Abernathy. Each month, each month. Yes.
    Mr. Gutierrez. $12 billion a year, a huge industry. I do 
not think anybody is going to walk away from it because we say 
you have to establish what the exchange rate is. What we want 
is for people to know what it is going to cost, because these 
workers make some of the lowest wages, work the longest hours, 
and then what do they do with their money? God, if we would all 
do it. They send it back to their mom, their dad, their 
brothers and sisters. So as you said, Mr. Secretary, they can 
stay in school, they can get healthcare.
    So, they are not investing it. The thing is, Mr. Secretary, 
all we want to do is figure out a way so that I or any member 
of this committee or any American tourist, when they visit 
Mexico, can understand the exchange rates. You don't need to 
have an MBA from the University of Chicago to understand 
exchange rates. You go to your hotel. It says pesos to dollars. 
You go to the local bank, it says pesos to dollars. They are 
posted everywhere and they are clearly available.
    Do they change on a day-to-day basis? Yes, they change on a 
day-to-day basis, and they are competitive. But the fact is, we 
should be able to reach some kind of way so that when I walk in 
and I say I want to send $300 to mom, and they say it is going 
to cost me $15, I should at least get somewhat the exchange 
rate that the tourist in the hotel in Acapulco or Cancun is 
getting. Don't you think we should try to get that kind of 
exchange rate?
    Mr. Ose. The gentleman's time has expired. We are going to 
let the witness answer the question.
    Mr. Abernathy. I think there is no disagreement between you 
and the Treasury on the need to get these costs down, to make 
sure people understand what the costs are. I think the problem 
is extremely complex, however. I lived for two years in Spain, 
not terribly long ago. I was a missionary. I in essence lived 
by remittances, because each month I would get a check from my 
parents that would keep me going for the following month. I 
remember going around trying to find out what was the best 
exchange rate. I found on any given day I could find four or 
five different exchange rates depending on where I went, 
because there are different ways that a financial institution 
can be compensated. They can be compensated by just a regular 
fee. They can be compensated in the exchange rate that they 
offer you, or in the fee that they charge as a percentage of 
that exchange rate. I do not know that we want to be in a 
business of saying which is the best way for you to be 
compensated. But we are eager to continue to have this dialogue 
with you and to find out if there is a way to identify the best 
means of getting the right information into people's hands, so 
that we can promote these markets.
    Mr. Ose. The chair, having arrived early and not having 
claimed his time, is going to claim his time and yield to Mr. 
Shays.
    Mr. Shays. Thank you, Mr. Chairman. What I would do, 
though, I would love to be able to utilize your time after my 
other colleagues have spoken, with your permission.
    Mr. Ose. We will rescind my recognition of time.
    Mr. Shays. I hope you give it to me later, sir.
    Mr. Ose. I don't know.
    [Laughter.]
    I will have to get back to you on that. I am going to 
recognize the gentleman from California, Mr. Royce.
    Mr. Royce. Thank you, Chairman.
    Mr. Secretary, I want to thank you for your thoughtful 
testimony on the topic of remittances this morning. This is a 
very important subject to my district. I am pleased that this 
issue is being debated before this committee.
    Since we are fortunate, Mr. Abernathy, to have you here 
this morning, I wanted to ask you a few questions about GSE 
regulatory reform as well. Specifically, people engaged in the 
GSE debate seem very concerned right now about the topic of 
mission regulation, and specifically on product approval. I 
believe the new regulator should have the authority for product 
approval, but could you tell me the Treasury's position on 
where product approval authority should reside? And could you 
explain to me the rationale for that position?
    Mr. Abernathy. Certainly, Congressman, and thank you for 
asking that question. In essence, I will be just re-echoing the 
testimony that Secretary Snow presented here. In our view, we 
need to solve the problem. The problem today is that the 
regulators for our GSEs, they were never given enough authority 
and they have not grown in their authority, particularly not 
nearly as quickly as the agencies they regulate have grown in 
activities and significance in their markets.
    One of the most significant authorities that the GSE 
regulators currently do not have, and they suffer for not 
having it, is the ability to review and on occasion perhaps to 
say no to a new product or a new activity. If you ask a bank 
regulator, you might have a discussion with members of the OCC 
or the OTS, ask them how significant new activity authority, 
the ability to review new activities, is as part of their 
panoply of tools to properly regulate institutions. I think 
they would say it is essential. They could not do their job 
without it.
    We are concerned that we get this legislation right so we 
do not have to come back here a few years later and say we blew 
it. We had an opportunity to give the regulator full 
authorities that they need and we did not do it, and now we 
have to come and do it again.
    Mr. Royce. Thank you. I have another question. I have been 
arguing for some time that the risk profile of the federal home 
loan bank system is changing. I would like to ask if you agree 
with me, and if so, if you could explain how the acquisition 
and the retention of mortgage assets has changed that system in 
terms of new types of interest rate risk and so forth.
    Mr. Abernathy. Certainly, the federal home loan bank system 
is an evolving one. It always has been, but I think the pace of 
evolution has increased over the last 10 years, partly as a 
result of new powers that were given to the federal home loan 
bank system under the Gramm-Leach-Bliley Act; partly just 
because of changes in the marketplace. In addition to the 
traditional role of providing liquidity to banks, there are a 
number of federal home loan banks that offer particular 
products with regard to mortgages. Certainly, that has to 
change the risk profile of these institutions. I do not know if 
it makes them more or less risky. That is really an issue for 
the regulators to evaluate, but it certainly changes the risk 
profile. The regulators need to have the authority and ability 
to adjust to those changes in risk.
    Mr. Royce. A last question, again on the issue of GSE 
reform. I put forward a proposal in which we constructed a new 
regulator with independence from the Treasury, and that would 
be along the same lines as the OCC and the OTS, the same 
concept. It seems to me that there are a number of similarities 
between my proposal and the Treasury's. However, the Treasury 
does not want the ability to review policy. I was going to ask 
you, why does the Treasury believe that this is an important 
component of the reforms you are putting forward?
    Mr. Abernathy. I think it would be impossible for me to 
overemphasize how important that responsibility would be, to 
place that responsibility with Treasury. While we are looking 
at the mission of the GSE regulator, an even more important 
mission that we have to keep in mind is, what is the mission of 
the Treasury? The Treasury has the responsibility for the cash 
flows, the in-comes and the out-goes of the entire federal 
government. An essential element of that is the role that 
Treasury plays in going into the marketplace, the Treasury 
bills, the Treasury notes, and other instruments that carry the 
full faith and credit of the federal government. We must do 
nothing that compromises the ability of Treasury to go into 
those markets clean and to preserve our reputation, our 
spotless reputation in those international marketplaces.
    To place the regulator for government-sponsored enterprises 
that each year are into the marketplace for trillions of 
dollars, not billions, trillions of dollars, if you are to 
place that regulator within the Treasury, but not give the 
Secretary of the Treasury any authority over how that entity 
carries out its responsibility, is to place in jeopardy the 
ability of the United States to offer its own debt instruments 
and to protect them from contamination from whatever should 
happen to the GSEs.
    Do we want to be in a situation where the troubles of a GSE 
can flow into and affect the ability of the federal government 
to issue its own debt? We cannot be in that kind of a 
situation. That would be an intolerable situation. All we have 
asked is that the Treasury secretary be able to have 
responsibility for reviewing new regulations and when policy 
issues are presented to the Congress. I think that is the 
minimum that is needed to make sure that we can protect the 
Treasury from any kind of contamination in the regulatory 
efforts over the GSEs from Treasury's main responsibility.
    Mr. Ose. The gentleman's time has expired.
    Mr. Royce. Thank you, Mr. Chairman.
    Mr. Ose. The gentleman from California, Mr. Sherman.
    Mr. Sherman. We do not have enough time to deal with the 
GSEs. Let me just comment that you have state-regulated banks 
that are reviewed for safety and soundness by the federal 
government and federally insured. So the idea that the federal 
governments needs program oversight in order to provide for 
safety and soundness is one that you might respond to in the 
record.
    Mr. Abernathy. I would be happy to do that. Thank you.
    Mr. Sherman. The idea that someone's immigration status 
should cause us to not want to provide consumer protection 
seems relatively absurd. If we want to deal with our 
immigration laws, that is one thing. But when you sign up for 
the do-not-call list, we do not ask you what your immigration 
status is, nor has anyone suggested that we can reduce the 
number of undocumented workers in this country if we just 
afflict them with telemarketers, nor is afflicting them with 
lack of consumer protection and financial services likely to be 
an effective substitute for the immigration policy our country 
does not have.
    I think it is important that we move forward with reform in 
this area for the terrorism control aspects. If we are 
successful in pretty much driving out of business the gray 
market operators, then they will be small enough so that law 
enforcement can concentrate on what they do, while using 
computers and cooperation to look at the big operators who will 
then have most of the business. Terrorists will always use the 
black and gray market operators, but when those operators are 
doing billions of dollars, it is going to be hard to find the 
needles in the haystack. If we can get all the hay out of the 
black market, then you will be able to find the needles.
    The question is, how do we get better consumer protection, 
lower prices, better exchange rates, as Mr. Gutierrez has 
pointed out the need for, to those who are sending money 
abroad? We need more information for people, and especially 
more competition. In the absence of competition and the absence 
of information, certain companies make outrageously high 
profits. Who is making the high profits now? Is it those who 
control the incoming, the U.S. branches, or those who control 
the branches in foreign countries?
    It occurs to me that there are dozens of companies in my 
district anxious to compete for this remittance business. But 
if the only way they can get that money to a village in 
Guatemala is contract with one company in Guatemala, then they 
all are competing for the opportunity to pay a very high fee to 
the Guatemalan side of the transactions. Perhaps, Mr. 
Secretary, you can tell us, if you are paying $20, how much of 
that is going to the U.S. side and how much of that is being 
paid to those who control the foreign side, whether it be a 
U.S. company or whether it be a Guatemalan company, or 
whatever. Do we know?
    Mr. Abernathy. I think you are demonstrating one of the 
tough challenges that we have. Just by looking at a price 
itself, you have no way of knowing how much of a profit is the 
particular company obtaining from that. We do know that in 
several countries, the recipient market, if you will, is so 
controlled that there you do have parties that are obtaining 
monopoly rates. You have to go through certain channels, and 
those people, they take advantage of that.
    Mr. Sherman. What I would ask the Department of the 
Treasury to do is to issue a report, because this concerns us. 
It is one thing if a foreign country is inefficient in this or 
that transaction, but here it is a U.S.-foreign country 
transaction. To issue a report as to which countries are doing 
a good job of serving consumers on both ends of this 
transaction, and which countries are not, that could be a very 
powerful force in causing certain countries to get away from, 
sometimes they are tied to tradition; sometimes the government 
is making a fortune on this; sometimes, and I know it never 
happens here in the United States, powerful political interests 
are exercising some control as to how financial services are 
operating. A U.S. government report that said, here are some 
countries that could change in this or that area, so that both 
sides of this U.S.-initiated transaction could be treated 
fairly, could certainly open things up.
    I would like to shift to one other question. I see you 
nodding. Can we count on you to issue such a report?
    Mr. Abernathy. Yes. I would be happy to comment. I think 
that is an excellent idea. From time to time, the federal 
government has issued reports on the barriers to financial 
services. This is certainly an area where the barriers to 
financial services have some very real human welfare 
consequences to it. It is not just a matter of whether or not 
an American company has the opportunity to market its products 
abroad. We see here where the barriers are decreasing the 
ability to send livelihood to a family, to help them meet their 
daily needs or maybe even build for the future.
    Mr. Sherman. Yes.
    Mr. Ose. The gentleman's time has expired.
    Mr. Sherman. My time has expired.
    Mr. Ose. The gentleman from New Jersey.
    Mr. Garrett. Good morning.
    Mr. Abernathy. Good morning.
