[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
REMITTANCES: REDUCING COSTS,
INCREASING COMPETITION
AND BROADENING ACCESS
TO THE MARKET
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
OCTOBER 1, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-55
92-335 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North CHARLES A. GONZALEZ, Texas
Carolina MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona STEVE ISRAEL, New York
VITO FOSSELLA, New York MIKE ROSS, Arkansas
GARY G. MILLER, California CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota ARTUR DAVIS, Alabama
TOM FEENEY, Florida RAHM EMANUEL, Illinois
JEB HENSARLING, Texas BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
C O N T E N T S
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Page
Hearing held on:
October 1, 2003.............................................. 1
Appendix:
October 1, 2003.............................................. 55
WITNESSES
Wednesday, October 1, 2003
Abernathy, Hon. Wayne, Assistant Secretary for Financial
Institutions, Department of the Treasury....................... 5
Herrera, John A., Board Chairman, Latino Community Credit Union
on behalf of the Credit Union National Association and the
World Council of Credit Unions................................. 40
Levine, Ezra, Partner, Howrey Simon Arnold and White on behalf of
Non-Bank Funds Transmitters Group.............................. 42
Orozco, Manuel, Project Director, Central America Inter-American
Dialogue....................................................... 35
Perez, Alice, Vice President, Hispanic Market Manager, US Bank on
behalf of the Consumer Bankers Association..................... 38
Suro, Roberto, Director, Pew Hispanic Center..................... 33
Valenzuela, David, President Inter-American Foundation........... 36
APPENDIX
Prepared statements:
Emanuel, Hon. Rahm........................................... 56
Gillmor, Hon. Paul E......................................... 57
Gutierrez, Hon. Luis V....................................... 58
Abernathy, Hon. Wayne........................................ 61
Herrera, John A.............................................. 67
Levine, Ezra................................................. 76
Orozco, Manuel............................................... 85
Perez, Alice (with attachments).............................. 100
Suro, Roberto................................................ 119
Valenzuela, David............................................ 121
Additional Material Submitted for the Record
Abernathy, Hon. Wayne:
Written response to questions from various Members........... 125
Written response to questions from Hon. Brad Sherman......... 128
Perez, Alice:
Written response to questions from Hon. Luis V. Gutierrez.... 129
Written response to questions from Hon. Melvin Watt.......... 131
Suro, Roberto:
Written response to questions from Hon. Luis V. Gutierrez.... 132
National Association of Federal Credit Unions, prepared statement 133
REMITTANCES: REDUCING COSTS,
INCREASING COMPETITION
AND BROADENING ACCESS
TO THE MARKET
----------
Wednesday, October 1, 2003
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to call, at 10:05 a.m., in Room
2128, Rayburn House Office Building, Hon. Spencer Bachus
[acting chairman of the committee] presiding.
Present: Representatives Bachus, Royce, Lucas of Oklahoma,
Gillmor, Ose, Biggert, Green, Shays, Shadegg, Capito, Tiberi,
Kennedy, Feeney, Hensarling, Garrett, Brown-Waite, Waters,
Maloney, Gutierrez, Watt, Sherman, Lee, Inslee, Moore,
Gonzalez, Lucas of Kentucky, Clay, McCarthy, Baca, Matheson,
Miller and Emanuel.
Mr. Bachus. [Presiding.] Good morning. The Committee on
Financial Services will come to order.
This hearing today is entitled ``Remittances: Reducing
Costs, Increasing Competition, and Broadening Access to the
Market.'' Today, the committee meets to learn more about a
growing business line that was long dominated by a few players.
Remittances describe the funds sent from U.S. residents to
friends and loved ones in other countries. Wire transfer
companies now compete with banks, credit unions and other small
businesses in the remittance market. Because of this
competition, access to these services has increased, prices
have fallen, and innovative products have been developed.
It has long been my belief that competition in the free
market is the best way to increase quality and improve
services. The average cost of remittances has fallen
approximately 50 percent over the past four years. In some
areas, it currently only costs about $13 to send $300 to
Mexico. Money transfers by individuals living and working in
the U.S. to Latin America are currently estimated at $10
billion annually, and should more than double to $25 billion by
2010.
