CFPB Considers Strengthening Regulations for International Money Transfers

The Consumer Financial Protection Bureau is considering new restrictions on the fees charged by money-transfer companies for wiring money abroad. The bureau is scrutinizing fees across the financial system.

Bureau officials say they are investigating whether the way providers of overseas money transfers disclose exchange rates and fees makes it difficult for consumers to choose the most affordable option. Each year, immigrants and other workers send billions of dollars from the U.S. to other countries in transfers called remittances.

The CFPB is investigating money-transfer firms for possible hidden fees and exchange rate markups, about 10 years after the agency wrote rules requiring these companies to disclose their fees. The probe is part of a broader effort by the CFPB to crack down on fees it considers to be unfair or misleading, including late payment fees on credit cards and overdraft fees on checking accounts.

CFPB director Rohit Chopra said in a letter to Sen. Elizabeth Warren (D., Mass.) that was released Friday that the bureau believes there is significant noncompliance with the existing remittance rules by nonbank money-transfer companies. He said that these companies lack transparency about fees, exchange rates, and taxes, which comprise the true cost to consumers of sending money abroad.

Many money-transfer firms argue that their fees are not hidden and that consumers can easily find the best deal. Western Union Co., one of the largest U.S. remittance providers, said it provides customers with the information they need “to make informed decisions and to comparison shop among providers.”

An official from the CFPB said that the bureau is looking into ways to increase transparency surrounding exchange rates, but did not mention what the agency plans to propose or when they plan to do so.

According to the World Bank, the total volume of remittance transfers is expected to reach $794 billion by 2022, with $626 billion flowing to low- and middle-income countries. The United States is the largest remittance-sending country in the world, with an estimated $72.7 billion in remittances being sent in 2021. However, it should be noted that the World Bank's data only captures remittances flowing through official channels; informal payments, such as those delivered by hand, are not included in these figures.

The CFPB’s existing money-transfer regulations were designed to improve disclosures about fees and exchange rates. However, consumer advocates such as the National Consumer Law Center argue that the rules don’t require disclosures that are precise enough to help people choose between remittance providers that use different pricing strategies.

For example, one money-transfer company might not charge any upfront fees, but they might use a higher exchange rate. This could mean that the sender would end up paying more than if they had chosen another provider who charges upfront fees but has a lower exchange rate.

When sending money abroad, it's important to compare fees charged by different providers. Some providers charge a fee that is taken out of the total amount being sent, while others charge a fee on top of the total. This can make it difficult to compare providers on an equal basis.

Advocates say that while the differences in fees among money-transfer companies may be relatively small, the cumulative impact of higher costs is significant for immigrants who send funds overseas multiple times a month.

A group of Senate Democrats, led by Ms. Warren, has called on Mr. Chopra to tighten the rules around remittance providers. In an October letter, the group said that the current rules allow providers to "misrepresent the true cost of remittances to the consumer," for example by offering a less-favorable exchange rate than a competitor.

Some newer companies in the remittance space say that more transparency around fees would help consumers compare options. These companies are looking to compete with traditional providers such as Western Union, MoneyGram International Inc. and banks.

"At Wise, we believe that consumers struggle to understand the true cost of sending money abroad due to inconsistent pricing strategies from providers and the lack of transparency around exchange rate margins," said Nick Catino, global head of policy and social impact at the company.

A study commissioned by Wise in 2020 estimated that U.S. consumers and small businesses paid more than $16.3 billion in 2019 in foreign-exchange fees. More than half of that total—about $8.7 billion—was in the form of hidden exchange-rate markups and various fees for card usage abroad.