    Mr. Garrett. I appreciate the testimony we have heard so 
far, and I am encouraged on the one hand, by the positive 
effects that the market forces have had in this area, basically 
driving down the cost to consumers who want to engage in these 
activities. I want to follow up with just one question along 
the lines that my colleague from Connecticut was raising.
    While we have the objective of trying to make it easier for 
immigrants to our country to be able to engage in this activity 
and send money back, as the Statement over here on this side of 
the aisle was, to mom and dad who are still living overseas and 
need the funds and benefit to the other countries, I think we 
can agree that we do not have the objective of providing this 
service for illegal immigrants to do so, whatever the noble 
causes they may have over there, where they are sending the 
money back.
    This committee has had the opportunity in past months to 
have hearings in the area of money laundering and terrorism use 
of funds that are sent back. My colleague raised some of those 
points. I was struck by your comment when they were raised, to 
say that, well, we do not do this in the area of checking for 
identification at the food store or what have you. And my 
colleague on the other side raised the interesting point as far 
as telemarketers. Maybe we should just say that the only people 
that telemarketers can call are illegal immigrants, and that 
might have an impact on immigration here.
    You raise a point in a serious note that we do not do this 
in other areas, but obviously in the financial area we are 
talking about something that is regulated by the federal 
government. The banks are chartered by the federal government. 
It is only in a banking situation where we already have the 
law, correct me if I am wrong, that if I want to go in and open 
up an account at my local bank that I have used for 20 years, I 
have to provide proof of identification now. Is that correct?
    Mr. Abernathy. Yes.
    Mr. Garrett. But I do not have to do that if I go to the 
food store or if I go to use a telemarketer. I do not have to 
do that in those areas. So we are regulating and provide for 
identification in these areas. So can't we in this committee be 
able to draw a distinction where there are certain areas where 
we need to provide identification and there are laws already on 
the books saying you have to provide identification, that that 
identification has to be a valid form of identification? And 
the other areas such as food stores, telemarketing companies, 
the dry cleaners, where we are not asking for identifications, 
we can draw a bright line between those two areas and say which 
ones we will regulate and which ones we won't.
    Mr. Abernathy. Yes, sir. I agree with that entirely. In 
fact, the regulation we put forward places an affirmative 
obligation on the part of financial institutions to be sure 
that the form of identification that they are receiving is a 
valid form of identification. That is the obligation that is 
placed upon the financial institution. It is enforced by the 
financial regulator. When they examine a bank, they ask the 
bank, what are your practices to make sure that your new 
accounts that are opened are being opened by people who present 
to you valid forms of identification? Frankly, the burden is on 
the financial institution to convince the regulator that their 
system is a bona fide system to verify that that person is who 
that person says he is.
    Mr. Garrett. And would it be satisfactory to a regulator 
that the bank provides them with something as far as 
identification?
    Mr. Abernathy. Currently, most regulators do, yes. It is a 
bank-by-bank relationship, but as I understand it, bank 
regulators will rely upon ID cards, and there are a variety of 
different forms of identification that they use, in many cases 
multiple forms of identification where they think that 
additional forms are necessary.
    Mr. Garrett. Why, then, should I feel satisfied that there 
is any legitimacy whatsoever to that form of identification if 
this state or this nation has no control over the adequacy of 
the documentation initially required to get that form of 
identification? Why should I feel satisfied that the regulators 
are doing a good job by accepting that identification?
    Mr. Abernathy. I think really the proof would be in the 
pudding. If it turns out that the regulators are allowing forms 
of identification that are lending themselves to significant 
volumes of fraudulent identities, then they ought to look at 
those and say, that does not work for us.
    Mr. Garrett. Let me ask you this question, then. Who would 
be using those forms of identification?
    Mr. Abernathy. The consular ID's?
    Mr. Garrett. Yes.
    Mr. Abernathy. In many case in this country, probably the 
vast number of them are used by people who are otherwise 
undocumented here in this country.
    Mr. Garrett. So can you think of anyone who is in this 
country, other than an illegal immigrant, that would be using 
one of those forms of identification?
    Mr. Abernathy. We have received information from the State 
Department and others that they are used by a lot of people 
here for valid reasons, so that they do not have to produce 
their passport frequently, for fear of losing their passport, 
or people who have lost their passport. People who come here 
from Canada, for example, they do not bring their passport with 
them. They use a driver's license as their form of 
identification. We do not require a passport to come from 
Canada.
    The question that the financial services regulator is 
supposed to ask is not are you here legally; the question is, 
are you the person that this form of identification claims that 
you are. That is the issue that I need to know as a financial 
service provider.
    Mr. Ose. The gentleman's time has expired.
    Mr. Garrett. If I could just ask this final question?
    Mr. Ose. You are going to have to get it on the second 
round.
    Mr. Garrett. Okay. Thank you.
    Mr. Ose. The gentleman from North Carolina.
    Mr. Miller of North Carolina. Mr. Chairman, I yield my time 
to Mr. Gutierrez.
    Mr. Gutierrez. Thank you very much.
    As you can see, I guess that is why we have two parties, 
differing opinions on how we see things. But I think there is 
some commonality that is being derived as I listen to my 
colleagues on both sides of the aisle. And that is that there 
is an optimism on one side of the aisle that things are pretty 
good and if we leave them alone, they will probably get better. 
There is a slightly more pessimistic look on this side of the 
aisle that things are getting better, and we need to make them 
better and we should do some things to make them better because 
there are still some problems out there.
    I think we can all agree there are still some problems out 
there; that we do not have a perfect system; that we have a $12 
billion industry just to one country alone, and that country 
happens to be, what is it, our second trading partner in the 
world, Mexico?
    Mr. Abernathy. Second, and perhaps quickly becoming our 
first.
    Mr. Gutierrez. And quickly becoming our first, which means 
that when we send these dollars back to Mexico, and they are 
converted to pesos, the more pesos they have, the more they can 
buy American goods, so more American workers thrive and have 
jobs, because our economy is global. When one person has money 
and spends it, he buys goods and products.
    Secondly, immigration issues are raised. I think you were 
pretty clear, Secretary Abernathy, when you said their kids 
have more of a tendency to be in school. They will be better 
educated, less likely to emigrate to another country and stay 
in their country, and very, very important, probably, 
strengthen that country; strengthen the intellectual fortitude 
of that country so it can be stronger and provide a more robust 
economy that will provide jobs for their people. Because people 
do not wake up one day and say, I want to travel thousands of 
miles across a dangerous border to a country where I do not 
understand the culture, the mores or the language, simply 
because that is what I want to do as an adventure. They do it 
because they have very serious needs.
    So I think that maybe if we could establish some kind of 
working force, because it seems to me, Mr. Secretary, that the 
President was very wise and very prudent in the very early 
months of his administration when he set forth, with President 
Fox of Mexico, to figure this out. Probably as the former 
governor of Texas, he had very good experience at understanding 
the relationship between the United States and Mexico. As I 
recall, he said he wanted to figure this out, figure out what 
we do with the undocumented workers here and how we provide for 
them to come across the border and work in industries where we 
do not have enough workers. He also wanted to establish some 
kind of sense of certainty about the money.
    I have listened to Secretary Colin Powell, state the same 
things, that we need to go back. Maybe we need to go back to 
that discussion and that debate so that we can take care, 
because I think that Mr. Shays' concerns and Mr. Garrett's 
concerns about issues of national security are prudent and 
reasonable and well-founded concerns, and we should address 
them. But I think we are going to need a holistic approach to 
address them, so that we can get at them.
    I, as a member of Congress, which last time I checked was 
among the number one percent of wage earners. Does $155,000 
count for number one percent of wage earners?
    Mr. Abernathy. I would think so, probably yes.
    Mr. Gutierrez. We have Treasury to establish, the number 
one percent of wage earners in the United States. I pay $2 to 
get $300 exchanged. We need to look into this framework, so 
that I, a person among the number one percent of wage earners 
in the United States, go on vacation, use the money to rent a 
jet ski, then the person who makes minimum wage, who is sending 
money back home so that his mom, his wife, his children can be 
better fed and better educated, obviously a higher purpose than 
a jet ski, can get somewhere a better exchange rate or a 
similar exchange rate to the one I get. I think that there is 
probably no disagreement on either side of the aisle that that 
should be a goal.
    How can we work, because we will have this hearing. 
Everyone will go back home and things might not change. How do 
we get there, Mr. Secretary? What would you propose we do?
    Mr. Abernathy. I can tell you, after this hearing I go back 
to work on these issues. These are issues that we deal with 
every day. I think we have had a lot of success. But you are 
correct, there is a lot more that needs to be done.
    I think it is not only the exchange costs that we want to 
reduce. There are a lot of other fees that we would like to get 
down. We would like to reduce the fees of just obtaining the 
kind of cards that allow the low-cost transactions to be 
executed. We are trying to get a lot more people in this 
country to establish savings accounts, checking accounts; to 
get their credit card so that they can take advantage of the 
products of some of these large banks that are establishing a 
system where people in Mexico can just have a card and go to a 
number of different merchants, and they avoid the exchange fees 
almost entirely.
    Mr. Ose. The gentleman's time has expired.
    The chair is going to claim his time now, and yield to the 
gentleman from New Jersey.
    Mr. Garrett. Thank you. Just a clarification, you said 
there has not been a preponderance of evidence to indicate that 
the matricula consular cards are being used in this manner, and 
if it were, then maybe you wanted to have the regulators look 
into whether they should be accepting them or not.
    Mr. Abernathy. Used in a fraudulent manner.
    Mr. Garrett. Right. My question then is, how can you make 
that statement since we do not have control over what 
documentation is necessary to prove who these people are? It is 
a foreign nation that is doing that. So how do you verify there 
is not illicit use of these cards, that the people really are 
who they are, then?
    Mr. Abernathy. Well, based upon law enforcement processes 
where you have people who are trying to engage in fraudulent 
transactions on the basis of a fraudulent ID, the same way that 
we would find out whether or not someone has a fraudulent 
Virginia driver's license or a fraudulent Canadian driver's 
license. We do not see that the incidence of fraudulent use of 
consular ID's is any higher than it is for domestic driver's 
licenses or many other foreign sources of identification.
    Mr. Garrett. Okay. Thank you.
    Mr. Shays. Thank you.
    When you talk about the whole issue of immigration, it gets 
touchy. So you watch your words carefully and Mr. Garrett does 
and all of us are trying to. But it gets more touchy when we 
try to deal with the issue of illegal immigration. I just want 
to say, I would double legal immigration, but I want us to 
crack down on illegal immigration. I am troubled that we have 
people who jump in line in front of the people I am trying to 
help. They range in thousands, who come to my office who are 
trying to get their parents here legally, their children here 
legally and so on.
    It bugs the heck out of me that we have a government, the 
Department of the Treasury, that is facilitating illegal 
immigrants. That is why I raise these questions. It bugs me 
that we passed a PATRIOT Act that said you need to verify who 
is registering. I find it, Mr. Abernathy, extraordinarily 
disingenuous for you to suggest that these cards that are 
issued by foreign countries are valid identifications. We were 
trying to stop this stuff.
    Now, under the rules you adopted, you said a taxpayer 
identification number, Social Security number, individual 
taxpayer identification number, employer identification number 
and so on. Now, is it legal for a company to hire an illegal 
alien?
    Mr. Abernathy. I am no expert.
    Mr. Shays. You don't have to be an expert.
    Mr. Abernathy. I am not an expert on immigration laws, but 
I believe that there are rules governing that.
    Mr. Shays. The answer is no.
    Mr. Abernathy. Okay.
    Mr. Shays. The fact that you don't know that, and you would 
say you are not an expert and would not answer it, I find mind-
boggling. You know it is illegal to hire illegal aliens, don't 
you?
    Mr. Abernathy. I don't know the total details of how and 
under what circumstances.
    Mr. Shays. I am not asking the total details. Is it legal 
to hire an illegal alien?
    Mr. Abernathy. As a general proposition, no.
    Mr. Shays. Thank you.
