[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
REMITTANCES: ACCESS, TRANSPARENCY, AND
MARKET EFFICIENCY--A PROGRESS REPORT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC AND INTERNATIONAL
MONETARY POLICY, TRADE, AND TECHNOLOGY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MAY 17, 2007
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-32
U.S. GOVERNMENT PRINTING OFFICE
37-210 PDF WASHINGTON DC: 2006
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York PETER T. KING, New York
MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana RON PAUL, Texas
BRAD SHERMAN, California PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts WALTER B. JONES, Jr., North
RUBEN HINOJOSA, Texas Carolina
WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York CHRISTOPHER SHAYS, Connecticut
JOE BACA, California GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts SHELLEY MOORE CAPITO, West
BRAD MILLER, North Carolina Virginia
DAVID SCOTT, Georgia TOM FEENEY, Florida
AL GREEN, Texas JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin, J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee JIM GERLACH, Pennsylvania
ALBIO SIRES, New Jersey STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida KENNY MARCHANT, Texas
JIM MARSHALL, Georgia THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Domestic and International Monetary Policy, Trade, and
Technology
LUIS V. GUTIERREZ, Illinois, Chairman
CAROLYN B. MALONEY, New York RON PAUL, Texas
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
PAUL E. KANJORSKI, Pennsylvania FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California STEVEN C. LaTOURETTE, Ohio
GWEN MOORE, Wisconsin DONALD A. MANZULLO, Illinois
GREGORY W. MEEKS, New York WALTER B. JONES, Jr., North
DENNIS MOORE, Kansas Carolina
WM. LACY CLAY, Missouri JEB HENSARLING, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
CHARLES A. WILSON, Ohio PATRICK T. McHENRY, North Carolina
ROBERT WEXLER, Florida MICHELE BACHMANN, Minnesota
JIM MARSHALL, Georgia PETER J. ROSKAM, Illinois
DAN BOREN, Oklahoma KENNY MARCHANT, Texas
C O N T E N T S
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Page
Hearing held on:
May 17, 2007................................................. 1
Appendix:
May 17, 2007................................................. 23
WITNESSES
Thursday, May 17, 2007
Grace, David, Vice President, Association Services, World Council
of Credit Unions............................................... 6
Haider, Tom, Vice President, Government Affairs, Associate
General Counsel and Chief Compliance Officer, MoneyGram
International.................................................. 8
Ibarra, Beatriz, Assets Policy Analyst, National Council of La
Raza........................................................... 4
LoVoi, Annette, Field Director, Appleseed........................ 2
Orr, James C., Chairman, Microfinance International Corporation.. 11
Thompson, Mark A., Associate General Counsel, The Western Union
Company........................................................ 10
APPENDIX
Prepared statements:
Paul, Hon. Ron............................................... 24
Grace, David................................................. 25
Haider, Tom.................................................. 31
Ibarra, Beatriz.............................................. 39
LoVoi, Annette............................................... 46
Orr, James C................................................. 53
Thompson, Mark A............................................. 63
Additional Material Submitted for the Record
Gutierrez, Hon. Luis V.:
Responses to questions submitted to Annette LoVoi............ 71
Paul, Hon. Ron:
Statement of the Center for Financial Privacy and Human
Rights..................................................... 123
REMITTANCES: ACCESS, TRANSPARENCY, AND
MARKET EFFICIENCY--A PROGRESS REPORT
----------
Thursday, May 17, 2007
U.S. House of Representatives,
Subcommittee on Domestic and
International Monetary Policy,
Trade, and Technology,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2128, Rayburn House Office Building, Hon. Luis V.
Gutierrez [chairman of the subcommittee] presiding.
Present: Representatives Gutierrez, Maloney, Clay, Ellison;
Paul, Bachmann, and Marchant.
Chairman Gutierrez. Good morning. The Subcommittee on
Domestic and International Monetary, Policy, Trade, and
Technology of the Committee on Financial Services will come to
order.
Today's hearing is an informational hearing on the
remittances industry entitled, ``Remittances: Access,
Transparency, and Market Efficiency--a Progress Report.'' In
this hearing, the subcommittee will examine consumer access to
the remittance transfer outlets, the costs associated with
sending remittances, current levels of transparency regarding
fees and exchange rates, and the effect of competition in the
marketplace.
The last hearing on transparency and disclosure aspects of
remittances in this committee was 4 years ago. I titled this
hearing, ``A Progress Report,'' because we are now in a far
different, and I would like to say a much-improved, environment
in terms of remittance transactions and fees than we were back
in 2003.
Today, the subcommittee will review the progress that has
been made over the last few years and explore whether these
improvements are due primarily to increased competition in the
marketplace, pressure from Federal legislators, or a
combination of the two. The subcommittee will also be looking
at whether the voluntary improvements in the remittance
industry are adequate and whether legislation is needed.
Before we hear from our panel, I just want to say that I
have reviewed the testimony, and I think the remittance
industry and consumer groups are closer than ever before on the
issue of transparency and fees. There has been movement on both
sides, and I urge those of you at the table today to keep
working together. This is a golden opportunity. Do not let it
pass us by. Also, I encourage you to work together on the Bank
Secrecy Act issue for the money services businesses. If you
demonstrate to Congress that the industry and consumers are not
working at cross purposes, I think we can reach some resolution
on this issue as well.
We are actually pressed for time today because the
Judiciary Committee, on which I sit, will be holding a markup
starting at 10:30, so I apologize ahead of time, but I have to
briefly recess the hearing to go across the hall to vote. In
order to get as far along in these proceedings as possible
before 10:30, we have agreed to dispense with members' opening
statements on both sides and go straight to our witness
testimony.
I would like to thank Ranking Member Paul for agreeing to
this, and of course, all members may submit written statements
for the record.
Speaking first is Ms. Annette LoVoi. Ms. LoVoi serves as
field director for Appleseed, a national legal advocacy
organization. Second, we have Ms. Beatriz Ibarra, who is an
assets policy analyst with the National Council of La Raza.
Next, we have David Grace, vice president of the World Council
of Credit Unions. Following Mr. Grace will be Mr. Tom Haider.
Mr. Haider is vice president and chief compliance officer for
MoneyGram International, Inc. Then we will have Mr. Mark
Thompson, associate general counsel to Western Union. The last
of our panel, but not the least, is Mr. James C. Orr. Mr. Orr
serves as the chairman of Microfinance International
Corporation.
Welcome to you all, and thank you for being here with us
today.
Ms. LoVoi, you may proceed, please.
STATEMENT OF ANNETTE LoVOI, FIELD DIRECTOR, APPLESEED
Ms. LoVoi. Good morning, Mr. Chairman. On behalf of the
Appleseed Board of Directors and staff, let me thank you for
inviting our testimony this morning.
