[Congressional Record Volume 144, Number 46 (Thursday, April 23, 1998)]
[Extensions of Remarks]
[Pages E669-E670]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  INTRODUCTION OF THE ``WIRE TRANSFER FAIRNESS AND DISCLOSURE ACT OF 
                                 1998''

                                 ______
                                 

                         HON. LUIS V. GUTIERREZ

                              of illinois

                    in the house of representatives

                        Thursday, April 23, 1998

  Mr. GUTIERREZ. Mr. Speaker, immigrants in Chicago and throughout the 
United States work hard, same money, and send billions of their U.S. 
dollars to relatives living in foreign countries. The money wiring 
industry--dominated by giants Western Union and MoneyGram--have emerged 
as the major vehicle for sending dollars across borders.
  Immigrants with family in Mexico are among the primary customers of 
these services. It is estimated that between $4 and $6 billion is sent 
annually from the U.S. to Mexico through such wire payments. This 
figure has an enormous impact on Mexico, as it represents the country's 
fourth-largest source of income from international sources--trailing 
only the money it receives for manufactured goods, oil, and tourism.
  Many Mexican immigrants prefer to use the services offered by wire 
transfer companies rather than postal or other delivery services. Some 
customers are attracted by the companies, advertisements which promise 
fast, affordable, convenient service. Others have been dissuaded from 
sending money through other means after reports began circulating of 
armed robberies of courier services in Mexico and mail pouches 
disappearing from Mexican postal branches.
  As a result, Western Union and MoneyGram have virtually cornered the 
market. The two companies--plus a third, Orlandi Valuta which, like 
Western Union, is owned by the First Data Co.--account for a combined 
total of more than 90 percent of all transfers.
  At first glance, the wire transfer companies appear to represent an 
attractive option for prospective consumers. In part, this is the 
result of massive advertising campaigns through which the companies 
target Latino customers. In such advertisements, companies promise 
relatively low rates. For instance, one company recently publicized a 
$12 fee for a $300 transfer to Mexico.
  On other occasions, the companies have tried to appear to be even 
more generous. For instance, following the devastation caused by 
Hurricane Pauline which struck Mexico in October 1997, Western Union 
advertised ``free'' service for concerned family members in the U.S. 
sending money to help the victims.
  However, such promises are grossly misleading. The cost to the 
consumer is far less reasonable--and certainly not ``free.''
  That is because the companies fail to inform their clients--either in 
print advertisements, in displays at their establishments, or on forms 
presented to the customer--that an additional cost will be imposed on 
the customer and on the recipient in Mexico.
  The hidden cost arises from the rate at which the wire transfer 
companies convert dollars into pesos for their customers, compared

[[Page E670]]

to the rate that these companies have had to pay to obtain Mexican 
currency. While the wire service companies obtain pesos at a rate that 
closely matches an established benchmark rate, the companies distribute 
pesos to their customers at a far lower rate.
  The difference between those two figures represents a source of 
additional income to the companies and an additional cost to the 
consumer--one which is not disclosed.
  Before transferring money, many customers research the current 
benchmark exchange rate to find out how many Mexican pesos can be 
obtained for their U.S. dollars. However, customers are not informed 
that the wire transfer companies fail to abide by that benchmark rate, 
and establish their own conversion scheme allowing them to pocket 
additional money.
  A benchmark exchange rate is set daily by Banco De Mexico. While this 
figure is an unofficial rate, those entities doing the largest share of 
business converting U.S. dollars to Mexican pesos--such as major 
financial institutions, markets, government agencies, and the wire 
transfer companies--generally receive a rate which closely matches the 
daily benchmark rate.
  On the other hand, Western Union and MoneyGram arbitrarily set a 
different exchange rate for their customers--one which has been found 
to routinely vary from the benchmark rate by as much as 12 percent
  These ``currency conversion fees'' allow the companies to post huge 
profits. According to one analysis of figures, Western Union alone made 
an additional $130 million based on the conversion scheme--roughly 
equivalent to the amount that the company made for the service fees.
  In other words, this hidden practice allows the company to virtually 
double the money it is making off of the Mexican community.
  The wire transfer companies allege that this is a legitimate and 
common practice. The fact is, however, that other major companies and 
institutions which convert dollars into pesos follow more closely the 
benchmark exchange rate which is set daily by the Banco de Mexico, 
often matching the benchmark rate exactly when providing services to 
their customers.
  The wire transfer companies are wrong, therefore, when they claim 
that this represents a ``common'' business practice.
  How does the rate affect an individual customer? One day late last 
year, the benchmark exchange rate was listed as 8.3 pesos to the 
dollar. On the same day, both Western Union and MoneyGram were offering 
customers 7.3 pesos to the dollar. As a result, for every $100 
transferred, the customer (or the recipient) would lose an additional 
$12 dollars--on top of service fees.
  This practice targets a particular community. When a comparison is 
made of transfers to various counties, this practice appears aimed at 
Mexican immigrants and their families in particular. For example, on a 
recent occasion, the exchange rate which MoneyGram set to convert U.S. 
dollars to Mexican pesos was three times more costly than the rate for 
changing U.S. dollars into Canadian currency.
  Specific advertisements (misleading as they are) are aimed at the 
Mexican market. One MoneyGram advertisement claims (falsely): ``Send 
$300 to Mexico for $14.''
  The company's tactics in the wake of Hurricane Pauline have been 
cited as further evidence of a trend of seeking to make additional 
money by misleading the Mexican-American community.
  Lawsuits have been filed in federal court in California claiming the 
companies have engaged in false advertising and charging hidden fees. 
Likewise, a class-action lawsuit will also be filed in federal court in 
Chicago next week.
  I am introducing today legislation aimed at curbing the wire transfer 
companies' tactics which they have used to take advantage of their 
customers. My legislation would require the wire transfer companies to 
fully disclose their practices to their customers, thereby making sure 
that such ``hidden'' costs are brought to light.
  This bill would require companies to list--and to reasonably 
explain--their own currency conversion rates on all advertisements, 
forms and receipts provided to customers, and in display windows or at 
service counters in all establishments offering international wire 
transfers.
  Failure to comply could lead to criminal penalties and civil 
liabilities of at least $500,000. I am entitling my bill the ``Wire 
Transfer Fairness and Disclosure Act of 1998.'' I welcome the support 
of my colleagues who wish to join me in protecting consumers in our 
communities.

                          ____________________