    So then you get, in your numbers you say in one of the 
requirements, number and country of issuance of any other 
government-issued document evidencing nationality or residence, 
and bearing a photograph or similar safeguard. Isn't it true 
that this will allow people who are illegal aliens to be able 
to make financial transactions?
    Mr. Abernathy. It would allow financial institutions to 
accept identifications from people who are illegally here, yes.
    Mr. Shays. So how can you suggest otherwise, then you are 
enabling financial institutions to basically assist the 
financial transactions of people who are here illegally?
    Mr. Abernathy. I am not quibbling with that. I think they 
do. They allow people who are here illegally to engage in 
financial transactions.
    Mr. Shays. Then why would we do that if we make it illegal 
for someone to work here illegally? Isn't the money that they 
earn, earned illegally if they are working illegally?
    Mr. Abernathy. I presume that it is, but I wouldn't know. 
There are many people that might receive money from other 
sources.
    Mr. Shays. But the bottom line is, the answer is yes again.
    So we are left with the fact that our government, contrary 
to the PATRIOT Act, has decided to facilitate individuals who 
are here illegally, working illegally, and enabling them to 
make financial transactions. I find that a contradiction I 
cannot figure out.
    Mr. Abernathy. Our regulations are not only fully compliant 
with the PATRIOT Act, but they carry out both the letter and 
the intent of the PATRIOT Act.
    Mr. Shays. No. I am going to dispute that, because the 
PATRIOT Act says we want verification. And you know and I know 
that this is the easiest way to have fraud, the easiest way to 
allow people who are here illegally to not disclose their true 
names, the easiest way to allow for the very thing we are 
trying to prevent, corruption and terrorism et cetera.
    Mr. Abernathy. I would have to disagree with that. I don't 
think the evidence demonstrates that.
    Mr. Ose. The gentleman from Texas, Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. I am going 
to try to be as quick as possible. I apologize for getting here 
late, Mr. Secretary, and missing your testimony. In reviewing 
your written submission, though, you indicate promoting 
competition in remittances, and what you feel are three main 
components of this efforts, one, promoting competition in the 
United States for the origination of remittances. Do you have 
any comments, does the department have a position regarding the 
proposed merger of First Data and Concord EFS?
    Mr. Abernathy. No, we do not have any particular view on 
that, not that I am aware of.
    Mr. Gonzalez. Do you know if that is up for consideration, 
that you will be expressing any kind of opinion? Because we 
know that there is going to be some inquiry and certain groups 
may be opposing it and asking the Department of Justice to look 
at, which I would imagine that is appropriate. What would your 
department in essence be doing, if anything, that you know of?
    Mr. Abernathy. That is not something that is handled in my 
office, but I can certainly make inquiries with other parts of 
Treasury that would be dealing with that, and get back to you.
    Mr. Gonzalez. Yes, because some opinions are being 
expressed that it goes against what you are proposing in the 
way of increasing competition. That is all I am asking. I have 
not taken a formal position. We have discussed it with 
different representatives from both opposing sides to the 
argument. I was just wondering if anything had been done on 
that.
    I do want to touch on a couple of issues that have been 
brought up by my colleagues. I think we all respect one 
another's opinions. We just come from different perspectives 
and for different reasons. But in the whole scheme of things, 
when we are talking about remittances and we are talking about 
identification, and we think of the PATRIOT Act and what we are 
trying to accomplish, in the big scheme of things, when you 
think of terrorists, when you think of how they accomplish 
their goals, is truly what we are talking about here at this 
hearing today, remittances, does it really pose that great a 
danger?
    Everything is a danger, and we can only safeguard against 
some and better against others. Better against others should be 
we have a priority list, like anything else. But again, the 
terrorists of September 11, my understanding is the way they 
got around was using credit cards. The night before, they were 
even at Wal-Mart buying the most curious items, but 
nevertheless purchasing them. My understanding is that there 
are false identifications, rather appropriate ones, used to 
open accounts here in the United States with financial 
institutions. It is my understanding that we have third-
parties, basic fraud, using those accounts of legitimate third 
parties, organizations, foundations and so on, to finance 
terrorism. Isn't that the greater concern that what we are 
trying to accomplish here regarding a remittance by anyone here 
in the United States, whether legal or illegal?
    Mr. Abernathy. The regulation squarely and clearly outlaws 
any fraudulent use of any form of identification, whether it is 
a U.S.-based form of identification or foreign-based form of 
identification. The question that the financial institution has 
to verify is, are you the person whose name and photo appears 
on that document. If you are not that person you are pretending 
to be, then that is a fraudulent use of the identification. It 
is not a question of, are you properly here in the United 
States. The question is, are you who you pretend to be. That is 
the question the financial institution has to ask.
    Mr. Gonzalez. But in your determination, when it comes to 
your responsibility under the PATRIOT Act, you feel that you 
are fulfilling that responsibility, both letter and the spirit. 
When we come to the spirit it is, what are we doing to 
safeguard ourselves from terrorist attacks from within, and how 
people get financed and how the terrorists operate and how they 
get their cash, their dollars, their credit and so on. But what 
you are proposing here does not go contrary to that mission or 
responsibility.
    Mr. Abernathy. In fact, Congressman, it is our view that 
were we to adopt a regulation that said to eight million or 
more people in this country, get out of our financial system, 
go into the black market, we think that would be a serious 
security risk.
    Mr. Gonzalez. And I agree, because I think the criminal 
mind would welcome the opportunity to service a great segment 
of the population of the United States, whether they are here 
documented or not documented. That is another day, another 
committee, and it is called immigration policy in the United 
States.
    Mr. Shays. Will the gentleman yield for a question?
    Mr. Gonzalez. Let me see if I can rush this last question.
    Mr. Shays. I am not really disagreeing with you. I just 
would like to ask one question that was just stated, if I 
could.
    Mr. Gonzalez. Okay. The last thing on the GSEs. I know that 
was interjected in this, and we have to address it. The concern 
is, you are saying that Treasury should be looking at products. 
I think if you have a GSE that is responsible, imaginative, 
creative and innovative, they will remain competitive. The 
reason you have to do that is if you look at charter, mission, 
product. You start a product to allow you to accomplish your 
mission. You do your mission to allow you to do that which your 
charter dictates. If we give Treasury, which can be highly 
politicized, the ability to sanction or disapprove of certain 
products, you could accomplish changing mission and charter de 
facto because you really are going at the very lifeblood, and 
that is the product. Would you agree with that assessment?
    Mr. Ose. The gentleman's time has expired. We are going to 
have you respond to the question.
    Mr. Shays. Sir, I interrupted him and I would like to give 
him a little more time. I am sorry.
    Mr. Ose. I have it under control here. Mr. Secretary, if 
you would respond to Mr. Gonzalez's question we would 
appreciate it.
    Mr. Abernathy. Yes, thank you, Mr. Chairman.
    In our view, the key issue is, if you are going to take a 
new agency that has responsibility for the government-sponsored 
enterprises, and the intention is to place that agency in the 
Treasury, which by the way Secretary Snow did not ask for. If 
you look at his testimony, he said we need to have a new agency 
and it needs to have all the powers to be able to do its full 
job. If the intention is to place that agency in Treasury, 
there are certain standards. We have to insist on those 
standards because of Treasury's main responsibility, which is 
with regard to the debt and the financial management of this 
country.
    If you want to place this new agency within the Treasury, 
you have to allow the Secretary of the Treasury to have some 
say over what that agency does, or else you end up worsening 
the current problem, the current perception in the country that 
the government stands behind the financial products of those 
government-sponsored enterprises. We cannot reinforce that. 
That is all that you would achieve if you took a new agency, 
put it in Treasury, and the Secretary had no say over the 
policy, all you will have achieved is reinforced that 
misperception that is already in the marketplace.
    Mr. Ose. The gentleman from California, Mr. Baca.
    Mr. Baca. Thank you very much, Mr. Chairman.
    Mr. Secretary, regulated credit unions in Mexico still do 
not have direct access to banks in Mexico's clearing settlement 
system. I believe that we need to reach out to Mexican 
communities that are served solely by credit unions. What can 
we do in Congress to ensure that safe and sound Mexican credit 
unions are afforded direct access to clearing and settlement 
systems?
    Mr. Abernathy. I agree with you entirely, Congressman, that 
what we want to be able to have is the widest reach of 
financial service products to people not only in this country, 
but in Mexico as well. In many cases, particularly in low-
income areas, credit unions may be the more successful 
financial institution to reach those people. That is the kind 
of conversation that we have with Mexico and other countries as 
well, trying to do what we can to encourage them to broaden 
their financial regulation to allow all of their financial 
institutions to be involved in the remittance business.
    Mr. Baca. Thank you. The next question that I have, Mr. 
Secretary, remittance senders are often unaware of the full 
costs they are paying for money transfer. According to the Pew 
Hispanic Center studies, about half did not know why additional 
costs were being paid; less than one-fifth knew the difference 
between published exchange rates and the rates used in the 
transfer process reduced the amount delivered. More than three-
quarters described themselves as lacking knowledge of the 
available options for sending remittances. Given these 
statistics, how would you rate the effectiveness of existing 
financial literacy programs, which is question one, and what 
more can be done by the financial service industry or by the 
Treasury Department and/or by Congress?
    Mr. Abernathy. You have identified one of the biggest 
problems that we have with regard to consumer financial 
services in this country. I would say it is probably second 
only to the problem of identity theft. That is the problem of 
educating consumers on how they can best make use of the wide 
variety of financial services that are available to them. The 
financial literacy problem is huge. I liken it really to the 
State of literacy in general that was in this country 100 years 
ago. We have that large of a problem in the area of financial 
literacy, of reaching out to people and helping them understand 
what are the basic building blocks of just day-to-day financial 
services. How do I manage a checking account? What can a bank 
do for me? What can a credit union do for me? How do I best 
manage my debt? Should I borrow or shouldn't I borrow? What are 
the different fees that are charged and where do they come 
from?
    We have made some good progress on addressing the issue of 
financial literacy, but there is a lot more work that needs to 
be done.
    Mr. Baca. Okay. Thank you. My final question would be in 
reference to responding to the question that Mr. Shays asked 
you. The responsibility of the Treasury Department or financial 
institutions, is clearly just to match the ID with that 
particular person. That is correct, right?
    Mr. Abernathy. Yes.
    Mr. Baca. It is not your responsibility to be an INS, to 
determine whether that person is illegal or legal. Is that 
correct?
    Mr. Abernathy. The responsibility is, are you who you 
pretend to be?
    Mr. Baca. Right. And it is normally the employer, who 
happens to be a non-minority normally, that ends up hiring the 
individual, where they are actually making the money, and the 
other individuals are just trying to send that money or 
whatever money they made by the illegal employer who actually 
hired him. Right? Is that correct?
    Mr. Abernathy. I certainly would not want to address the 
employment issues. I am just not an expert.
    Mr. Baca. I realize that, but as we were asking the 
question, I know that there had to be some kind of a 
transaction that happened before, which means that an employer 
happened to hire that person before the banking institution 
even transferred anything, and all you are doing is complying 
with the law.
    Mr. Abernathy. That could have been illegal, for all I 
know, in terms of the employment transaction. Sure.
    Mr. Baca. Thank you very much.
    Mr. Ose. Does the gentleman with to yield his remaining 
minute to Mr. Gutierrez?
    Mr. Baca. Yes, I will yield to Mr. Gutierrez the remaining 
minute.
    Mr. Gutierrez. Thank you very much.
    I would like to yield to Mr. Shays.
    Mr. Shays. I would like to just ask unanimous consent that 
both sides could have two minutes each.
    Mr. Ose. Hearing no objection, so ordered. We will assign 
two minutes to you and two minutes to Mr. Gutierrez for 
allocation as he sees fit on the minority side. Mr. Shays?
    Mr. Shays. Thank you.
    Mr. Abernathy, I know you are a good man. My intensity is 
just listening to your answers, because I disagree with them 
and because I have worked on this issue for five years. I chair 
the National Security Subcommittee, and I know that these 
documents from other countries are a joke. We have had hearings 
on it. We know they are a joke.