Every year, millions of people come to our great country to
find good paying jobs and embark on the quest for the American
Dream. Many must leave their family and loved ones at home when
they come to the U.S., but they are able to share a measure of
prosperity through remittances. It is important that we ensure
an environment that enables people to have access to safe and
low-cost remittance services and that any abusive operators
seeking to prey upon unsophisticated consumers are subject to
rigorous enforcement action.
Remittances have grown from just a wire transfer of funds.
Products such as debit cards and shared accounts have increased
the ways in which funds can move more easily to other
countries. Some have called for increased government oversight
of the remittance industry. Others have expressed concern that
excessive disclosures, artificially reduced fees and other
intrusive regulations will only stifle improvements and
increase costs.
The purpose of today's hearing is to hear from proponents
of these viewpoints and to highlight those innovations in the
remittance market that hold the promise of making these vital
products available to more consumers at lower cost. I want to
especially thank Ranking Member Frank and Representative
Gutierrez for bringing this issue to the committee's attention,
and want to welcome the witnesses. I look forward to your
testimony.
At this time, I will recognize the gentleman from Illinois,
Mr. Gutierrez, who actually spearheaded the move to hold this
hearing today. I commend your concern and watchfulness over
this issue.
Mr. Gutierrez. Thank you very much, Acting Chairman Bachus.
It is a great pleasure to be here today to talk about this
important issue. I would like to start by thanking the majority
for agreeing to hold this hearing. I would also like to thank
Ranking Member Frank, a steadfast supporter of the remittance
legislation throughout the years.
During the past 20 years, remittances to Latin American
countries have increased not only in volume, but also as a
share of income and total imports. Last week, President Fox
announced that remittances sent from Mexican workers in the
United States to their families back home reached a record $12
billion, representing Mexico's largest source of income, more
than oil, tourism or foreign investment. However, such
transfers can be unnecessarily costly for consumers in the U.S.
due to a range of fees, many of them hidden.
Wire transfer companies aggressively target audiences in
immigrant communities with ads promising low rates for
international transfers. However, such promises are often
grossly misleading because the companies do not always clearly
disclose extra fees charged for converting dollars into local
currency. That is why I, along with Representative Frank,
introduced H.R. 2074, the International Money Transfer
Disclosure Act. My bill requires financial institutions and
money transmitting businesses to, (A) disclose any fees to be
charged to the recipient, including exchange rate or currency
conversion fees, a final itemization of all costs, including
all fees charged, and the exact amounts of foreign currency to
be received by the recipient in the foreign country.
Finally, the bill requires that disclosures of information
be made in English and in the same language if other than
English as the language principally used by financial
institutions in the recipient country. For those of you who
think I might be simply adding another language to our money
markets, let me tell you that financial institutions involved
iin the money transfer business already spend millions of
dollars advertising on Univision and Telemundo, so simply
making sure everyone understands converting the language once
again is pretty simple. You get it on the front end when you
get the business; you get it on the back end when they show up
to your store.
Over three-quarters of all remittances that come to Latin
America, approximately $25 billion, originate in the United
States. Almost 70 percent of Latin American immigrants in the
U.S. send remittances back home on a regular basis. That means
approximately 12 million workers are sending money to their
families back home. The money sent out to the families abroad
was money earned upon hours of hard work and it was saved with
great sacrifice from some very low-income taxpaying workers
here in this country.
For those living abroad, this money is vital to help pay
for food and housing and education. This help enriches
communities in other countries, creating a steady income and
jobs for those who might otherwise migrate to the United States
to find work. But a sizable portion of these savings never
makes it to these countries. Instead, it is claimed as fees,
most in the form of punishing exchange rates that remittance
services levy on immigrants who wire money home. The fees
accompanying remittances made through the wire transfer
companies can sometimes reach as high as a 20 percent
difference between the benchmark established here in the United
States and the exchange rate.