Appleseed is in its fourth year of a project to bring Latin
American immigrants into the mainstream financial and banking
system, thereby helping them to build assets and credit and
reducing predatory pricing and high-cost schemes that affect
their livelihoods.
Appleseed first became involved in this project because
immigrants were being assaulted on payday because of the large
amounts of cash that they were carrying. Appleseed quickly
realized that bank accounts can not only protect money, but can
also protect lives.
As we spoke directly to immigrants in our work to create a
fair financial playing field for all, we learned that
protecting their money and understanding costs are crucial.
This led us to examine more closely the area of remittances,
and it became clear to us that improving transparency was
vital.
Increasing transparency was the subject of a report
Appleseed released last month, proposing a fair exchange brand
similar to fair trade coffee. Just as consumers may shop for
fair trade coffee, knowing that such certification signifies
that the producers adhere to certain labor standards, so, too,
with the fair exchange remittance brand; consumers will know
that they are being told the deal they are getting.
In our view, such industry standards are long overdue. As
highlighted in a 2005 Appleseed study, immigrants face daunting
and unnecessary challenges every single day when they try to
perform what should be the simple task of sending money to
relatives. The 2005 Appleseed study found enormous fluctuations
and inconsistencies in pricing, within the same company, during
a 2-week period, from as little as $1.52 to as much as $13.84.
We even found variations on the same day. A consumer could have
spent as little as $3.88 or as much as $21.90.
We know that we are gathered today to look at this and to
come together around improved pricing mechanisms. We have heard
you, and we are ready to work on this issue.
The premise of the Appleseed fair exchange initiative is
that offering clear, pretransaction disclosures for remittances
will increase the market share for financial institutions,
benefiting both consumers and the financial institutions. After
all, by highlighting their pricing up front, financial firms
would publicly signal their interest in dealing with customers
in a fair and forthright manner. This is a solution that
Appleseed believes will benefit everyone.
Appleseed worked with the Fair Exchange Group to develop a
disclosure template that we believe will be helpful to you in
your work. Let me share some of the findings from our focus
groups.
All of the participants like the idea of a clear, uniform,
pretransaction disclosure. Participants focused on the actual
value of the funds received by the family after fees and after
exchange rate spreads. Better disclosure will make the process
of comparing prices less cumbersome. A group participant
explained, ``You have to go everywhere to get information
now.''
We also believe disclosure standards should be developed
collaboratively with those of us at the table today and with
others who have an interest in this issue, and we stand ready
to work with all. This approach would best accommodate the
variety of business models and regulatory frameworks in the
marketplace today, while also serving the best interests of
consumers.
Appleseed has found that State regulation of consumer
disclosure produces varying and inconsistent standards, and we
applaud your interest in a Federal measure on this subject. Let
me share some ideas for legislation.
We support requiring the Secretary of Treasury to conduct a
study regarding the use of alternative credit-scoring measures,
including data on remittances, and we are involved in pilot
work on this subject at present. We support requiring an
assessment by the Comptroller General of how the private sector
can match remittances to help economic development in Mexico.
Consumer disclosures should be posted publicly at agent or
branch locations and be available to consumers prior--let me
emphasize ``prior''--to initiating a remittance transaction,
particularly for the three top markets served.
The Federal Reserve Board should be granted rulemaking
authority to delineate posting requirements, again, in concert
with all of the individuals at the table, with industry and
consumer participants so that we can get a system that works
for all, and the Appleseed disclosure template is available to
help inform this process. Disclosure standards should also
include provisions for error resolution.
Thank you again for your time, your consideration, and your
invitation. I, along with other Appleseed staff, as well as our
six centers around the country and in Mexico, stand ready to
assist the committee as you move forward toward creating a
competitive market that benefits all.
Thank you, Mr. Chairman.
[The prepared statement of Ms. LoVoi can be found on page
46 of the appendix.]
Chairman Gutierrez. Thank you very much, and thank you for
all of your work.
Ms. Ibarra.
STATEMENT OF BEATRIZ IBARRA, ASSETS POLICY ANALYST, NATIONAL
COUNCIL OF LA RAZA
Ms. Ibarra. Chairman Gutierrez and members of the
subcommittee, my name is Beatriz Ibarra, and I am the assets
policy analyst at the National Council of La Raza. Thank you
for inviting us to be here today.
I want to take this time to: one, explain why remittances
are so important for Latinos; and, two, provide two
recommendations that we feel will create a fair remittance
market.
Part of NCLR's mission includes advancing policies that
enable Latinos to maintain assets. Our goal is to move the
community beyond living paycheck to paycheck. We want Latinos
to rise permanently into the ranks of the American middle
class.
Latinos are contributing billions of dollars to the U.S.
economy, yet we are still struggling to have a piece of the
American dream: Latinos retain 9 cents for every dollar that a
white family earns; Latinos are more likely to have no or low
credit scores; and 32 percent of Latinos are unbanked--they do
not have a basic checking or savings account.
Given these humble financial circumstances, it is
incredible that more than half of Latinos save between $200 and
$300 a month to send to their families and communities abroad.
Latinos sent $50 billion to Latin America in 2005. That money
was used to pay for household needs such as food and housing
and education and health care. This is why, in the case of
remittances, every penny counts.
We must enact reforms that help families keep more of their
hard-earned money for saving and investing here and abroad.
Strong consumer protections are needed to shield remitters from
bad actors. There is also an enormous opportunity here for
lawmakers and industry leaders to integrate Latinos into the
mainstream financial system.
Remitters who are unbanked rely on check cashers, payday
lenders, pawnbrokers, and money transfer organizations to meet
their financial services needs. Remittances can serve as a
gateway to connect remitters to banks and credit unions. As
account holders, they would have access to a wider range of
financial products and services to build assets, so I would
like to take this time to just share two recommendations that
we believe would go a long way toward creating a fair
remittances market.
First, in a fair remittance market, remitters would have
the information that they need to make wise consumer choices.
Currently, there are no clear industry-wide standards regarding
disclosures. A growing number of companies provide receipts,
but information on receipts varies widely from one company to
the next. Some receipts do not include information that
consumers care about, such as guaranteed time of delivery or a
list of pickup locations.
Additionally, there are no standards regarding the type of
pretransaction information that should be made available to
remitters. In other words, what should a consumer know after
they walk through the door but before they commit to using a
particular remittance service provider?
We must create a uniform disclosure to enable remitters to
compare one service provider to the next, and the disclosure
would include important cost information. It also would include
a notice of the remitter's rights as a consumer.
The disclosure should also be in languages and formats that
are accessible and easy to understand. Language access rules do
not need to be overly rigid. Collectively, I believe we can
establish a reasonable criteria that trigger language access
activities.
We must also require providers to post in a clear and
conspicuous place important cost information. This would
include fees charged, the exchange rate, pickup fees, and the
date and time of delivery. The remittance service provider
could post this information for sending various amounts, that
is, $100, $200, or $300.