    Now, I understand the logic of you saying we do not want 
eight million people underground, but now you have really 
answered the question that I had. In order to get those eight 
million people who are underground, we have basically put in 
our rules, in my judgment, a process that is not verifiable. A 
bank has no way to verify the authenticity of a document given 
to an illegal alien. They have no way to do that.
    So I want to ask you how you think you live both in the 
letter and the spirit of the law when you are allowing for a 
process that, one, is not verifiable? And I want to understand 
why I should have confidence in your answer when you were so 
reluctant to tell me something that should roll off your 
tongue. Is it illegal to hire illegal aliens? It is illegal to 
hire illegal aliens. The answer is yes, and you know that and I 
know it.
    So why should I be comfortable when you tell me that this 
is verifiable, when I have five years of hearings that say they 
are not? Help me out.
    Mr. Abernathy. Certainly, Congressman. You are certainly 
focusing on a very key problem that we have as an entire 
society, and it is not just the United States. It is many 
countries, the problem of coming up with a system of fully, 
rigorously reliable identification documents. The criticisms 
that can be made of consular IDs, I hear the same criticisms 
made of driver's licenses. I hear, frankly, many similar 
criticisms made of passports.
    The ability to counterfeit identification documents has 
expanded tremendously, and we need to come up with measures 
that can get ahead of the counterfeiters. There is a lot of 
promising technology out there, but right now it is expensive.
    Mr. Shays. Okay. Let me just interrupt you there. But the 
one problem is, the one that is the easiest to have fraud in is 
the very issue of number and country of issuance of any 
government. When you say it is illegal for someone to lie when 
they come before the bank, that they have broken the law, it is 
almost humorous because you are making it legal for an illegal 
alien to do that. So you are an illegal alien, but you are 
going to tell the truth. It just does not buy. It doesn't meet 
the test.
    That is why I have a problem with your regulations. I thank 
the gentleman.
    Mr. Ose. The chair recognizes the gentleman from Illinois 
for three minutes.
    Mr. Gutierrez. I think that Mr. Shays is very passionate 
and very eloquent in stating his position, a position that has 
a lot of stature in the Congress of the United States. Let me 
just say that we are not going to resolve it by eliminating the 
matricula consular. People won't stop sending money back home. 
People won't say, God, they cancelled the matricula consular; I 
guess it is time for me to cross the border once again and go 
back home, because I am just not going to stay in the United 
States of America if I do not have a matricula consular to send 
money back.
    What is going to happen, I will go to Western Union. I will 
give them $300 in cash and they will send the money back to my 
family members. That is what is going to happen. We are going 
to increase the expense to people because there are legal ways 
for undocumented workers, which they used prior to the 
matricula consular to send the money back. And that is what we 
are simply going to do. We are going to turn the clock back.
    I think what is at the crux of Mr. Shays issue here, at 
least I believe it as I listen to him, and I am trying to 
listen to him very carefully, is that of all these undocumented 
workers, millions of them, some of them could pose a threat to 
the United States of America. Well, they haven't posed a threat 
as of yet. Mexico is an ally, along with the rest of Central 
America in our war against terrorism.
    What is more, if we really want to eliminate them as a 
security issue for the United States, I would simply say, let's 
complete a process started by President Bush in the early 
months of his administration, to regularize or legalize their 
status here we must confront the issue that this country does 
not have a policy, nor does it have the political will, nor the 
requisite resources, to deport eight million people. Given that 
reality, isn't it better that we integrate them fully into our 
society because we eat from the plates that they wash. We all 
know it. We don't stop eating at the restaurant. We eat the 
fruit. We don't stop eating oranges, asking who picked this; or 
stop eating the chicken or stop staying in the hotel room. We 
all know this.
    So really, we are all part of this great conspiracy, 
because we all know they are here. We all benefit from their 
services. As a matter of fact, we all take in their services 
every day in common life that we live here. So I say, let's get 
their fingerprints. Let's get them checked by the CIA. Let's 
get them checked by the FBI. Let's get them checked by 
Interpol. Let's tax them. Let's incorporate them. And then 
those who remain, we can focus on them, because if they did not 
come forward, they must have something to hide.
    Thank you very much for your testimony, Mr. Secretary.
    Mr. Abernathy. Thank you.
    Mr. Ose. The chair thanks the members and the witnesses. 
The chair notes that some members may have additional questions 
for the panel, this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to this 
witness, so that we can place their response in the record.
    Mr. Secretary, we appreciate your coming. It was a long 
panel. Your patience is noted.
    Mr. Abernathy. Thank you, Mr. Chairman. It is always a 
pleasure to come before this committee.
    Mr. Ose. Thank you.
    This panel is excused. If we could have the second panel 
come forward, that would be Mr. Roberto Suro, Dr. Manuel 
Orozco, Mr. David Valenzuela, Ms. Alice Perez, Mr. John 
Herrera, and Mr. Ezra Levine.
    Our second panel is composed of six witnesses. I am going 
to introduce them. Our first witness is Mr. Roberto Suro, 
Director of the Pew Hispanic Center. Welcome sir. We are also 
joined by Dr. Manuel Orozco, who is the Project Director for 
the Central America Inter-American Dialogue. Our third witness 
is Mr. David Valenzuela, who is President of the Inter-American 
Foundation. Welcome, sir.
    Our fourth witness is Ms. Alice Perez, who is the Vice 
President and Hispanic Market Manager for U.S. Bank. She is 
here on behalf of the Consumer Bankers Association. Welcome. 
Our fifth witness is Mr. John Herrera, who is the Board 
President of the Latino Community Credit Union. He is here on 
behalf of the Credit Union National Association and the World 
Council of Credit Unions. Welcome. And our sixth witness is Mr. 
Ezra Levine, who is a Partner with Howrey Simon Arnold and 
White, appearing on behalf of the Non-Bank Funds Transmitters 
Group.
    Welcome to all of you. Without objection, your written 
statements will be made a part of the record. You will each be 
recognized in turn for a five-minute summary of your testimony. 
So we are just going to go from my left to my write. So Mr. 
Suro, you are recognized for five minutes. Welcome.

    STATEMENT OF ROBERTO SURO, DIRECTOR, PEW HISPANIC CENTER

    Mr. Suro. Thank you, Mr. Chairman and members of the 
committee.
    Roughly seven million Latino immigrants to the United 
States send remittances to their home countries on a regular 
basis. According to the 2002 national survey of Latinos 
conducted jointly by the Pew Hispanic Center and the Kaiser 
Family Foundation, two-thirds of remittance senders are 
employed as unskilled laborers; about an equal share have not 
completed high school; about an equal share earn less than 
$30,000 a year. About half do not have either bank accounts or 
credit cards, and nearly three-quarters rent, rather than own, 
their homes. They are, however, both the generators of wealth 
in this industry and the prime consumers. Their decisions about 
how to manage their money will decide how the remittance flow 
evolves.
    In order to better understand how both remittance senders 
and receivers view the rapid changes taking place in the money 
transfer industry, the Pew Hispanic Center and the Multilateral 
Investment Fund at the Inter-American Development Bank have 
collaborated on a series of studies in the United States and 
Latin America. I have provided the committee with copies of our 
November 2002 report, Billions in Motion: Latino Immigrants 
Remittances and Banking, which explores how remitters choose 
the means to send money home. An upcoming report to be 
published this November will look at the process from the 
remittance receiver's point of view, with studies conducted in 
Ecuador, Guatemala, Honduras, El Salvador and Mexico.
    Through telephone surveys, focus groups and in-depth 
interviews, that have gathered information from some 10,000 
individuals, I have tried to assess the senders' and receivers' 
understanding of the methods and costs involved in transferring 
money. Allow me to summarize a few of the key findings. First, 
both remittance senders and receivers are often unaware of the 
full cost they are paying for money transfers. Many complain 
that the money received is less than expected. Yet in a study 
of remittance senders in Miami and Los Angeles, about half said 
that they did not know why additional costs were being paid. 
This is the research that Congressman Baca referenced. Less 
than one-fifth, for example, knew that differences between 
published exchange rates and the rates used in the transfer 
process could reduce the amounts delivered.
    It is tempting sometimes to think of this as a matter of 
ignorance or poor math skills, or even to assign it entirely to 
the realm of financial literacy. It is important to note that 
one of the results of a rapidly changing market is a very rapid 
multiplication of the types of products, and often very 
different types of pricing schemes. As a result, different 
remittance products have very different ways of packaging their 
fees, and it is not always transparent to somebody looking at 
two different vendors what the benefits are either way.
    Second, it is important to recognize that remittance 
senders are often passive consumers. More than three-quarters 
of the participants in our Los Angeles-Miami study described 
themselves as lacking knowledge of the available options for 
sending remittances and indicated they had done little to 
explore the market. Instead, they tend to rely on word-of-mouth 
recommendations. Familiarity and convenience are often deciding 
factors in choosing a means of transferring money, even when 
individuals are concerned that they are paying high fees.
    On the receiving end as well, our studies indicate that 
simple expediency and force of habit are powerful factors in 
determining the means for collecting remittances. To understand 
this better, perhaps you could all think back to that time not 
long ago when one went to a savings and loan or a bank in this 
country. There was a local institution staffed by familiar 
folk, and it was common enough to have a favorite teller.
    One way to achieve the committee's aims of increasing 
competition and improving consumer access would be to promote 
the entry of new players, such as banks and credit unions, into 
the marketplace for remittance services. In this regard, it is 
important to consider limitations posed by infrastructure, on 
the receiving end especially, but also on the sending end. Many 
of these consumers live in areas that are underserved by 
financial institutions. Over the last 20 years or so, wire 
transfer companies have created financial conduits which 
previously were nonexistent between many Hispanic immigrant 
communities here and the urban neighborhoods and rural villages 
they left behind in Latin America. New players in the 
remittance market will have to duplicate this infrastructure 
and compete on the level of location and convenience, even as 
they compete on the basis of price.
    In pursuing the committee's goals in the existing market 
for remittance services, our study suggests that greater 
transparency in pricing and simplicity in procedures could have 
an impact. Obviously, one cannot oblige consumers to do 
comparison shopping, but these studies have revealed a 
sufficiently high level of confusion and dissatisfaction over 
the extent of information now available to suggest that the 
information flow can be improved. If consumers can make easy 
apples-to-apples comparisons about the cost of transfer 
services, they might be more likely to shop around. To be 
effective, such comparisons must cover all costs, including 
exchange rates and any fees charged on the receiving end.
    Mr. Chairman, again thank you for the opportunity to appear 
here. I will be happy to respond to any questions.
    [The prepared statement of Roberto Suro can be found on 
page 119 in the appendix.]
    Mr. Ose. Thank you for your testimony.
    Our next witness is Dr. Manuel Orozco, who is the Project 
Director for the Central America Inter-American Dialogue. 
Welcome, sir. You are recognized for five minutes.

 STATEMENT OF MANUEL OROZCO, PROJECT DIRECTOR, CENTRAL AMERICA 
                    INTER-AMERICAN DIALOGUE

    Mr. Orozco. Thank you very much, Mr. Chairman and the 
members of the committee. And thank you to Congressman 
Gutierrez for sponsoring also this idea.
    I think the issue of family remittances has gained 
increased relevance in the past few years, partly because of 
the sheer volume of these transfers, but also by certain issues 
that have been raised. One of them deals with costs; the other 
one deals with the role of remittances potentially as a tool to 
bank the unbanked, and another one that is reflects the market 
preference of a significant group of individuals in the United 
States that relates to other issues like transportation, 
telecommunication, tourism or trade.
    There are several challenges that have been identified with 
regard to these issues. One of them is that the cost continues 
to be significantly in many countries expensive, despite the 
fact that there has been a declining cost in some countries. 
The other issue that I think is so important to consider as a 
challenge is that there is a weak link between money transfers 
and access to other financial services. And finally, another 
challenge is the poor financial location of senders.