Money transfers have grown significantly since the
increased acceptance of the matricula consular by financial
institutions. I want to take this opportunity to commend the
Department of the Treasury for their recently released rules on
section 326 of the PATRIOT Act and for the decision to keep the
rules unchanged as far as the matricula consular. Allowing
financial institutions to accept the use of matricula consular
represents an important step in reducing the number of unbanked
and reducing the cost of transferring money, and also brings
safety to that money. A study recently conducted by the Pew
Hispanic Center indicates that reducing the cost to 5 percent
of the amount remitted would free up more than $1 billion to
some of the poorest households in the United States, Mexico and
Central America.
In conclusion, I hope we could agree, Mr. Chairman, that
offering basic transparency for these services will provide
consumers with the ability to make informed and educated
decisions regarding the services they choose. I look forward to
the testimony today, and will just end by saying, Mr. Chairman,
I came about this when I was in Acapulco and I used my ATM
card. Then I checked the exchange rate that I, a tourist in a
hotel in Acapulco received, with what I received using my ATM
card here in the United States, with the exchange rate
established by MoneyGram and Western Union. On that particular
date, the difference was 14 percent. That is, I got 14 percent
more pesos for my dollar than a poor immigrant worker working
long hours sending money back to their families. I obviously
did not need it as much, being a tourist on vacation, as a
hard-working person in the United States. So if that is what's
going on, we want transparency. We want clarity, so that there
can be true competition for that huge number of people who want
to help their families back home.
Thank you very much, Mr. Chairman.
[The prepared statement of Hon. Luis V. Gutierrez can be
found on page 58 in the appendix.]
Mr. Bachus. Thank you, Mr. Gutierrez.
At this time, are there other members that wish to make an
opening statement? Mr. Hensarling? The gentleman from Texas is
recognized.
Mr. Hensarling. Thank you, Mr. Chairman.
Mr. Chairman, the title of this hearing is ``Remittances:
Reducing Cost, Increasing Competition and Broadening Access to
the Market.'' It seems to me that these three things exemplify
what has been occurring in the remittance industry in recent
years. So it is my opinion that as we examine the role of the
federal government with regard to remittances, we should also
celebrate the triumph of free enterprise and competition in
providing consumers with readily available low-cost access to
money transfer services.
According to an article from yesterday's Dallas Morning
News, my hometown newspaper, remittances from the U.S. to
Mexico are somewhere in the neighborhood of $1 billion a month.
As a direct result of competition among banks and credit unions
and traditional money transfer service providers, commissions
on these remittances have dropped from approximately 20 percent
to as low as 4 percent in the last decade. To date, more than
200 credit unions in the United States have partnered with
Mexican credit unions to offer money transfer services,
granting access to parts of Western Mexico that had previously
been unreachable. Banks continue to form partnerships to help
them compete with the traditional money transfer companies like
Western Union and MoneyGram, who alone operate tens of
thousands of outlets throughout North America.
In addition, to help serve consumers more efficiently and
effectively, larger banks like Bank of America and Wells Fargo
are promoting the use of ATM cards that can be used to withdraw
money that has been transmitted from the U.S. All of this gives
the appearance of a fairly robust marketplace. The end product
of this increase in competition and innovation is what is most
important to consumers, more choices at lower cost. The free
market, not the government, has brought about this result.
Some maintain that price differentials are unseemly and
perhaps border on fraud, but if I can use an analogy, as the
father of two small children, I am often asked by my wife to go
and buy a gallon of milk. Now, sometimes I can drive five miles
to the local Tom Thumb grocery store, park a long way away from
the grocery store, and wait in a long line to get my gallon of
milk. Or I can go to the neighborhood 7-11 where there is one
on about every other street corner, park right in front of the
store, wait in no line, but pay 30 cents more for my gallon of
milk. Often, I choose the convenience of going to the 7-11.
The point is that a simply higher price for what one may
view as a commodity should not necessarily be the subject of a
congressional inquiry. One brand name could be stronger than
another. One could offer more convenient locations or more
convenient hours than another. So concerning the federal
government's involvement in this industry, I have to ask myself
what could Congress possibly do at this point to benefit
consumers choosing to use these services. We should be very
careful, because additional regulatory burdens placed upon
these companies in this business could limit access for
consumers to these services, and would almost assuredly result
in an increased cost in these transfers. To me, the best
consumer protection is a competitive marketplace, and from what
I see of the evidence that I have gathered so far, a
competitive marketplace does exist in this industry.
