A money transfer agent on Jackson Avenue in Queens might seem like it’s a long way from Wall Street, But the Dodd-Frank Wall Street reforms will have a huge impact on the way the remittance industry operates. There is some disagreement between some experts and policymakers as to whether these reforms will be be an overall positive.
Until recently, no federal regulator had any authority over remittances. Individual states regulated remittance providers, but this had its own problems because the providers then potentially had to work with 50 different compliance procedures. Few states had regulations in place to protect consumers and some didn’t even require transfer agents to provide reciepts.
The Dodd Frank Wall Street Reform and Consumer Protection Act charges the newly created Consumer Financial Protection Bureau with regulating remittance transfers.
The law requires remittance providers to prominently post and frequently update fees and exchange rates for ‘model’ remittance amounts of $100 and $200. This is intended to facilitate comparison shopping for remitters.
Manuel Orozco, the director of the remittances and development program at the Inter-American Dialogue, sees some of the reforms as unnecessary. He agrees with the industry, whose representatives vociferously oppose the requirement to post price and exchange rate information. It also provides for a process for conflict resolution in the event that the remittance did not go through as promised.
“Disclosure of foreign exchange rates for money transfers is an essential feature of fair financial access for anyone, especially for low-income migrants, who regularly transfer money to their relatives. Is physical posting the solution? Most likely not. The challenge lies in finding adequate policy procedures that can mitigate speculation and abuse against clients without producing adverse effects on both the industry and its market.” Manuel Orozco, Inter-American Dialogue
In the Inter-American Dialogue’s newsletter, Orozco writes, “For one, the measure requires prominent daily postings of exchange rates and descriptions of model transfers of $100 and $200. However, exchange rates con- stantly fluctuate, posing accuracy and disclosure problems. Moreover, the use of a model transfer is no substitute for information on the actual transfer; it won’t properly inform the consumer about his or her real cost. In addition, the money transfer market has become increasingly competitive, offering low- cost transfers, where margins are significantly low—below 0.3 percent—and where the public rates businesses very high. In a 2008 survey, we found that less than 1 percent of customers believed companies are not transparent in the exchange rate. In addition, problems of exchange-rate disclosure are restricted to very few instances within the industry that can be solved without regulatory action. ”
The requirement to post prices might be ineffective in solving the problem of transparency, and might even lead to higher costs, as the postings would increase overhead for remittance agencies.