    I think in order to address these issues, we can identify 
several recommendations that can improve this series of 
challenges. One of them deals with competition. The report by 
Treasury expressed nicely that there has been an increase of 
competition and that is very important to identify and 
recognize. However, the quality of the competition is another 
matter. There is still need to improve the quality of 
competition at different levels.
    I think it is important to identify the stumbling blocks 
that are preventing a more efficient money transfer system and 
a competitive one. So one of the stumbling blocks deals with 
the presence of informality that controls certain monopolies in 
certain money transfer corridors, as well as issues related to 
agent control over the pricing of the fee. There are many parts 
of the United States in cities like New York where agents 
charge 75 percent of the commission of the fee of the transfer 
to be sent. That increases the cost of sending money abroad.
    Within that context, I think it is important to implement 
some sort of a report card, which I describe very clearly in 
the testimony, that basically looks at the different types of 
practices of money transfers and the quality of them, using 
several indicators. I think in addition to looking at the 
competition in the money transfer business, we also need to 
think of the role of remittances to bank the unbanked. The 
reason is very simple. We are talking about at least 20 million 
people sending remittances abroad, not only to Latin America, 
but many other places in the world. In a way, half at least of 
the senders are unbanked. That is particularly the case among 
Latino individuals. I think a strategy that will use 
remittances as a way to bank the unbanked will increase the 
savings rate of the country, as well as the quality of life of 
the sender.
    There are three ways to deal with this issue specifically. 
One is the promotion of alliances between more remittance 
businesses and banks. This is a very important issue because by 
establishing that alliance, what you do is you actually reduce 
the intermediary, in this case the agent that charges, that 
prompts the money transfer businesses to increase charges. The 
alliance would also facilitate the ability of people to be 
banked into financial institutions. I think remittance 
transfers should be included as an indicator of service 
provisions under the CRA, the Community Reinvestment Act.
    And finally, I think another step in this direction with 
regard to money transfers deal with financial location. The 
financial location issue is very important at different levels. 
We need to educate the immigrants about the advantages of 
different economic opportunities that exist in this country, 
but we also need to inform customers about the best practices 
that exist in the market, and a situation that does not exist 
very much. I monitored somewhere around 120 money transfer 
businesses. I wish there was a way to make individuals aware of 
the different opportunities to look for different market types 
of services, and not be basically victims of exchange rates, 
for example, in many countries. I think the problem of the 
exchange rate is one issue that affects the sender, but there 
are other problems, too, that have not been addressed and I 
think it is important to pay attention to them by using some 
sort of report card.
    Thank you very much.
    [The prepared statement of Manuel Orozco can be found on 
page 85 in the appendix.]
    Mr. Ose. Thank you, Dr. Orozco.
    Our next witness is Mr. David Valenzuela, who is the 
President of the Inter-American Foundation. Welcome, sir, you 
are recognized for five minutes.

   STATEMENT OF DAVID VALENZUELA, PRESIDENT, INTER-AMERICAN 
                           FOUNDATION

    Mr. Valenzuela. Thank you, Mr. Chairman. I am pleased to 
testify before this committee to share the experience and 
insight of the Inter-American Foundation regarding the 
potential impact of remittances to help improve the social and 
economic conditions of many poor communities in Latin America 
and the Caribbean.
    It is estimated that migrants from Mexico, Central America, 
South America and the Caribbean send approximately $32 billion 
each year to family members left behind. This flow of dollars 
represents a critical safety net for millions of people. 
Increasingly, organizations of migrants in the United States 
are also joining forces to invest in their communities of 
origin to promote sustainable development through improved 
production and job creation.
    The Inter-American Foundation, a small federal agency, was 
established by Congress in 1969 to support grassroots 
development led by local people in their own communities. Since 
that time, the Foundation has made over 4,400 grants throughout 
Latin America and the Caribbean to support the self-help 
efforts of poor communities to improve their productive 
capacity, their education, health and environment.
    The Foundation was among the first agencies to recognize 
the importance of the remittance flow to Latin America and the 
Caribbean. In March 2001, we sponsored a conference in 
Washington with the cooperation of the World Bank and the 
United Nations Economic Commission for Latin America and the 
Caribbean. This conference explored the issue of transaction 
costs, but it also introduced the potential development impact 
of remittances based on experiences of foundation grantees in 
Mexico and in Haiti. Since that time, the Foundation has 
broadened its effort to direct some of the flow of remittances 
to sustainable development in home communities.
    This work has led the Foundation to come into contact with 
organizations of migrants that have sprung up throughout the 
United States. Mexican migrants, for example, have over 600 
hometown associations that are actively engaged in helping 
their home communities. Haitians, Salvadorans, Dominicans, 
Guatemalans, to name a few, also have similar organizations. 
Several recent grants awarded by the Inter-American Foundation 
to grassroots organizations in these countries rely on or are 
complemented by counterpart funds raised by these hometown 
associations in the United States.
    Mr. Chairman, I would like to share two insights with the 
committee based on our experience with remittances. The first 
is that the resources that migrants send to family and the home 
communities are an important aspect. But potentially of greater 
significance are other non-monetary contributions. Here, I am 
referring to ideas, practices, know-how, values, 
entrepreneurial skill and business linkages that migrants 
acquire in the United States and transfer to their home 
countries.
    Secondly, a large number of migrants maintain active ties 
with their communities of origin to such an extent that they 
are becoming transnational communities. Transnationalism can be 
defined as a process in which human, financial and social 
capital flows back and forth between sending and receiving 
communities, thus greatly impacting the process of social and 
economic development in both sending and receiving communities. 
In this manner, we can no longer look at helping poor 
communities in many countries of Latin America and the 
Caribbean without taking into consideration the interaction 
between these communities and their brethren who have migrated 
to the United States.
    The Inter-American Foundation is pleased to testify at this 
committee and will provide any additional information that you 
might need. Thank you.
    [The prepared statement of David Valenzuela can be found on 
page 121 in the appendix.]
    Ms. Brown-Waite. [Presiding.] Next, we will hear from Ms. 
Alice Perez, Vice President and Hispanic Market Manager, U.S. 
Bank, on behalf of the Consumer Bankers Association. Welcome, 
Ms. Perez.

   STATEMENT OF ALICE PEREZ, VICE PRESIDENT, HISPANIC MARKET 
 MANAGER, US BANK ON BEHALF OF THE CONSUMER BANKERS ASSOCIATION

    Ms. Perez. Thank you. Good afternoon, members of the 
committee. My name is Alice Perez. I am the Hispanic Market 
Manager for U.S. Bank, the eighth-largest financial institution 
across 24 states in the U.S.
    I would like to thank you for inviting us today to testify 
on behalf of the Consumer Bankers Association and U.S. Bank 
regarding expanding consumer access to mainstream financial 
institutions and reducing the costs and increasing the 
competition in remittance services.
    In my role at U.S. Bank, I lead the development of 
programs, products and services that will benefit the Hispanic 
market. U.S. Bank is striving to be the best bank of choice for 
Hispanic consumers. U.S. Bank is testifying today on behalf of 
the Consumer Bankers Association, which I will refer to as CBA. 
CBA has been actively involved in issues of financial access 
for many years. In 2000, CBA began to undertake a series of 
annual surveys to determine the level of financial literacy 
efforts of its member banks. In addition, CBA is currently 
developing a forum on Hispanic outreach to be held in the 
spring of 2004.
    Banks are increasingly offering low-cost alternatives to 
traditional wire transfers. Bank remittance services have 
proven to be of tremendous value to bank customers and non-
customers, particularly in immigrant populations where many 
people send money to relatives in their country of origin and 
do not traditionally have a relationship with financial 
institutions.
    At U.S. Bank, our vision is to become the best bank in 
America to Hispanics. To deliver on our commitment, we are 
providing product, services and support to the Hispanic market 
and we focus our strategy in four key areas. Those areas 
include: (1) staffing, we mirror the markets in which we do 
business; (2) Marketing, ensuring that our materials are 
available in a language that individuals can understand; (3) 
Products, ensuring that the products are the proper products to 
target the segment; and (4) community involvement, which means 
two-fold, providing financial literacy, education to different 
individuals on products and services that financial 
institutions offer in the U.S., as well as providing for and 
sponsoring different organizations.
    As part of this effort, in partnering with community 
organizations for financial literacy, we have developed a 
program to serve the needs of individuals that need access to 
remittance services. We refer to this as our secured money 
transfer service. What this does is offer low transfer fees and 
competitive foreign exchange rates that enable consumers to get 
more money into the hands of their family member. The program 
provides consumers the choice of how the beneficiary receives 
the funds, either cash at an ATM, cash at a bank branch, or 
funds deposited directly into a savings account.
    The first program available across our 24-state footprint 
enables individuals to send funds within the United States and 
to Mexico via an ATM Visa-plus network system. Through the 
recommendation of the Mexican consul, as well as other entities 
in the U.S., they have encouraged us to provide this type of 
service to individuals through the use of an ATM card. The 
beneficiary can use this card to withdraw funds in any of the 
network ATMs in the U.S., as well as the 20,000 ATMs in Mexico. 
Not all funds need to be withdrawn at one time, providing an 
added level of safety for the sender and recipient. Remittance 
funds are immediately available to the beneficiary each time 
the money is spent.
    Realizing that alternatives need to be offered to 
individuals to receive funds, we decided to take on another 
venture, which is our partnership with L@Red de la Gente, which 
is currently being piloted in San Diego, Los Angeles and 
Chicago. This enables individuals to send money to any branch 
of the L@Red de la Gente network. It focuses not just on the 
remittance, but on providing access to financial services on 
both sides of the border, enabling consumers to build upon 
their economic status by utilizing financial services.
    The partnership was created to provide low-cost remittances 
and to encourage more people to become bank accountholders and 
savers on both sides of the border. This service is priced at 
$6 when the transfer is directed to an account at the L@Red de 
la Gente network, and $8 when the funds are picked up in cash. 
On our ATM product, the service is available for a transfer fee 
of $8 for accountholders, and if it is a non-accountholder, it 
is a $10 fee.
    Combined, the U.S. Bank remittance services allow 
individuals to reach friends or family in both metropolitan 
areas of Mexico, where many ATM networks are located, and in 
rural areas of Mexico where many of the L@Red de la Gente 
branches are located. Individuals who do not have a banking 
relationship are of high importance to us. U.S. Bank offers a 
variety of safe and convenient stored value cards for consumers 
who do not have a banking relationship. We have also created 
credit products to individuals without established credit. With 
our Secured Visa card and our Credit Builder secured loan, 
consumers enjoy the benefits of a credit card or an installment 
loan to begin building a credit history with a financial 
institution.
    In conclusion, low-cost competitive alternatives to wire 
transfers are offered by many financial services institutions. 
Banks are increasingly recognizing that offering low-cost 
solutions for money transfers saves consumers money up front, 
and encourages them to begin other mainstream banking 
relationships that provide benefits in the long run. Providing 
safe, efficient and affordable money transfer service is the 
goal of U.S. Bank and our peers in the financial services 
industry. Our customers tell us that it is assuring to them to 
walk into one of our financial institutions, deposit funds with 
a secure money transfer, walk out the door, call their loved 
ones, and know that the money is already there, safely, quickly 
and affordable.
    On behalf of U.S. Bank and the Consumer Bankers 
Association, thank you for the opportunity to present our 
initiatives and our progress to date.
    [The prepared statement of Alice Perez can be found on page 
100 in the appendix.]
    Ms. Brown-Waite. Thank you very much.
    Next, we will hear from John Herrera, Board President, 
Latino Community Credit Union, on behalf of the Credit Union 
National Association and the World Council of Credit Unions. 
Welcome, Mr. Herrera.