Second, a fair remittance market would include industry
oversight and strong consumer protections. There is currently
no Federal Government entity that exists to oversee the market.
Remittance service providers are regulated by a patchwork of
State and Federal regulations that have many gaps and leave
consumers exposed.
In regard to consumer protections, remitters should have
the ability to protect their rights as consumers in every
State. This would include rights against those who have
defrauded them, the right to a refund, and the process for
resolving disputes with their remittance service provider. We
often hear from the community that the money just does not get
there.
NCLR recommends establishing a Federal Government entity to
provide oversight to the market. This entity would be
authorized to license and register remittance service
providers, draft rules to govern their behavior, and check for
compliance with pertinent regulations. This new entity could
also conduct spot checks or perform audits.
Additionally, we must establish a process for the
resolution of transactional errors and disputes between
remitters and remittance service providers. We recommend that a
new Federal entity create and maintain a consumer complaint
hotline. Imagine the day when a consumer could call a 1-800
number and file a complaint with an independent third party.
In conclusion, we believe that reforming the market would
make a significant difference in the economic lives of Latinos
living here and living abroad. We believe this issue
surrounding remittances, all of the issues, should be a
priority for policymakers. We think it is critical to establish
oversight and enact strong consumer protections to facilitate
the staggering amount of money that is flowing.
We applaud you, Chairman Gutierrez and Ranking Member Paul,
for your efforts on this issue, and we look forward to working
with you in the future. Thank you.
[The prepared statement of Ms. Ibarra can be found on page
39 of the appendix.]
Chairman Gutierrez. Thank you very much.
Everybody is, I guess, looking at--the first two witnesses
were wrapping up when the light turned red. I do not have to
use the gavel. I do not have much of a right hand anyway.
Mr. Grace, please, we look forward to your testimony.
STATEMENT OF DAVID GRACE, VICE PRESIDENT, ASSOCIATION SERVICES,
WORLD COUNCIL OF CREDIT UNIONS
Mr. Grace. Chairman Gutierrez, Ranking Member Paul, and
members of the subcommittee, I am David Grace, vice president
of the World Council of Credit Unions in Madison, Wisconsin. I
also serve on the board of the Latino Community Credit Union,
the Nation's fastest growing credit union. I appreciate the
opportunity to appear before this subcommittee today on behalf
of the Credit Union National Association and the 89 million
members that it represents, as well as the World Council of
Credit Unions, which is the global trade association and
development agency for credit unions globally.
I will begin by thanking Chairman Gutierrez for his
unwavering support and understanding of the importance of
remittances.
The World Council has been active in remittances for a
decade, and during this time, we have always been able to count
on your support for understanding and championing this issue. I
would like to address three issues this morning: first, the
role that U.S. and foreign credit unions play in facilitating
access to financial services; second, how remittance costs can
further be reduced; and third, the role of multilateral
development banks in the United States Agency for International
Development in planning and achieving these objectives.
First, approximately 300 credit union locations throughout
the United States and 900 credit union locations in Latin
America, the Caribbean, and Africa are part of the World
Council of Credit Unions international remittance network. This
program has facilitated over $1.5 billion in transactions of
money being sent from low-income workers here to poor
households in developing countries. We believe this is the, if
not one of the, largest remittance programs of any microfinance
network.
Second, one avenue we see to further reduce the cost of
remittances is to ensure that credit unions and regulated
microfinance institutions abroad can directly access their
national payment systems and credit and debit card networks.
This will lower costs and spur innovations.
Third, clear positions and actions from all multilateral
development banks, the U.S. Treasury, and USAID, encouraging
foreign governments to allow credit unions to, first, offer
remittance services and, second, to have open and fair access
to payment and card networks would help significantly in making
remittances and financial services more accessible. I will
expand on these points a bit.
As member-owned financial cooperatives serving 157 million
working individuals globally, credit unions are, by their
nature, consumer-oriented. As such, it should not be any
surprise that CUNA and the World Council support transparency
in remittance transactions. Our most recent research work in
Guatemala with USAID indicates that 40 percent of remittance
receivers in credit unions in Guatemala would be living on less
than $1 per day if it were not for their remittances.
In part, due to enabling legislation championed last year
in Congress and supported by Chairman Gutierrez, for the first
time, U.S. credit unions are able to compete with corner
grocery stores by providing check cashing and remittance
services to nonmembers within their fields of membership. We
are now seeing increased remittance followings by U.S. credit
unions and innovations in the market. A limited number of
credit unions in the United States are also providing banking
and settlement services for small money transmitters that have
had their accounts closed at large commercial banks.
If Congress were to restore the credit unions' ability to
actively serve small businesses and add underserved areas to
their fields of membership, as is found in the Credit Union
Regulatory Improvement Act, H.R. 1537, I believe we would see
further innovation and service to immigrant communities.
The majority of the credit union offices in developing
countries are located in rural areas. They are organized in
cohesive network structures, and they have experience managing
liquidity. These characteristics, as well as the sheer number
of credit union locations, make these offices excellent places
and ideal transmitting points for remittances. However, credit
unions must rely on local banks abroad to clear and settle
their remittance flows with the money transmitter since they
cannot directly access and settle these transactions because of
restrictions on the payment system. We believe that reducing
these restrictions would lower the cost of remittances and
reduce the risks of credit unions having defaults from money
transmitters.
In prior testimony to the Senate Banking Committee, CUNA
and the World Council encouraged the development of what has
become the Federal Reserve's Directo a Mexico program, linking
together both U.S. and Mexican automated clearinghouses. The
second largest originator of transactions of all financial
institutions in the United States through the Directo a Mexico
program is the Latino Community Credit Union. Much to our
dismay, Mexican credit unions still cannot directly access this
payment service. We urge the Federal Reserve to work with its
Mexican counterpart to correct this situation.
Lastly, while remittances to Latin America and to the
Caribbean have justifiably received significant attention, the
other multilateral development banks should be encouraged to
study and promote efficient remittance markets, particularly in
Africa, which resembles the Latin American remittance market of
a decade ago.
In conclusion, credit unions are leading the way in
providing affordable remittance and financial services. To
boost these efforts, we need Congress to restore credit unions'
ability to provide small business loans to new Americans and to
allow for greater service to underserved communities.
Thank you for holding this very important hearing, and we
welcome the opportunity to continue meeting with the committee
in the future.
[The prepared statement of Mr. Grace can be found on page
25 of the appendix.]
Chairman Gutierrez. Thank you very much.
Mr. Haider.
STATEMENT OF TOM HAIDER, VICE PRESIDENT, GOVERNMENT AFFAIRS,
ASSOCIATE GENERAL COUNSEL AND CHIEF COMPLIANCE OFFICER,
MONEYGRAM INTERNATIONAL
Mr. Haider. Good morning, Mr. Chairman, and members of the
committee. My name is Tom Haider, and I am the vice president
and chief compliance officer for MoneyGram International. Thank
you for providing me the opportunity today on behalf of
MoneyGram to speak with the committee about remittances,
including the regulation of money transmitters and the ongoing
bank discontinuance problem for money services businesses.