Some have used the term ``fraud'' in connection with some
players in this industry. I take every accusation of fraud
quite seriously. There is no doubt that the large bulk of the
population that uses remittances are recent immigrants to
America and perhaps more susceptible to fraud than others. I
look forward to hearing the evidence of these charges, and
should the evidence be persuasive, I will help lead the charge
in ending any abusive or fraudulent practices in the industry.
But at the end, Mr. Chairman, we should be very, very careful
where a competitive industry already exists, that we do not
make it less competitive.
I thank the chairman and yield back the balance of my time.
Mr. Bachus. Thank you. I appreciate that statement, Mr.
Hensarling.
At this time, we want to welcome our first panel, which
consists of our good friend, Honorable Wayne Abernathy,
Assistant Secretary for financial institutions at the
Department of the Treasury. We know that this is an extremely
important issue for the Department of the Treasury and one that
you all have been spending time on, so we very much look
forward to your comments, Mr. Secretary. Without objection,
your written statement will be made a part of the record. At
this time, you will be recognized to give a summary of your
testimony.
STATEMENT OF HON. WAYNE ABERNATHY, ASSISTANT SECRETARY FOR
FINANCIAL INSTITUTIONS, DEPARTMENT OF THE TREASURY
Mr. Abernathy. Thank you very much, Mr. Chairman. It is a
pleasure to be here before you again. I appreciate the
invitation from you and the members of this committee to
discuss this important issue of the remittance of the hard
earnings of people who work here in this country to their homes
and families.
People working in the United States and elsewhere have been
sending money back home for centuries. According to some
estimates, people all around the world send $72 billion to
their homelands, far exceeding the total amount of official
development assistance that is provided to poor countries.
Mexican Americans will send an estimated $13 billion to their
families in Mexico this year, the largest remittance market.
For many countries, remittances are a substantial share of
national income. In Nicaragua, for example, it equals something
in the neighborhood of 16.2 percent of gross domestic product.
There is a rather paternalistic view that remittances are used
for so-called ``non-productive'' purposes. This idea is wrong.
Remittances are used for the same variety of purposes that
people here in this country use their income. They are used
first and foremost for improving the living standards of their
own families. One study has shown that families in El Salvador
that receive remittances keep their children in school longer
than families that do not receive remittances.
Whatever the natural barriers to remittances, our
experience has shown that market forces are remarkably adept at
surmounting these barriers. More stubborn to surmount are
governmental barriers. A significant element in the progressive
improvement in service and reduction in cost of remittances to
Mexico has been the removal of barriers to financial commerce
under the North American Free Trade Agreement. Our focus at
Treasury has been on promoting competition in remittances as
the most effective means of reducing costs, while at the same
time improving services.
There are three main components to this effort. First of
all, promoting competition in the United States; second,
promoting competition in the recipient countries; and third,
where appropriate, improving the links between the U.S.
financial system and the financial system in recipient
countries. In addition, we encourage investments in the
financial infrastructure that supports each of these three
goals.
Promoting competition in the United States has been the
easiest of the three. There are often many artificial barriers
in the recipient markets. To cite one example, a country in
South America forbids credit unions from receiving remittances,
forcing credit unions in that country to convert to banks in
order to be a recipient of remittances. We are working to
identify such barriers and to persuade these governments to
lower these barriers.
It is also important to understand the fundamental value of
good banking policy in the recipient countries. For example,
Mexico's prompt action to resolve failed banks, Mexico's
openness to foreign ownership of banks, and other pro-
competitive policies in Mexico are widely credited for the
relatively low cost of remittances there, and the continuing
decline in the cost of those remittances. The Federal Reserve
has been working on extending the International Automated
Clearinghouse services to several countries. This will make
available a channel for every bank to send remittances and
other payments at very low cost. The Treasury Department has
financial advisers in several countries throughout Africa to
assist strengthening financial regulatory and supervisory
practices.