 STATEMENT OF JOHN HERRERA, BOARD PRESIDENT, LATINO COMMUNITY 
CREDIT UNION ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION 
             AND THE WORLD COUNCIL OF CREDIT UNIONS

    Mr. Herrera. Thank you and good afternoon, Madam Chair and 
distinguished members of this committee, and my congressman 
from North Carolina, Mr. Miller. Thank you, Congressman 
Gutierrez, for your leadership on putting this issue on the 
table.
    And thank you for the opportunity to provide comments on 
the developments of the remittance industry. My name is John 
Herrera. I am Vice President of Latino Hispanic affairs for 
Self-Help Credit Union. Also, I am a founding member and the 
current board chair of the Latino Community Credit Union based 
in Durham, North Carolina.
    I appear before you today on behalf of the Credit Union 
National Association and the World Council of Credit Unions. We 
represent more than 10,000 state and federal credit unions and 
their 83 million credit union members in the United States and 
over 100 countries around the world.
    I would like to provide the committee with an overview of 
credit unions' efforts to reduce costs of remittances in the 
financial services market. First, a little bit about the Latino 
Community Credit Union. We started in 2000, because Latino 
immigrants did not have a safe place to bank and they were 
being robbed as they walked out of their check-cashing stores. 
When we started, we hoped to have 500 members in our first 
year. Today, three years later, we have 14,000 members, and 40 
bilingual and bicultural branches.
    Remittances have been important for our growth. Today, CUNA 
and the World Council of Credit Unions have joined efforts to 
expand the credit union participation in the international 
remittances network, IRnet, partnering with both Vigo 
remittance and Travelex, the world's largest retail foreign 
exchange provider. IRnet has transferred millions of dollars 
and reduced rates to over 40 countries throughout our 850 
credit union points of service throughout the United States.
    It is easy to understand why any Friday afternoon unbanked 
immigrants who have just received their paychecks, cash them at 
an informal finance company at a cost of 1 to 3 percent of the 
face value. Latino immigrants send home an average of $300 
transferred to their families at a cost of about $15 plus the 
check-cashing fee and the remittance fee and the exchange rate 
difference, resulting in an average of about $42. The total 
cost of these transactions from the credit union IRnet service 
is $14, or one-third to one-half of the cost of the 
competitors. But there are many benefits to the consumer and to 
the U.S. economy.
    Once we get these folks into our credit union, we can help 
them learn what is available to them financially. They might 
start with a savings account, move to a checking account, a car 
loan, develop credit history, and eventually apply for a home 
mortgage and a small business loan. Fifty percent of all 
Mexicans in the United States are unbanked today. This is 
unacceptable. We offer these services to introduce them to 
having a banking account which is one of the most important 
factors in helping people accumulate assets to climb the ladder 
of financial security.
    I believe strongly in bringing the power of market forces 
into all communities to benefit consumers. As is the case with 
most markets that credit unions enter, as competition 
increases, prices decrease. In fact, prices have dropped 
approximately 37 percent for transfers to Mexico since credit 
unions got involved with remittances in mid-2000. I recently 
spent several weeks in Mexico as an Eisenhower Fellow, studying 
economic development and migration, where I saw entire 
communities that had been developed by the money that the 
relatives in the United States had sent to them.
    Through our partnership with Mexican credit unions, we want 
to help these families save part of their remittances to start 
a small business and develop Mexico's economy, which would 
reduce the need for migration. A recent survey by the Inter-
American Development Bank shows that the single largest reason 
many Latino immigrants do not have a bank account is because of 
the lack of awareness of the benefits of having an account. One 
program providing help in this area is the Treasury 
Department's First Accounts program from which my credit union 
received significant help to bring the unbanked people into the 
financial system. There are $4 million of appropriated funds 
for this program left unspent because the authorizing 
legislation to release this funding has not been passed by 
Congress. I urge the members of this committee to take action 
to release the funding.
    Credit union average efforts in this area could also be 
greatly helped by a policy change. Credit unions, as you know, 
may only serve in the regions of the members, and we applaud 
the efforts of this committee in including in the regulatory 
relief bill, the provision that will permit credit unions to 
provide check-cashing and remittance services to nonmembers 
within their field of membership.
    In closing, we would like to commend the Treasury's 
evenhandedness in its review of section 326 of the U.S. PATRIOT 
Act regarding account-opening procedures. We believe that 
providing financial institutions with the guidelines for the 
types of ID that can be accepted establishes the proper balance 
between national security and access to financial security.
    Thank you for holding this important hearing.
    [The prepared statement of John A. Herrera can be found on 
page 67 in the appendix.]
    Ms. Brown-Waite. Thank you very much for being with us.
    Next, we will hear from Mr. Ezra Levine, who is a Partner 
in Howrey Simon Arnold and White. He is here on behalf of Non-
Bank Funds Transmitters Group. Welcome

  STATEMENT OF EZRA LEVINE, PARTNER, HOWREY SIMON ARNOLD AND 
     WHITE, ON BEHALF OF NON-BANK FUNDS TRANSMITTERS GROUP

    Mr. Levine. Thank you, Madam Chairman.
    My name is Ezra Levine. I am a partner at Howrey Simon 
Arnold and White here in DC. I am counsel to the Non-Bank Funds 
Transmitters Group. The group has been in existence since 1989 
and it is comprised of the leading national money transmitters. 
Travelex Americas, which was just mentioned, is one of the 
members. Western Union, American Express, MoneyGram, Comdata, 
and RIA Financial Services are the members. Each of these 
companies is licensed by the 45 largest states, the District of 
Columbia and Puerto Rico, to transmit funds and issue payment 
instruments such as money orders, travelers checks and drafts.
    Commonly-held perceptions are incorrect. The non-bank funds 
transmission industry is highly regulated. Traditionally, 
however, the States have regulated non-bank money transmitters 
for safety and soundness through comprehensive licensing laws. 
The laws impose a high degree of regulation. They are intended 
to assure safety and soundness. States conduct periodic on-site 
exams, require the filing of extensive reports, and the 
maintenance of 100 percent financial reserves. In fact, the 
State regulators are very often the very same individuals who 
regulate state-chartered credit unions, as well as state-
chartered banks.
    In addition to the State laws, these non-bank money 
transmitters, the group members are subject to the federal 
anti-money laundering laws, including the preexisting Bank 
Secrecy Act, as well as the relatively new U.S. PATRIOT Act. 
The group members have developed and implemented comprehensive 
BSA anti-money laundering compliance programs for themselves, 
and importantly for their sales outlets. As somebody commented 
earlier, there are approximately, depending who you listen to, 
150,000 or more sales outlets in the United States. They are 
independent businesses. One of the things the companies do as 
part of the compliance program, particularly with regard to 
remittances, is to check both the name of the sender and the 
recipient against the OFAC list. Of course, that is for anti-
terrorism and blocked individuals.
    The Wall Street Journal reported in November 2002 that 
approximately $14 billion of funds are remitted from the U.S. 
to Mexico and Central America. This represents a 28 percent 
increase from 2000 to 2001. It is expected to grow by at least 
10 percent. I saw something in the papers the other day that it 
is something like 20 percent already in 2003. While the bulk of 
funds are sent to Mexico and Latin America, funds are also sent 
to locations throughout the world. We cited that.
    In the past several years, this high transaction volume has 
attracted both big and small entities which are eager to 
capture some of the funds transmission business by offering new 
service, new features, and different prices. For example, 
looking only a the traditional money transmission arena of non-
bank funds transmitters, there are now over 50 licensed money 
transmitters in such states as California. Some years ago, 
there were only 12 or 13 in California. There are over 50 in 
Illinois; over 60 in Texas and New York; over 100 in Florida, 
just as an example. Each of these, of course, has thousands of 
independent sales outlets in every one of the States. These 
agent locations, these independent businesses like convenience 
stores, have the face-to-face contact with the customers. They 
are small businesses and they are located in the communities 
that they serve, particularly inner-cities.
    As I mentioned, these licensed non-bank entities range from 
small niche companies to the larger multi-state corporations. 
Some licensees focus on transmissions to only one or a select 
group of countries. Some provide only limited services. The 
extensive networks of the large companies, however, often reach 
areas that many banks, credit unions or other remittance 
providers do not serve. The large companies pioneered 
transmission services to the world, and the large ones now 
serve over 160 countries.
    The domestic market for remittance services is dynamic and 
competitive. I think we heard that from the Treasury Assistant 
Secretary. I think we have heard that from members of this 
panel. As an example of the positive effects of competition in 
the remittance arena, it has been estimated that the average 
cost of remittances to Mexico has decreased by over 60 percent 
since 1999. That is only a few years. The bottom line is that 
competition is alive and well in the transmission business. 
There has been a veritable explosion in the number of service 
providers. This explosion has presented consumers with an 
unprecedented array of choices. Again, we have heard some of 
them from this panel. The prices are reducing. The prices are 
continuing to fall. And who are the beneficiaries? The 
beneficiaries are the consumers of this explosion of competing 
service.
    Some of the new competition comes from banks. They have 
been attracted to the growing market. Credit unions and the 
U.S. Postal Service provide remittance services aimed at 
Mexico. Competition also exists from courier services, which 
physically transport currency and payment instruments on behalf 
of consumers.
    I am about to wrap up. To sum up, customers are the winners 
as additional funds transmission services are offered. 
Customers reap the rewards of competition. The trend is 
continuing.
    Thank you.
    [The prepared statement of Ezra Levine can be found on page 
76 in the appendix.]
    Ms. Brown-Waite. Thank you very much. I want to thank all 
the members of the panel.
    Mr. Levine, you indicated that the average cost of the 
remittances to Mexico have decreased by some 60 percent since 
1999. Has the decrease in price led to an increase in 
remittances? Do you anticipate that with increased competition, 
the market price of sending remittances will continue to fall?
    Mr. Levine. I think it will continue to fall. I think from 
one of the individuals on this panel, and it may have been U.S. 
Bank, indicated that for certain of their customers, for 
example, the price, I do not want to misstate her testimony, 
was significantly lower than the $9.99 amount. The volume of 
transaction is going up and obviously I think that reflects 
immigration patterns. But there is transmission to all over the 
world. Mexico is clearly the single most competitive segment. I 
believe the trend will continue. It is continuing.
    Ms. Brown-Waite. Thank you.
    Ms. Perez, do you believe that greater government 
regulation would help or hinder competition? And how would the 
consumer ultimately be affected?
    Ms. Perez. On behalf of U.S. Bank, I can state that we 
disclose to our customer, at the time that we offer them a 
product, what exchange rates and what the actual costs of the 
product are. I think in today's environment we do a very good 
job at that. My recommendation would be to allow us to continue 
to do it the way that we do it, because we are disclosing to 
the customer all fees associated with the service that we are 
providing.
    Ms. Brown-Waite. Thank you very much.
    Mr. Gutierrez?
    Mr. Gutierrez. I want to thank the panelists for their 
information, starting with Mr. Suro who explained to us that 
the people need more information. They need more information 
about the products. I think Dr. Orozco was very eloquent when 
he said, just because we have more people in the marketplace 
providing the service, that the quantity of people does not 
belie the fact that the quality has not improved. That is to 
say, if I have 10 grocery stores and they are all selling bad 
milk and eggs, and all of a sudden there are 20 and they are 
also selling bad eggs and milk, I have more grocery stores, but 
it does not mean I am getting better groceries because of the 
number of grocery stores in my neighborhood.
    I think that it is very clear from Mr. Valenzuela's 
testimony that we need to bring some diplomacy to the issues, 
not only Treasury, but the State Department, so that we can 
engage in the kind of conversations that have been conducted, 
dispassionate conversations about the growth of our hemisphere, 
the American hemisphere and Africa.
    Ms. Perez, I agree with you totally. I like the way banks 
do it, because that is the way I do my money transfers when I 
travel around the world. I like the security and the confidence 
that I have when I take out my ATM card and I travel across the 
world. I take it and I put it in and I know exactly what I am 
going to get, and I know it is a reliable service. So I can 
understand why, if you are meeting certain thresholds of 
openness and transparency, why you would say, why do we need to 
be regulated, we are going a good job.