MoneyGram is licensed and regulated as a money transmitter
by the States. In addition, MoneyGram fully complies with the
Bank Secrecy Act, the USA PATRIOT Act, and is registered with
the Treasury Department as a money services business.
Chairman Gutierrez, MoneyGram appreciates the leadership
that you have brought to the issue of remittances, and we look
forward to working with you and this committee on ways to bring
greater transparency to remittance transactions. MoneyGram
strongly supports legislation that would establish a Federal
regulator to license and regulate the money transfer industry.
Today, there is widespread inconsistency in the regulation
of the industry. This leads to unnecessary administrative
costs, making remittances more expensive for consumers.
MoneyGram, however, is opposed to simply adding a layer of
Federal regulation on top of existing State regulation.
MoneyGram is proud to have been a leader in bringing lower,
more simplified pricing to the remittance industry. For
example, when current management took over MoneyGram in 1998,
the average foreign exchange rate was nearly 7 percent, but
today, the global-blended exchange rate is less than 2 percent
and less than 1 percent for many parts of Latin America.
Likewise, during the same time period, the average fee per
transaction has dropped from nearly $22 to less than $10 for
most transactions to Mexico and Latin America. Thus, in using
the MoneyGram service today, consumers can send up to $1,000 to
many countries for a flat fee of less than $10 with a foreign
exchange rate of less than 2 percent. These reduced fees and
exchange rates reflect MoneyGram's commitment to provide
consumers with an affordable, reliable, and convenient payment
service.
In addition to lower fees and exchange rates, MoneyGram
also provides consumers with a detailed receipt that indicates:
one, the amount of money the sending consumer has paid; two,
the exchange rate that will be applied to the transaction;
three, all fees related to the transaction; and, four, and most
important to the consumer, the amount of local currency that
their recipient will receive.
MoneyGram also maintains a toll-free phone number that
consumers can call if they have questions about a transaction,
including rates and fees for any transaction they plan to make
in the future. Another convenient feature of a MoneyGram
transaction is the recipient's ability to receive it in local
currency within minutes of its having been sent.
MoneyGram also provides the sender a free calling card they
can use to alert their recipient that the transaction is on its
way. MoneyGram also offers an extensive network of locations so
its transactions can be sent and received, and in Latin
America, more than 50 percent of MoneyGram's locations are
banks and credit unions. These added services make MoneyGram
more competitive in the marketplace as well as provide
consumers with a better value. However, they do cost money.
MoneyGram agrees that it is important for consumers to be
banked, and that, in the long run, will help consumers improve
their economic opportunities, but MoneyGram also believes
traditional money transmitters can play a critical role in this
transition. Bank consumers who are new to the United States are
generally not quick to open a bank account, but rather, tend to
move towards a banking relationship over time. Encouraging
partnerships between money transmitters and banks provides a
bridge to these consumers.
Turning towards the impact of regulations, a pressing issue
for MSBs today is the challenge of securing and retaining a
bank account. Due to increased regulatory pressure imposed on
banks, many have either closed MSB accounts or have refused to
open new accounts. As a result, banking costs have risen
significantly for MSBs, which ultimately affects the price
consumers pay for remittance services.
In seeking to solve this problem, MoneyGram has joined with
MSBs and bank trade associations to draft legislation that
would allow banks to rely on a certification by their MSB
account holders that they are in compliance with their
regulatory requirements.
Another major cost of doing business is complying with
antimoney laundering regulations. MoneyGram takes very
seriously these duties. At MoneyGram, nearly 4 percent of our
entire global workforce is dedicated exclusively to compliance
and fraud prevention, but MoneyGram and its agents need help if
they are going to have the ability to continue to make
significant investments in antimoney laundering compliance. We
must have unimpeded access to banking services, and regulatory
mandates cannot overwhelm our ability to operate in an
efficient manner.
I want to thank you, Mr. Chairman, and members of the
committee, for the honor of having the opportunity to present
testimony today on behalf of MoneyGram. We truly appreciate
your continued interest in improving the remittance climate in
the United States for consumers, banks, and money transmitters.
Mr. Chairman, we hope that you will view us as a partner in
this effort and will call upon us for whatever assistance we
can provide. Thank you again.
[The prepared statement of Mr. Haider can be found on page
31 of the appendix.]
Chairman Gutierrez. Thank you.
Mr. Thompson, please.
STATEMENT OF MARK A. THOMPSON, ASSOCIATE GENERAL COUNSEL, THE
WESTERN UNION COMPANY
Mr. Thompson. Thank you, Mr. Chairman.
The modern international remittance market is relatively
young, just over 20 years old. Today, Western Union provides a
convenient, fast, and reliable way to send money in over 195
countries and territories.
The cost of remittances has dropped significantly over the
past 5 years. The GAO found that competition in the remittance
market has resulted in a drop in the cost to send remittances.
The Inter-American Dialogue found that the cost of sending
remittances from the United States to Latin America fell from
12.5 percent in 2003 to 7 percent in 2005, an average as low as
4 percent in countries with higher levels of competition. As
competition continues to increase, we anticipate that this
trend will continue.
Price is not the sole factor considered by consumers. In
fact, for some consumers, price falls behind other factors such
as security, speed, reliability, and convenience. In addition
to the fees and exchange rate, customers will often ask
questions such as, ``When will I be able to send money? Are you
open on weekends? Will my money get there? How long will it
take to get there? Can my family members pick the money up in
their village or town? Will my relatives have to open a bank
account to get their money?''
Consumers should have adequate information to make an
informed decision as they choose among providers, therefore, we
support transparency with respect to fees and foreign exchange
rates. With limited exceptions, at the time a transaction
originates in the United States, Western Union provides its
customers with a written receipt that clearly states the
following information: the amount stated in U.S. dollars the
customer has presented for transfer; the fee stated in U.S.
dollars that Western Union charges for the transfer; the total
amount stated in U.S. dollars that the customer has provided to
Western Union, which is the sum of the first two items; the
retail currency exchange rate that Western Union will apply to
the transfer; the amount stated in the currency of the payout
country that Western Union will provide to the recipient of the
transfer; and a statement advising the consumer that Western
Union makes money from currency conversion.
Requiring a disclosure that would reflect the difference
between the exchange rate Western Union offers to a consumer
and the exchange rate established by the U.S. Treasury
Department, as set forth in legislation in the past years,
would not be relevant to the consumer and could have adverse
effects, such as reducing competition in exchange rates.
The Federal Reserve ACH system can provide a lower cost
structure when both the sender and the receiver have bank
accounts. While the majority of our U.S. senders are banked,
our experience is that banked individuals on both ends of our
transactions are the exception, not the rule. Studies indicate
that a majority of receivers in Latin America are unbanked. In
Mexico, for example, only about 29 percent of individuals who
receive remittances are banked.
