Key provisions from the CFPB's rule making on remittances say that agents will have to make uniform disclosures to their customers. According to the final rule, agents must indicate the following:
- Cost of the service
- Exchange rate
- Amount that the recipient will ultimately receive
These are not the only aspects of the rule, but for today's purposes I am only interested in disclosure.
Some people believe that this disclosure regime is unworkable. Call me surprised to hear that. In fact,I am surprised to find out that this kind of basic information was ever suppressed by any seller of remittances.
According to an article in the American Banker, people are finding fault with the CFPB's definition of larger participant. As you may understand, the CFPB is only charged to monitor (supervise, rule write, and enforce) non-banks whose market share of any particular function is deemed to be "large." To do so, the CFPB has to set a line in the sand about size. The CFPB initially drew a broad line: it said that any transfer agent that provided more than 25 remittances in a year would be considered as large.
Now the CFPB has relented on its large size definition. The new line in the sand is 100 remittances. Perhaps that is still very broad, but the burden being placed on those entities still seems very legitimate. This is a case where government is going to make sure that prices are actually being given for services. Pricing is a root element of a functioning market.
Without a disclosure rule, remittances would seem to be particularly ripe for price gouging. Pricing is irrelevant without information about not just the fee but also the exchange rate. There is a dynamic between the two. Even if a fee is low, that cost can more than be made up by a high margin exchange rate.
Turns out that the level of disclosure does need some help.
I decided to do some comparison shopping for a one hundred dollar remittance to Mexico.
Today's exchange rate for dollars is 13.05 pesos. Online, Western Union in Durham is offering 12.76 pesos for each dollar. If you send $100 home, the exchange rate itself is going to shave 32 pesos from the amount ultimately handed over to the recipient. At the local Food World store, Moneygram is giving 12.88 pesos and Sigue is offering to pay 12.9 pesos for a dollar. Banks provide remittances as well. My local Wells Fargo offered to send one hundred dollars to Mexico for $5, but only if I had an account with the bank.
I even got different stories about the cost of remittance from different stores. The Western Union on Miami Boulevard in Durham says that it cannot (or does not) reveal the exchange rate because the fee and the exchange rate are collapsed into one price. Moreover, the total is not set for entire country. Instead, it varies within country according to the local address. It differed at the Western Union store in Oxford, North Carolina. Over the phone, they quoted an exchange rate of 12.70 and a fee of $12 for a $100 remittance. Thus, there appears to be one price online, another in a local store, and no disclosure at all at a third. I told her that her price made more sense than at the one in Durham. How can that be?
"There's no telling," she said.