    To Mr. Herrera, thank you so much for all of the great work 
that you have done in North Carolina, in taking from 500 to 
14,000 members you have now, and taking the un-banked and 
making them banked in a very sensitive manner. I know that many 
other institutions are following your lead, because you bring 
competition to the market. You make sure that the Bank of 
America and the others say, well, you know, there is somebody 
out there fighting for the dollars and the investments and the 
deposits of the people who are there. So I want to thank you 
for all of the great work that has come before, and we look 
forward to you coming again in the future and helping me, as I 
know you have helped many other members of this panel on both 
sides of the aisle, get better educated about the issues that 
we have before us.
    In terms of the industry, Mr. Levine, the fact is that the 
industry that you represent is the most costly industry that 
exists in the United States of America. That is just evident by 
all of the testimony that we have received today. Indeed, if 
there were a segment of the community that my legislation 
focuses on, I understand how you might feel targeted by it 
which is your industry targets my constituents by bombarding 
them with ads on Univision and Telemundo, telling them what a 
kinder and gentler institution you are. The fact remains that 
you are the institutions that have been sued in federal court 
and have received settlement issues in federal court. It is 
Western Union and MoneyGram that shelled out the $5 million in 
the settlement, along with Orlando Volute. If the plaintiffs in 
California had their way, I think we might have done better, 
and I say this with much chagrin, given the fact that it was 
the plaintiffs and the lawyers for the plaintiffs in Chicago 
that succeeded in settling the case, a case that I never really 
felt should have been settled at that point. It should not have 
been settled at that point.
    I know Mr. Levine is going to say, that they did not admit 
any culpability in this issue. But the issues were clear; they 
were transferring money and what disclosure is. All I ask, Mr. 
Levine, is that you go back to this industry. I want this 
industry to grow. I want it to do well. All I want them to do 
is this: when I walk into Western Union or MoneyGram, I just 
want them to say that it is $14.94, Mr. Gutierrez, to wire 
$300, and Mr. Gutierrez, here is how many pesos today the 
recipients back in Mexico are going to get, and write that on 
the receipt each and every time you do it. I know you are 
shaking your head because as part of the settlement in the 
lawsuit, as you are very well aware, those were part of the 
conditions of the lawsuit.
    Mr. Levine. Not quite.
    Mr. Gutierrez. Then we are going to beg to disagree on that 
issue. That is what we want. We want transparency in the 
market. I do not quite understand why we cannot secure 
transparency in the market.
    Thank you very much, Madam Chairman.
    Ms. Brown-Waite. The gentleman's time has expired.
    Mr. Levine, would you like to respond to that?
    Mr. Levine. Sure I would. Thank you very much.
    Mr. Gutierrez, you were talking before about security and 
confidence. One of the reasons that immigrant populations use 
Western Union, MoneyGram, RIA, and Travelex is because they are 
secure, they are safe, and they do what they say. Even before 
the class action, and I have a view of the class action, but I 
will only repeat what the Seventh Circuit said about the class 
action. Even before the class action suit, each of the 
companies was giving out a receipt, and the receipt clearly 
states the amount of U.S. dollars paid by the sender, the 
foreign exchange rate applicable if it is a fixed-rate 
transaction, and the amount of fees, and the amount to be 
received in pesos by the recipient.
    You are absolutely correct, there were additional 
disclosures mandated as part of the settlement. Let me say one 
thing about the settlement. The whole lawsuit was not so clear. 
I did not defend the companies and I was not a lawyer for the 
companies in any of that litigation. However, I did read the 
Seventh Circuit opinion written by Judge Frank Estabrook, one 
of the most respected circuit court judges in the United 
States, with regard to the approval from the challenge of some 
class action lawyers of the settlement. What Judge Estabrook 
and the full panel of the Seventh Circuit said was that the 
case was frivolous; that the case amounted to commercial 
extortion, and these are not my words, these are the words of 
the Seventh Circuit, but that he understood the necessity from 
a public relations standpoint of companies needing to settle 
this class action, and with great reluctance the Seventh 
Circuit approved the settlement. That is in the opinion.
    Mr. Gutierrez. Let me just respond, if I could have a 
unanimous consent for one additional minute since Mr. Levine 
went over and was given the additional time. I ask unanimous 
consent.
    Ms. Brown-Waite. Without objection, for one minute, Mr. 
Gutierrez.
    Mr. Gutierrez. Let me just say, they do provide the sender 
with the transaction dealing with the countries. Now, here is a 
fact, Mr. Levine. I saw the actual transmittal. I went to a 
Western Union and a MoneyGram. One of us is wrong. I don't know 
if you actually went personally to a Western Union, MoneyGram 
office at a currency exchange anywhere in a metropolitan area. 
Had you done that, I am going to tell you what you would have 
found. You would have found that they did not disclose those 
fees; that they were unaware of the exchange rate because it 
was nowhere on the form, Mr. Levine. I saw it personally before 
I ever engaged in this matter.
    Secondly, the fact is, Mr. Levine, it is curious process 
when only Mexico and Latin America are targeted, because 
although Mexico is the closest country to us, it is cheaper on 
the exchange rate to send money to Poland or the Philippines, 
thousands of miles away, than it is to send money across the 
Rio Grande.
    Thank you very much, Madam Chairman.
    Ms. Brown-Waite. The gentleman from Arizona, Mr. Shadegg, 
is recognized.
    Mr. Shadegg. Thank you, Madam Chairman.
    Let me begin, Ms. Perez, with you. Does U.S. Bank do most 
of its business, did I hear you testify, with Mexico? Is that 
right? Most of the remittances?
    Ms. Perez. Currently, our remittance products are with 
Mexico.
    Mr. Shadegg. And you do remittance products with other 
countries?
    Ms. Perez. At this time, no. Both of our initiatives are 
very new as of this year.
    Mr. Shadegg. I was not here, but I believe Dr. Orozco made 
the point that competition in fact exists in the market, but 
that does not necessarily mean there aren't people abusing the 
process in that competition. I think that makes sense.
    My question of you is, with regard to Mexico, do you 
believe there has been an increase in competition? Do you see 
abuse occurring or do you see the competition as assisting 
people who need to transfer money to Mexico?
    Ms. Perez. I see the competition increasing. I think it is 
positive competition because as a result of the competition, 
the pricing structure has decreased, which benefits the 
consumer.
    Mr. Shadegg. Does U.S. Bank disclose the exchange rate when 
it does a transfer to Mexico?
    Ms. Perez. Yes, we do.
    Mr. Shadegg. I think the gentleman who is the sponsor of 
the legislation, I guess he left the room. I think that is a 
valid request, at least when the exchange rate is known. One of 
the reasons I was interested in whether you do business in 
other countries is that I understand the very established 
market in the exchange rate between the United States dollar 
and the peso. We do not necessarily have the same established 
market for other currencies. So you do disclose the exchange 
rate when you do a transaction for a remittance to Mexico, is 
that right?
    Ms. Perez. At the time of the transaction, we disclose 
fully to the consumer.
    Mr. Shadegg. And that goes in writing?
    Ms. Perez. Yes, it does.
    Mr. Shadegg. Do you know, is there also a disclosure in 
Spanish as well?
    Ms. Perez. Yes, we disclose in both.
    Mr. Shadegg. I want to compliment you and Mr. Herrera for 
the education. I think at the end of the day, what we are 
really talking about here is education. We need to make sure 
that the consumers of these products are educated and we need 
to be sure that the industry is clean, not only that the big 
players are playing by the rules and fair, but small players do 
not come in and abuse people. Competition is one way to clarify 
that problem and to make sure that it does not occur.
    Mr. Levine, let's go to this point about countries where 
there is not an established exchange rate. First of all, let me 
begin by saying that the major players that you represent, they 
disclose the currency exchange rate when they have an 
established market. Is that correct?
    Mr. Levine. Yes, indeed. In fact, we would be pleased to 
provide to the committee subsequent to the hearing copies of 
the actual receipt forms that are used in every single state in 
the United States, which have a blank stop for the entry of the 
FX rate when in fact there is one. But Mr. Congressman, in 
certain countries there is no exchange rate. For example, 
Brazil is one of those countries where you can't quote an 
exchange rate because the Brazilian government bars it. They 
set the exchange rate at the time of receipt. You cannot know 
ahead, sir.
    Mr. Shadegg. I read that in your testimony, and I was a 
little shocked. I had understood that in some countries that is 
not an established market, so you might not know it until you 
transmit it. But you are saying that in other countries, the 
government itself establishes the exchange rate after you send 
the money.
    Mr. Levine. Exactly. In some, the number of transactions is 
so small overall that in fact there really isn't an established 
exchange rate. You certainly will not see it published anywhere 
or even on the Internet.
    Mr. Shadegg. With regard to those countries where there is 
an established exchange rate, you would disclose that 
information, and that would include countries other than 
Mexico, I take it.
    Mr. Levine. Absolutely.
    Mr. Shadegg. So for Poland or Russia or someplace like 
that, you would disclose the rate?
    Mr. Levine. Yes, and the companies also offer, Mr. 
Congressman, a floating rate option. So a consumer who decides, 
look, it may be that the dollar is going to go down or the 
foreign exchange is going to go down, we offer them the 
floating rate option, and that is disclosed, if they want that. 
Or a customer could say, it is called will-call, I am going to 
send money to my son or daughter who is traveling in Europe, 
but I don't know where they are going to pick it up. It might 
be France, it might be Germany, well, of course, they are euro 
countries, but it might be England, still on the pound. So you 
cannot quote an exchange rate when it is a will-call 
transaction.
    All I am saying is, there are many different kinds of 
services and one size does not fit all, basically.
    Mr. Shadegg. So the large national players offer a service 
under which I have a child who is traveling in Europe; I put 
some money in, but I do not know where they are going to pick 
that up?
    Mr. Levine. Absolutely. They can go pick it up at any one 
of the recipient location outlets in any country of the 140 or 
160 where the large companies maintain a presence.
    Mr. Shadegg. That would create a problem both for the issue 
of disclosing exchange rate, and for the issue of what language 
in which to disclose that. Is that right?
    Mr. Levine. Absolutely.
    Mr. Shadegg. What is your sense, of course, as your 
testimony has indicated, the price of these remittances is 
coming down. Do they notice or are they concerned about 
somebody in the market who is playing with the exchange rate, 
the example that was given earlier where somebody says, well, 
we will waive our fee, but then they have an exchange rate that 
they don't disclose?
    Mr. Levine. Yes. Obviously, we want a level regulatory 
playing field, but we are also very, very sensitive to the 
competitive pressures. In fact, both companies now, I think it 
is Western Union will send to Mexico for $9.99 overnight, $300. 
I think MoneyGram, if my memory serves me, is $500 instantly at 
$9.99. These prices are way down from where they were before, 
and everybody is sensitive, and they are also sensitive about 
reducing the FX spread where they can. Again, some of that 
depends on which country you are sending it to. We really only 
here talk about Mexico. In fact, you are talking about the 
world.
    Mr. Shadegg. My time has expired, but in light of the 
absence of other questioners over here, could I ask one last 
question?
    Ms. Brown-Waite. Without objection.
    Mr. Shadegg. Is there any effort within the industry to set 
an internal set of standards? That is, for the players, U.S. 
Bank is now apparently becoming a big player, Mr. Herrera is 
representing the credit unions, to set an internal set of 
standards saying, well, all of us will voluntarily subscribe to 
this set of principles when we engage in a transaction? Has 
that been discussed or does that exist?
    Mr. Levine. No, it hasn't. On the non-bank money 
transmitter front, I cannot really speak to the banks, a number 
of the States have imposed, California for example; Illinois 
most recently, and we supported the Illinois effort; Texas; 
State of Washington; there are a couple of others I cannot 
remember, which have imposed, in fact, receipt requirements, 
requiring disclosure of FX rates, et cetera, and fees. So in 
fact, that is happening at the State level, even without 
industry agreement.