In order to serve unbanked individuals at a lower cost, we
encourage you to consider allowing nonbank money transmitters
to open an account at the Federal Reserve and utilize the Fed's
services, thus eliminating one layer of the money transfer
cost.
We support the policy goal of making remittances more
available and affordable to consumers. However, legislation
should not create an unlevel playing field and place the
Congress and Federal agencies in the position of choosing
winners and losers in a competitive and evolving market.
Favoring depository institutions presumes that remittance
services provided by such financial institutions are cheaper
than those of traditional remittance providers, ignoring the
fees and penalties associated with checking accounts, ATM
transfers, and other services.
Thank you, and I am happy to answer any questions you may
have.
[The prepared statement of Mr. Thompson can be found on
page 63 of the appendix.]
Chairman Gutierrez. Thank you very much, Mr. Thompson.
Mr. Orr.
STATEMENT OF JAMES C. ORR, CHAIRMAN, MICROFINANCE INTERNATIONAL
CORPORATION
Mr. Orr. Thank you very much, Chairman Gutierrez, and
Ranking Member Paul. It is a great pleasure to be back again
with the committee after a lot of years. Pretty much everything
I know about banking, and most of what I know about
development, I learned in 8 years working as a legislative
counsel to this subcommittee some years back.
I am here today representing Microfinance International
Corporation. The company's mission is to expand affordable,
professional financial services for people who are either
disconnected from mainstream banking or who have faced
overpriced financial services in the past. We are based here in
Washington, D.C. We have 11 shops in the mid-Atlantic region,
and we work with 20 financial institutions throughout Latin
America--in 20 countries of Latin America. We are employing
microfinance technology and methodology, and we bring a
commercial banking approach to our business.
I think perhaps one of the best ways for me to address the
questions that I was asked to talk about would be to describe
briefly what our vision was in forming the company and then a
little bit about our system.
We started from a very different starting point than most
companies. We looked at Latin America and saw the agonizingly
slow progress towards economic development. We saw the failure
of many, if not most, large-scale development projects. We saw
immigrants being forced to pay exorbitant fees for very basic
financial services that people who have lived in this country
for a long time take for granted and pay very little for.
We saw a lack of competition among money transfer companies
and a pricing structure that often resulted in up to 10 percent
of the remittance amount being taken in fees when foreign
exchange transactions were included, and we saw a U.S. banking
system failing to meet the needs, the legitimate needs, of
loans, insurance, and other financial products to the Hispanic
community in the United States.
Some of the existing remittance mechanisms had substantial
weaknesses. Commercial banks using the SWIFT system and their
correspondent banking relationships take 2 days and charge $35
to do the kind of transmission that any company here before you
today can do almost instantaneously for roughly a third of that
price.
Some of the traditional remittance companies that use an
agent-based system, that is, an agent on both ends of the
transaction, have a high-cost structure which, in today's world
of falling prices, gives them financial hurdles, and it also
presents obstacles when trying to work on compliance.
A real advantage that our firm had was that we began after
September 11th, and we knew we were starting in an environment
where compliance would be the number one key to the success of
our operation. Our remittance platform, which is really the
heart of the operation, is Internet-based and enables us to
charge low fees and guarantee smooth transactions. Only seconds
after the transaction is booked here in the United States, the
recipient can collect it in many thousands of locations in
Latin America. Perhaps I should say hundreds of locations; I am
not 100 percent sure that we are at the ``thousands'' stage
yet.
Many of the regulatory compliance aspects of booking a
remittance are done automatically by our sophisticated computer
system. They are checked in real time, and a teller is
immediately alerted if there is some evidence of a suspicious
transaction.
This leap in technology allows us to charge lower prices.
When we began operating in Latin America, the average
remittance cost, or the average remittance of $300 cost about
$15 to send. When we opened our doors, we charged $9 for that
same remittance. Today, the average is about $10.
I see that I have consumed more time than I imagined. I
wanted to talk a little bit about our compliance system, and I
would be happy to do so in the question-and-answer period. I
would like to make a few comments, thinking about a better
compliance regime.
You know, right after September 11th, regulators were
presented with a huge problem. They had no system for tracking
this, and while they were trying to decide what to do, they
decided that, ``perhaps we can make banks, and money transfer
companies can do this for us,'' and essentially, they
established a system that puts the onus on financial
institutions to look for suspicious activity, and bankers and
money transfer agents become, essentially, deputies of the
regulatory system. The system cannot work very well for many
reasons which you can understand.
When a bank or a financial institution makes a mistake,
they get a very high penalty from their supervisor, so the
tendency becomes to file suspicious activity reports any time
it occurs to the agent to do so. That way, they are covered
against a huge problem. A much better system, if we could start
over again, would be to have all financial institutions and
remittance companies give to the government a list of all
transactions over a certain threshold and let the government do
the data mining instead of Western Union or Microfinance
International.
A serious problem with our doing it is that we have no idea
what the other remittance companies are doing, and a clever
operator wishing to send money illegally could book remittances
in a number of different companies, and the system would never
see it.
Thank you very much, Mr. Chairman. It is a pleasure.
[The prepared statement of Mr. Orr can be found on page 53
of the appendix.]
Chairman Gutierrez. Thank you.
I recognize Dr. Paul for a unanimous consent request.
Dr. Paul. Mr. Chairman, I ask unanimous consent to insert
an article into the record dealing with this subject.
Chairman Gutierrez. So ordered.
Thank you. It is great to have you all here. I guess I am
going to ask some questions.
I am happy to see the change and the progress, and I want
to see how we can perfect that change and that progress, which
is already being made. I want to see how close we can get, so
all of the panelists--the benefits and the rates that you get
as informed consumers, which I am sure you all are and which I
certainly am--so the same kinds of fees that I pay and that you
pay and that we all pay and that we come to expect, as we have
heard in the testimony, Americans have come to expect, that
those least able to afford transaction fees and fees are able
to get.
So I kind of look at my situation, and if I go to my bank--
and banks are pretty good these days except for their fees; it
seems like every time there is a new fee, and whatever the fee
is it seems to be going up.
I lost my ATM card. It is $40. I get a free credit card.
What do you want $40 for, for an ATM card replacement, when I
can get a free credit card? They do not charge me $40. I said,
``I will go across the street to the other bank if you want $40
for it.''
As you all know, banks recognize your economic ability and
leverage to move your money, so those fees many times get
waived, so that is what I want to get to. I want to get to, how
can you help us in the industry, and how can you help as
advocacy groups to get us there?
Mr. Thompson, in your testimony, you outlined the items
that Western Union already discloses to its consumers on
remittance transaction receipts. So does the exchange rate
apply to the fees charged on the total amounts to the consumer?
