The U.S. Federal Reserve has proposed new rules aimed at protecting consumers who remit money to relatives in countries in the Caribbean, Latin America and elsewhere.
Remittances to Guyana from the US are substantial on an annual basis and such reforms are likely to be welcomed by the remitter and the recipient.
Guyana was projected to rake in US$280 million in remittances last year, US$27 million more than the US$253 million received in 2009, the World Bank’s latest Migration and Remittances Factbook had said in November last year.
According to the Dow Jones News Wire, the proposed regulations will require money transfer providers such as Western Union Co. (WU) and MoneyGram International Inc. (MGI) to provide information about fees, the applicable exchange rate and the amount of currency to be received by the recipient. These two companies are major players in the remittance market here.
The proposals by the Federal Reserve have their genesis in longstanding complaints by consumer and public-interest groups that immigrants and other consumers have to pay excessive fees to send money abroad. They also have argued that the fees aren’t sufficiently disclosed.
The remittance market is “the wild west of consumer products,” said Janis Bowdler, director of the wealth-building policy project at the National Council of La Raza, a Hispanic civil rights and advocacy organization told Dow Jones. She believes the final regulations will be “very valuable for consumers” because they will mandate common sense practices so that immigrants won’t get duped by companies.
Bowdler told Dow Jones that many consumers who send money abroad are low-income immigrant workers that speak English as a second language, and they are vulnerable to fraudulent practices.
A spokesman for Western Union on Thursday told Dow Jones that the company shared the Fed’s objective of providing consumers the information they need to make informed decisions, “and we agree with the Fed that consumers will benefit if all remittance providers are held to the same requirements.”
The World Bank estimates that the total volume of remittance transfers to developing countries reached a whopping US$325 billion last year and that the U.S. is the largest remittance-transmitting country in the world. The majority of remittances from the U.S. are sent to the Caribbean and Latin America, the Federal Reserve said.
The Fed on Thursday said “many consumers currently do not receive written information about their remittance transaction until after payment is tendered” and that “there is inconsistency in the type of information disclosed by different providers.” Comments on the proposal, which would implement provisions of the Dodd-Frank financial overhaul Congress passed last summer, are due by July 20, The Federal Reserve website said.
Under the proposed rules, Dow Jones said that the remittance transfer providers would need to provide prepayment disclosures. These include information about the money transfer such as the exchange rate, applicable fees and taxes, and the amount to be finally received by the recipient.
The Federal Reserve’s proposal also calls for the disclosures to be provided in English and in each of the foreign languages the remittance transfer provider uses to market its services.
White House adviser Elizabeth Warren, according to Dow Jones, has indicated that the Consumer Financial Protection Bureau will be aiming to ensure that prices and fees are made clear to consumers looking to send money overseas.
“There’s a lot of money moving in remittances, and we believe if we can make that a more competitive market, a more transparent market, a fairer market for families, some of that money is going to stay with the families instead of draining off to other institutions,” she said at an October press conference, Dow Jones reported.
Later this year, the Consumer Financial Protection Bureau is set to inherit consumer protection powers from the Federal Reserve and other regulatory agencies. As part of that transfer, the bureau is expected to take over work on remittance transfers, Dow Jones reported. It also will have broad authority to write new rules and supervise financial firms.
Remittances coming into Guyana, last year’s World Bank Migration and Remittances Factbook said, increased steadily from 2003 to 2008, before dropping in 2009.
In 2003, the figure recorded was US$99 million while US$278 million was recorded in 2008. While there was no projection by the body for remittances to leave Guyana this year, the report said that outward remittances last year was pegged at US$77 million.
“Remittances are a vital source of financial support that directly increases the income of migrants’ families,” said Hans Timmer, director of development prospects at the World Bank. “Remittances lead to more investments in health, education, and small business. With better tracking of migration and remittance trends, policy makers can make informed decisions to protect and leverage this massive capital inflow which is triple the size of official aid flows,” Timmer said.
The notification on the Federal Reserve website reads as follows:
“The Federal Reserve Board on Thursday requested public comment on a proposed rule that would create new protections for consumers who send remittance transfers to recipients located in a foreign country.
“The proposed rule would require that remittance transfer providers make certain disclosures to senders of remittance transfers, including information about fees and the exchange rate, as applicable, and the amount of currency to be received by the recipient. In addition, the proposed rule would provide error resolution and cancellation rights for senders of remittance transfers.
“The proposal is being made under Regulation E (Electronic Fund Transfers) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“The Federal Register notice is attached. Comments on the proposal must be submitted within 60 days after publication in the Federal Register, which is expected shortly.”