    Mr. Shadegg. I thank all the witnesses for their testimony 
and for their efforts in this area.
    Ms. Brown-Waite. Thank you very much.
    I would remind the members that we are supposed to be out 
of the room about 1:00 p.m., so we are going to have to closely 
adhere to the five-minute rule.
    Next, the gentleman from North Carolina, Mr. Watt, you are 
recognized.
    Mr. Watt. Thank you, Madam Chair. I will try not to take 
the full five minutes. I first want to welcome my friend John 
Herrera from North Carolina, and compliment him on the 
outstanding work that he and the credit unions have done there 
to make a major outreach into the Latino community, and to do 
what it is doing and what the banking community is now doing, 
to put a slightly different spin than Mr. Gutierrez has, which 
is push to provide a service that in some locations we have 
just not been able to take for granted. So you have had other 
providers step into the community to provide check-cashing and 
transmittal services. Sometimes they have not always lived up 
to the code of conduct or to the regulatory scheme that applies 
to credit unions and banks.
    That is kind of a back-handed compliment to Mr. Levine's 
industry, because some of those institutions that he represents 
were there providing a service, not necessarily at the standard 
that we would have wanted them to be providing the service, but 
pushing the banks and credit unions to be more responsive to 
the community. I think this evolution is taking place.
    Let me pick up on something Mr. Levine said, which is that 
there are a number of different providers coming into the 
marketplace now. There is more money out there that is being 
transmitted. There is more service to be provided, more profit 
to be made, more apparent need. That leads me to the question 
that I would like to pose to Mr. Levine and to Mr. Herrera and 
Ms. Perez, in particular, of whether in light of the 
proliferation of providers in the market, whether we might not 
need a more uniform set of standards, or some best practices 
guidelines. I do not have the sense that necessarily Western 
Union or maybe even all of the providers that members of your 
industry group, but some of these people who are proliferating 
out there are not necessarily looking at the same standards in 
this industry as we would want to have applied.
    My question is, in light of the proliferation, in light of 
the increased use of these kind of services, is there a need 
for a more uniform regulatory structure, either at the State or 
Federal level, and since this is international stuff we are 
dealing with, whether that regulatory structure ought to be 
done more at the Federal level than at the State level. I would 
like to get the response at least from the three people on this 
end of the panel.
    Mr. Levine. I think that in fact the market is regulating 
things quite well right now. I think consumers are voting with 
their feet. They are voting with their feet by going to the 
credit unions. They are going to the money remitters. They are 
going to the U.S. Banks and the other banks like Bank of 
America, Wells Fargo. They are comparing products. They are 
looking at fees. They are looking at exchange rates. The 
migration among the folks, whether those people are Hispanics; 
whether those people, for example in Illinois there is a huge 
Polish community that wires money; there are people that wire 
money to Southeast Asia. They are looking, they are comparing. 
They are savvy. Maybe they are not savvy in the very first 
transaction they do, but when these folks are sending money 
week after week or month after month, they are comparing. They 
are talking to their friends. They are shopping. Often in these 
areas, particularly for example on the east side of L.A., other 
areas of Chicago and Texas, Arizona, and now in North Carolina.
    Mr. Watt. So you think the market is regulating.
    Mr. Levine. Yes, the market.
    Mr. Watt. I don't mean to rush you, but the red light is 
on.
    Mr. Levine. Go ahead.
    Mr. Watt. I am not asking another question. I am just 
trying to get a response to this question.
    Mr. Herrera. Congressman Watt, I would say on behalf of 
CUNA and the World Council of Credit Unions that we need 
regulation relief rather than more regulation, to stimulate 
competition. For the chairman of a small community development 
credit union, you know credit unions are not-for-profit 
financial institutions, and we come in all kinds of size, shape 
and flavors. We are state regulated and federally regulated. So 
more regulation to force different standards, especially for 
community development credit unions, will really put an extra 
burden. I can see in community development credit unions, small 
size, are really struggling to comply with the current 
regulations.
    We already have as a matter today the board of the Credit 
Union National Association is adopting a guideline of best 
practices for wire transfers. We want for our members, we are 
not-for-profit full service financial institutions, and we want 
for our members the same thing I want for myself. I want to 
know, if I am sending money, how much it is going to cost; how 
many pesos my family is going to get on the other side. You 
know, full disclosure. We have adopted and it is in the written 
testimony, the seven principles that all credit unions 
voluntarily will adopt and are already practicing.
    Ms. Brown-Waite. Ms. Perez, if you would submit your 
response in writing, that would be very helpful, or we are 
going to be running over here.
    Next, I will recognize the gentleman from Texas, Mr. 
Gonzalez.
    Mr. Gonzalez. Thank you very much, Madam Chair.
    Quickly, I do not want to gloss over the situation we are 
trying to correct and improve on. We know people have been 
victimized, and we should not kid ourselves. If you come from 
San Antonio as I do, and from Texas, you would know exactly 
what I am talking about. I think many of you probably have had 
personal experiences. I know Congressman Gutierrez has 
witnessed it himself.
    Those are the sins of the past and everyone seeks 
redemption. Let's just make sure it is complete and total 
redemption, with a little help from the government. That is 
what we really would try to achieve here. Everyone says prices 
have come down because of competition and such, and only as 
long as those competitors are allowed to compete equally, then 
prices do come down and the market is a wonderful place in the 
final analysis.
    My question is going to go to the merger of First Data and 
Concord EFS, and if anyone has an opinion on how that would 
impact not just the non-bankers, but the banking part and the 
credit union part of transmitters. I am going to start with Mr. 
Suro, and again thank you for all the hard work that you are 
doing over there at Pew.
    Ms. Brown-Waite. Mr. Suro, you are recognized.
    Mr. Suro. Yes, congressman. I just do not know enough about 
that proposed merger and the companies involved to really have 
an opinion on what impact it would have on the market.
    Mr. Gonzalez. Dr. Orozco?
    Mr. Orozco. Thank you. I think the proposed merger actually 
poses a threat to competition because of what it means to merge 
to major giant non-bank financial institutions. It will drive 
out a lot of small competitors that are coming just now, like 
the credit unions and the community banks. I think it is very 
threatening.
    I also think that we might face problems with foreign 
exchange issues again, because there are differences in the 
companies that are doing this business, and some of that Ezra 
represents, not all, provide the same level of transparency. In 
some countries, there is a very serious problem of foreign 
exchange speculation, and that needs to be addressed. That is 
why we need to adhere to certain standards.
    I do not think punitive regulation is necessary, but we 
need to have some sort of oversight that is missing at this 
point. The situation that might occur with the merger between 
First Data and Concord might be an illustration of where prices 
might go up instead of go down.
    Mr. Gonzalez. Okay. Thank you.
    Mr. Valenzuela?
    Mr. Valenzuela. I do not have anything meaningful to say on 
this subject.
    Mr. Gonzalez. Okay. Thank you.
    Ms. Perez?
    Ms. Perez. Unfortunately, I do not know enough about the 
merger to comment at this time.
    Mr. Gonzalez. Thank you.
    Mr. Herrera?
    Mr. Herrera. Likewise.
    Mr. Gonzalez. Okay.
    Mr. Levine?
    Mr. Levine. I do not represent Western Union with regard to 
their antitrust issues.
    Mr. Gonzalez. You do not have an opinion from the non-bank 
side of transmitters as to whether this is potentially harmful 
to competition, or not, it does not pose any threat?
    Mr. Levine. I am not aware of any adverse consequences with 
regard to that. This is my own personal statement, with regard 
to that proposed merger.
    Mr. Gonzalez. Okay. Thank you very much.
    I yield back the balance of my time.
    Ms. Brown-Waite. Thank you very much.
    Ms. Waters, the gentlelady from California is recognized.
    Ms. Waters. Thank you very much.
    Let me ask, first, Mr. Suro, in the fourth paragraph of 
your testimony, you mention that for example about half said, 
when you were talking about the remittance senders and 
receivers, they are often unaware of the full cost. You said 
that less than one-fifth, for example, knew the difference 
between published exchange rates and the rates used in the 
transfer process. What do you mean by that?
    Mr. Suro. In this survey, less than one-fifth of the 
senders were aware of the differences between the published 
costs and the actual foreign exchange costs. It was an 
important factor in the difference between what they thought 
was going to be received and what was actually received by 
their families. Often the pricing comes in a kind of packaging 
where there is a flat fee for sending. There is the actual rate 
of exchange. Sometimes there is a foreign exchange cost as 
well. And there is often a lack of understanding of all the 
different elements of that pricing package which can affect 
what is actually paid for the transmission.
    Ms. Waters. So what you are describing is, there could be 
something advertised that says send $300, it costs $9.99, but 
it does not talk about it costs more if you send $500 and other 
things apply and that kind of description of the cost.
    Mr. Suro. Right. A transmitter or even a bank or anybody 
engaged in this business might say the fee for transmitting 
$200 is $5 per transmission, but there may be additional costs 
that come up when the transmission is being completed. There is 
not a uniform system of totaling up these costs or even using 
the same names for them in different venues.
    Ms. Waters. Okay.
    Ms. Perez, how many of your non-banked customers, your 
remittance senders, become banked customers of the bank once 
you have dealt with them?
    Ms. Perez. Based on our products so far, most of the 
customers that we do business with do eventually end up 
becoming customers because it is a lower rate to send it as a 
customer.
    Ms. Waters. Do you have any statistics or data on that?
    Ms. Perez. I would say about 80 percent.
    Ms. Waters. Would you get to me some documentation of that?
    Ms. Perez. Yes, sure.
    Ms. Waters. Let me just wrap this up by saying, of course I 
am from Los Angeles and I am very familiar with the class 
action lawsuit. I do not believe that there would have been a 
settlement unless there was some basis for the class action 
lawsuit. The settlement, to me, was kind of a joke. As I 
remember it, the settlement included or basically gave coupons 
to the remittance senders to do more business with Western 
Union at a little bitty discount of some kind. So it was 
actually a great advertisement, recruitment, and probably 
expanded the business even more, with a little bit of a 
discount.
    I am very interested in this issue for a lot of reasons. I 
do believe that the poorest people in our society are the most 
vulnerable, and that they are the most abused in the financial 
services industry. I just believe that. As a matter of fact, 
when I look at some of the organizations, such as MoneyGram and 
Western Union, they seem to be coupled with payday loan 
operations where you get a check cashed for an amount, you get 
a payday loan for 1,000 percent interest, and I guess you can 
do a remittance if you can figure out the cost, and get charged 
for that, too.
    So it seems to me there is a consolidation of that part of 
the financial services community that is convenient for poor 
people, for people who do not speak English very well, for 
people who do not understand the game. It seems that these 
services are concentrated more and more, which makes them even 
more vulnerable. I really like the idea of the credit union 
because people sign up; they become a part of an organization; 
they have access to all of the products of the credit union. It 
treats them as a real person, rather than payday loan 
operations, check-cashing operations, and transmitting 
remittance operations all in one.
    So I do not know where all of this is going, except to say 
I would like to do whatever is possible to keep people from 
being exploited or ripped off. I will work closely with Mr. 
Gutierrez and others. I think expanding competition may have 
some value, particularly if the ownership of that competition 
is by the very people who have helped to make the industry as 
strong as it is. I don't see Western Union or MoneyGram talking 
about any joint ventures with any Latinos or Latin Americans.
    Ms. Brown-Waite. The gentlelady's time has expired.
    Ms. Waters. And when I begin to see that kind of 
involvement, then I will have a lot more respect for the 
industry.
    Thank you very much.
    Ms. Brown-Waite. The chair notes that some members may have 
additional questions for this panel which they may wish to 
submit in writing. Without objection, the hearing record will 
remain open for 30 days for members to submit written questions 
to these witnesses and to place their responses in the record.
    Ladies and gentlemen of the panel, thank you very much for 
being here. We appreciate it. You are dismissed.
    This hearing is officially adjourned.
    [Whereupon, at 1:03 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                            October 1, 2003


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