You state that Western Union believes, ``This type of
information gives consumers the information they require to
make an informed decision.'' Most of us can agree that this
type of information will enable consumers to make an informed
decision, but how informed that decision is depends on when the
consumer gets the information. In this case, it is after the
transaction.
Don't you agree that this information would allow consumers
to make a more informed decision if it were disclosed before
the transaction? What does Western Union currently disclose
prior to the remittance transaction?
Mr. Thompson. Mr. Chairman, Western Union provides the
consumer with the opportunity to call an 800 toll-free number
from home to find out about current rates and fees. They can
also ask the agent, before they start a transaction, to look up
what the current exchange rate is, since the exchange rates are
changing 3 to 4 times a day, and they can do that before they
give the agent money. Then before the transaction is actually
finalized, they are given the written receipt, and the
finalization of the transaction occurs when the consumer signs
that receipt that they are given.
Chairman Gutierrez. So I would know the exchange rate? In
Mexico, I would know the exchange from dollars to pesos? I
would know that these dollars would then create so many pesos
on the other end?
Mr. Thompson. Yes, before the transaction is finalized. You
are actually required to sign the agent copy of the receipt
that is printed that details that information.
Chairman Gutierrez. Thank you.
Mr. Haider, following up with you, in your testimony, you
state that MoneyGram maintains a toll-free number that
consumers can call if they have questions about a transaction,
including rates and fees for future transactions.
What if a consumer calls and gets a rate and a fee quoted
to them and then goes to a MoneyGram location, makes a
transaction, and the amount actually paid is different from the
amount quoted? I am not saying this happens at MoneyGram, but
there is anecdotal evidence that it happens in the industry. In
such a case, is there any recourse for the consumer?
Mr. Haider. Mr. Chairman, a situation as you have described
could certainly happen. A consumer could call in the morning
and ask what the transaction exchange rate would be and then
not go to a location, say, until late in the afternoon. By
then, for some currencies, there may have been fluctuations in
the exchange rate.
The fee portion of the transaction will not change; our
fees tend to remain fixed for long periods of time. But the
exchange rates, as we know with all of the different currencies
around the world, are volatile, and they can fluctuate during
the day. So we caution a consumer when they call and speak to
one of our representatives to find out what the cost of the
transaction will be. We always caution them on the phone that
the exact exchange rate will be set at the time they conduct
the transaction.
Chairman Gutierrez. I see that my time is up.
I want to say to Mr. Grace and to the credit unions, thank
you for the great and wonderful work that you do in giving
consumers new alternatives.
To Ms. LoVoi and to Ms. Ibarra, I look forward to working
with you as we work with the industry. As you see, we do not
have two separate panels here today. We try not to divide
people up into good guys and bad guys but into all active
participants, and I would say to the industry that we are going
to help make sure that the system works for you and that it
allows you to reduce your costs, and with those reductions in
cost, that it allows you to get better services and a reduction
in cost to consumers.
So we understand that not everybody is going to have an
account, but you know, because we want--I mean, my goal is, you
know, Mr. Haider and Mr. Thompson, to phase you guys out
eventually.
I mean, come on. We all know if our grandmas were in Mexico
or in Guatemala or in Poland, we would send them an ATM card,
and we would put some money in there, and we would send them to
the bank to go get that money, and we would have conversations.
We know what we would be doing. And I think what we wanted to
do--the goal is, again, as I stated earlier, to allow them to
have the same kind of access to consumer instruments that we
enjoy and that are plentiful to us.
Dr. Paul, please, you are recognized for questions.
Dr. Paul. Thank you very much, Mr. Chairman.
My interest in this subject is in working to keep the costs
down because it is beneficial to the consumer, and also in
maintaining competition.
Obviously, there is a lot of competition, and prices have
come down. Sometimes I think that the price came down because
of technology and in spite of the government because what
government does tends to raise the prices.
Also, I am very interested in the privacy issue.
So, in dealing with some of the things that Mr. Orr talked
about, that is not so easy. I do not like the idea that the
burden is put on the bank to do the policing, but then there
are times when I am not so sure that the government does a much
better job because, you know, they have suspicious lists of
terrorists, and if you get your name on there, you cannot get
it off. So it is really a tough choice.
I do not agree that you should be the policeman. At the
same time, turning everything over to the government is not
very attractive either because there is so much abuse of
individual privacy.
Also, when individuals like yourselves are in the business,
it is really hard--you are well set up, and you have the
computer programs. For new people to come in is a real
challenge. So, in some ways, complicated technology is an
exclusionary factor for new people coming into the market and
is challenging for those who are already there.
Today, we have a situation where the government does want a
lot of information. We live in the age of terrorism; they want
to be checking for that. There is concern about illegal
immigrants, and if you overly regulate and immigrants are
frightened about it and they, you know, use other sources
because they are afraid of being detected, there are IRS
reasons why they want this information--and there is also the
drug war that goes on--so then the burden falls on you.
I am just wondering a little bit--I am going to make some
comments, and I will let any of you answer to this. What type
of information do you get at the beginning, and how long do you
keep this information? Do you all gather the same information?
What is the purpose of that?
As to the suspicious activity reports, Mr. Haider said that
4 percent of his workforce is dealing in this, and we already
have the Bank Secrecy Act, we have the PATRIOT Act, we also
have the money laundering business to deal with, and now they
are talking about adding more controls on through the Real ID
Act.
I am just wondering, is there a limit to how the technology
can compete with this? When do you run into a problem? Do you
think you need more regulations about the Real ID on top of all
of these other regulations that you have?
Also, if any of you could give me information--you must
fill out a lot of these forms, these suspicious activity
reports. How many people do you know who have been caught? I
mean, how many people have you really helped arrest? What is
the percentage? What is the return on this?
So I would like to hear your comments about this subject.
Mr. Haider. Thank you, Dr. Paul.
Tom Haider, again, from MoneyGram. I am happy to respond to
those questions.
You are absolutely correct that the regulatory environment
today is extremely complex. MoneyGram, however, recognizes our
role in helping to combat terrorism and in helping to prevent
money laundering. We are dedicated, and we work very closely
with law enforcement entities, and very closely with FinCEN and
OFAC of the Treasury Department to try and prevent those things
from occurring.
We do file a lot of suspicious activity reports. In any
given year, we file more than 10,000 suspicious activity
reports. In terms of what the government does with that
information, your guess is as good as mine, Congressman,
because we do not really get much feedback on that.
I think the real challenge, though, that I was trying to
address earlier in my testimony, when it comes to compliance
and the changes that have been brought about since 9/11, is the
fact that today our States--that are the primary regulators of
money services businesses and money transmitters--are now
interpreting the Federal antimoney-laundering laws each in
their own way and directing us to apply different standards
from State to State. This adds a layer of complexity to our
compliance that far exceeds anything that I believe exists out
there on the Federal financial side.
