[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

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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

                              ----------                              
                                                                   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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