So we are faced today with multiple States' interpreting
Federal antimoney-laundering and terrorist prevention laws and
telling us how we must comply with them. That is the area of
complexity that we are wrestling with today. That is why, at
MoneyGram, we are proposing the concept of a uniform Federal
regulator for the industry. We think that will not only ease a
lot of the administrative costs and regulatory burdens we face,
but it will be a real benefit to law enforcement in getting
uniform information and uniform compliance.
Mr. Orr. Dr. Paul, if I can comment briefly?
Chairman Gutierrez. I will extend extra time so you can
answer that.
Mr. Orr. Thank you.
Dr. Paul, you asked about privacy and whether we were
inadvertently contributing to the problem of sharing
information. I think most money transfer companies collect
essentially the same information--name, address, the phone
number of the remitter, and information on the recipient of the
remittance. So there is not really much in the way of any
sensitive information there.
In terms of what the government does with the data that is
turned over to them, it would typically be one of the
government agencies with an intelligence--an antimoney-
laundering function, probably the Treasury Department, that
would mine this data. So I do not think there is a particular
concern about the information from a suspicious activity
report, for instance, being used for purposes that you would
not support.
In terms of the numbers of SARs, suspicious activity
reports, that are filed, the regulators who were before a
different subcommittee of this committee last week admitted in
questioning that they do not even examine all of the SARs that
are filed these days, and part of the problem, of course, is
that financial institutions are filing these for defensive
reasons these days.
Chairman Gutierrez. Thank you, Mr. Orr.
I recognize the gentleman from Minnesota, Mr. Ellison, for
5 minutes.
Mr. Ellison. Thank you, Mr. Chairman, and thank you for
having this hearing. It is a very important issue.
I want to thank all of the panelists as well.
Mr. Haider, I know that MoneyGram has done extensive work
in Central and Latin America, and I think it is good that
people can get some income from their family members and loved
ones here, but let me ask you about Africa and the Middle East.
I come from a district where there is a large Somali
community, and I know that they have institutions that they
call hawalas, and there has been significant difficulty with
their being able to do wire transfers to their loved ones in
that part of the world.
Can you tell me whether one of the administrative regimes
or whether the--well, I guess, let me keep the question broad.
Could you describe to me whether doing business in Latin
America and doing business in East Africa is similar or
different? What are some of the differences? What are some of
the different challenges?
Mr. Haider. Thank you, Mr. Congressman.
There are a lot of challenges, country by country, in
conducting remittance services, and it depends a lot on the
regulations in the remit country. So, for example, in Latin
America, we face fewer barriers than we do in some of the
African countries. Somalia is a classic example.
Today, there is no true central government there. There is
no central banking system in Somalia, so, at MoneyGram, we are
not serving Somalia today.
We very much would like to. We know that there are
consumers who greatly need this service, but due to the
disruption of the government there, the chaos, we simply do not
feel that it is a prudent risk at this time to venture into
that country.
Again, sometimes it is due to the regulations in that
country. Sometimes it is due to the regulations right here at
home, and we recognize the fact that, if we take these kinds of
risks and go into certain countries, we are exposing ourselves
to potential problems with our own regulators.
Mr. Ellison. Well, when you talk about Somalia--and again,
you know, my district--you know, our cards are up on the
table--has more people of Somali ancestry than any other part
of the country, including Columbus, Ohio. So I am going to ask
some questions about that.
How would you describe your risk in doing business with
people who live in or near Somalia? I know a lot of their
relatives are in refugee camps in Kenya or in Djibouti. Where
does the risk lie? Is it on that side or is it on our side?
Mr. Haider. It is a bit of both. We do serve the
surrounding countries for Somalia. The biggest challenge today
is to find reputable entities that could operate in Somalia and
serve as our location there to pay out the transaction to the
recipient.
So it is very difficult to find, as I say, reputable
entities that can represent us there and be relied upon to
consistently pay out the proper amount to the citizens.
Mr. Ellison. What about here? I mean, does MoneyGram
encounter sort of like a danger in terms of, perhaps, engaging
in remittance activity because the U.S. regulatory system would
raise flags about sending money to certain countries because of
fears of terrorism that are, perhaps, legitimate?
Mr. Haider. Certainly, there are situations like that. The
Sudan is one example that quickly comes to mind.
In the Sudan, we have to be extremely careful that none of
our transactions are for a business purpose. They can only be
for family remittances, and you are basically relying upon the
truthfulness of the sender and the recipient that it is not
connected to a business transaction, because the Treasury
Department's Office of OFAC prohibits most business
transactions.
So that is a constant challenge to know are these, in fact,
truly family remittances?
Mr. Ellison. Do you think that in the post-9/11 world that
we live in--after 9/11, you know, of course, there were a lot
of legitimate reasons to sort of get some regulation down.
Here we are in 2007. In this period since, have we gotten a
better sense of how we can more accurately tailor our
remittance policy to keep the money away from the people we do
not want to get it, but make sure it does flow to the people
who we do want to get it?
Mr. Haider. Well, I think with companies like MoneyGram and
with my competitor, Western Union, and with your other
reputable money transfer companies, we are taking very
aggressive steps, a very large investment--
Mr. Ellison. I am sorry, Mr. Haider.
What I am getting at is: Are there some regulatory changes
that we need to make now that we have learned a little bit more
about, how to keep money away from people whom we do not want
to get it? Do you understand?
Mr. Haider. Absolutely.
Mr. Ellison. Okay. Can you speak to that?
Mr. Haider. Certainly, Congressman.
I think the number one change was what I alluded to a
moment ago, and that would be a uniform Federal regulation of
this industry.
Today--I believe it was one of our prior witnesses who
referred to the patchwork of regulation that exists for the
industry today. It makes compliance an extremely burdensome
process. I think the uniformity we would get from a Federal
regulator would greatly enhance the efforts that our Federal
Government is attempting to implement post-9/11.
Chairman Gutierrez. Thank you.
Mr. Ellison. Thank you very much.
Chairman Gutierrez. Congressman Marchant, please.
Mr. Marchant. Thank you, Mr. Chairman.
Back in my days in the State legislature, 10 or 12 years
ago, we dealt with the whole issue on the Texas border of the
casa de cambio, and we spent--now Congressman Cuellar and I
spent several months working on that issue with the Federal
Government. So it is a subject that I am vaguely familiar with.
But many of you today have testified that there are gaps
between the State and Federal regulators in your business and
that leaves you kind of exposed. Would you expand on that a
little bit and tell me what could be done to plug those gaps
up?
Ms. LoVoi. Yes, sir. Thank you very much for the question.
I am from Texas, and so I am familiar with the phenomenon
that you are describing on the Texas border and the work done
by many of your colleagues in both the Texas House and the
Texas Senate on the subject, and I appreciate your efforts on
this subject as well.
We conducted a survey of 16 States to study State
regulation. We did this in concert with two of our law firm
partners. Appleseed accomplishes a good deal of its work in
partnership with pro bono work from law firms; WilmerHale and
Cravath, and Swaine & Moore LLP have both helped us with this
project. What we found is wide variation. We looked--and we
will make our report available to subcommittee staff so that
you can have a little bit more detail on this subject.
But, in essence, we looked at the regulation across about
six or eight factors, and we found a patchwork. That word has
been used earlier today, but, without going into a great deal
of detail, that is what we found.
We found great variation--there was not much attention to
disclosure, which was the topic of my testimony today. We had
hoped to find consumer disclosure prior to the transaction and
emphasis on posting, and we found neither of those. And, as you
and I know, the casa de cambio and the various outlets that
operate on the Texas border and in other communities around the
country do have an emphasis on posting and prior transaction
disclosure, and I would just summarize our research by saying
that was something that we had hoped to find and did not find
widely in State regulation.
Thank you.
Mr. Marchant. Thank you.
Anyone else?
Okay, it seems a number of you believe that the pressure
put on banks to self-regulate and be the compliance officers
was the incorrect approach and has resulted in a number of
closures. From your perspective, please outline the framework
of Federal regulatory action that would ensure safety and
soundness of the transaction and stop the crooks, while not
being too burdensome to drive the industry underground.
Mr. Grace. Credit unions, as I mentioned in my testimony, a
limited number do provide services today to money service
businesses and essentially provide banking services to them so
that they have a way to enter into the payment system and clear
their funds. We have seen--
In fact, I understand from the National Money Transmitter
Association that, in fact, credit unions in New York are the
only entity right now in a big banking State that are providing
new banking accounts to these money transmitters, and we think
this is an opportunity for credit unions to do that if they
could expand their services to small businesses. Many of the
competitors in the money transfer industry and where the price
competition has come from is from small entities getting into
the market and competing. It was referenced earlier that
technology can keep them out. So we see that if new entrants
can go ahead and provide services to some of these small
businesses that there is an opportunity there for that.
Mr. Marchant. Thank you.
Yes, sir.
Mr. Orr. Mr. Marchant, I alluded in another question to a
hearing held in this committee room 10 days ago with the
regulators and mostly commercial banks. Commercial banks did a
lot of whining about how hard it was to comply with all the
regulations, and the regulators made a lot of self-serving
comments about how hard they were working at this. But, you
know, if you sort of step back and say, you know, what kind of
system would give government the information they need to
prevent the kinds of financing that we all want to see
stopped--money laundering, terrorist financing, drug
financing--it would be to have the government mine the data
from the entire industry, from credit unions, commercial banks,
money transfer companies and everybody else in a systematic way
and find the patterns of suspicious activity and go after the
wrongdoers.
The system that has evolved has each one of those
individual institutions searching its own files for this sort
of information in a fairly inefficient way, frankly. I mean, we
are mostly financial professionals or, in some cases, grocery
store clerks and that sort of thing with no background in
identifying the kinds of activity that the intelligence
community and others are professionals at. So if you could
somehow shift that back into the role of the government.
Of course, the industry, the industry I speak for, would
love to be rid of the obstacle. But the advantage of being rid
of it would be we could lower our prices to our clients. That
would be a salutary effect.
Mr. Marchant. Thank you very much.
Thank you, Mr. Chairman.
Mr. Clay. [presiding] I thank the gentleman from Texas for
that line of questioning.
Ms. Ibarra and Ms. LoVoi, both of you stressed the
importance of a promised date of delivery in your testimony.
But Mr. Thompson testified that in transfers to certain
countries it is difficult or even impossible to promise an
exact date of delivery due to restrictions in the recipient
countries. This is beyond the control of remitters. So how
should we handle those instances where a promised date is just
not possible? And we will start with Ms. Ibarra.
Ms. Ibarra. Thank you for the question.
I think that we need to form a task force or a commission
where we bring people together, industry and consumer advocates
and civil rights organizations, to talk about what these
challenges are and to come up with some uniform processes. How
do we conduct oversight and how do we create these uniform
disclosures? And we can look at this issue as well and see what
the challenges are and how we can improve the system for
consumers, particularly with issues that they care about, such
as date of delivery, guaranteed location spots, and other
issues.
But I think, you know, your question is technical. I would
like to hear how the industry would respond to that. But, from
our perspective, it is important to consumers, and that we need
to come together to look at the challenges and try to come up
with some good solutions.
Mr. Clay. How about you, Ms. LoVoi?
Ms. LoVoi. Thank you very much for the question.
We conducted focus groups with senders in 4 States to try
to determine what factors are most important to the senders,
and what we learned is that predictability of transfer is of
paramount importance. The senders want to know how much money
will be received in a foreign country. But almost equally
important, they want to know what is the date and time of
delivery.
So we learned from the testimony earlier this morning that
some of the companies are able to provide immediate
transmission where there are good pickup points in the foreign
countries, and there are many of these in Mexico. So, in those
instances, the sender can let the receiver know that they will
receive their money immediately.
In more difficult countries, such as the one that
Congressman Ellison described, Somalia, there may be
difficulties in that environment.
So I would suggest that what the sender and receiver both
are looking for is predictability. If it is going to take a
week, if it is going to take 4 days, if it is going to take
2\1/2\ days, let us just tell both parties and have an advance
disclosure so that there are no surprises on either end.
And thank you for your question.
Mr. Clay. Thank you so much.
Mr. Grace, I agree with all of your testimony regarding the
role of multinational development banks and USAID in leveraging
remittances in developing countries.
One of the items you mentioned is expanding our voice in
vote language from H.R. 928 to include all of the development
banks, not just the Inter-American Bank. I agree
wholeheartedly, but I would like to hear your thoughts on what
specifically we should include in our voice and vote
requirements for the development banks.
Mr. Grace. Certainly. Thank you very much for the question.
Absolutely.
The Inter-American Development Bank has brought an awful
lot of attention to this issue. But many of the other
development banks--the Asian Development Bank, the African
Development Bank--simply haven't been engaged in the issue.
About 3 weeks ago, Mr. Chairman, I was in China with the Asian
Development Bank and the leaders in that agency on
microfinance, and nowhere in the discussion did it come up on
the radar.
I think it is an issue that needs to be recognized as
important not only for Latin America but important for Asia and
Africa as well. So I think you could include simply adding
those other multilateral development banks into the bill, as
well as encouraging them, and ensuring that the United States
Agency for International Development, USAID, is not limited in
any future bill to working just in Latin America. But USAID's
remit is global, and any language in the bill should be global
in nature.
Mr. Clay. Thank you for that response.
We are about to have a series of votes on the Floor. I want
to thank all of the witnesses for their testimony and their
answers to the questions today.
We will keep the record open for 30 days, and we will
conclude this hearing. Thank you all for being here. The
hearing is adjourned.
[Whereupon, at 11:10 a.m., the hearing was adjourned.]
A P P E N D I X
May 17, 2007
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