The goal is to ensure that the flow of remittances is
handled in a trustworthy and transparent manner, and thereby
boost the confidence in their banking system and protect
against fraud and money laundering and the flow of funds into
the hands of terrorists. Promoting competition works. Recently
we have seen several major banks enter the remittance market,
expand their product offerings, and reduce their fees.
Remittances are quickly becoming the central source of new
foreign capital for many countries. It is funding that almost
by definition gets into the hands of those who need it most,
the families of those whose hard work earned the money. We will
continue to promote competition and the linkages that
facilitate it. It is just as important, however, not to kill
remittances with kindness. Well-intentioned, but ill-advised
mandates and regulation can raise costs and force suppliers out
of the market. That, in turn, would likely reduce remittance
flows, not increase them. Let us build upon our successes that
we have already achieved and make it easier for families to
build financial security here at home and abroad.
Thank you again for the opportunity to discuss this issue
with you today and for the support that members of this
committee have given to this important effort to improving this
important flow of financing. I am available to answer any
questions that you may have.
[The prepared statement of Hon. Wayne Abernathy can be
found on page 61 in the appendix.]
Mr. Bachus. Thank you.
At this time, I recognize Mr. Lucas for questions. No
questions? Mr. Shays?
Mr. Shays. Thank you very much for being here and for your
testimony. With regard to remittances, I would like to just
ask, when the Treasury Department established its rules under
the PATRIOT Act as it related to the identification of
individuals who had accounts. Could you explain to me why the
rule would allow government-issued documents evidencing
nationality or residence and bearing a photo or similar
safeguard?
Mr. Abernathy. We discussed that issue with a number of law
enforcement experts to find out, is there any particular value
to be gained by retaining actual photocopies of these
particular identification documents, or the regulation as
written, would that be enough? Particularly the feedback we got
from the local law enforcement people indicated to us that the
way we have outlined it in the regulation captures what is
needed for law enforcement purposes, without imposing any
increased costs on financial services providers.
Mr. Shays. How is that accurate, when what you are
basically saying is you can be an illegal alien in the United
States, get a document from their national government, and then
we are allowing them to have transactions in the United States.
Isn't that what you are basically concluding? Wasn't the
PATRIOT Act attempting to not allow that to happen?
Mr. Abernathy. The PATRIOT Act, with regard to the
financial flows, was intended to prevent funding used for
organized crime, terrorists and other types of activities. It
was not intended to be an immigration document. We have other
rules in place and other laws for dealing with immigration
issues.
Mr. Shays. I don't understand how you are responding to me.
You are basically saying that an illegal alien will now be able
to make financial transactions even though they are in the
United States illegally. That is basically what you are saying.
Mr. Abernathy. Almost. What I am saying is that illegal
aliens in this country will be able to continue to have access
to financial services, as they have had for the history of this
country; that we did not see and saw no mandate from Congress
to say that access to the financial services should be denied
to people who are in this country illegally, or they are here
without appropriate documents, the same way we do not put that
barrier at the grocery store or any other vital services that
are needed to conduct your day to day life.
Mr. Shays. So basically it is the policy of the Treasury of
the United States of America that it will allow for the
facilitation of illegal aliens to make financial transactions,
and the Treasury Department will, under its new regulations, in
spite of the PATRIOT Act, allow this to continue.
Mr. Abernathy. Actually, we believe that the regulations
are in full compliance with the PATRIOT Act, both the word and
the legislative history that accompanied that statute.
Mr. Shays. Okay. I just would conclude by saying that when
I voted for the PATRIOT Act and I voted for this, I thought we
were instructing the Treasury Department to crack down on an
abuse that has happened for a long time. For you to suggest
that because it has happened in the past, somehow makes it
consistent, therefore you are going to be consistent. I thought
when we passed the PATRIOT Act, we were going to begin to crack
down on what we thought were illegal transactions.
Mr. Abernathy. Yes, and I believe we do. The concept of the
PATRIOT Act is to try to get as much of the financial flows
that occur in this country to happen within the mainstream
financial system so we can monitor them and so we can clamp
down on the use of those funds for organized crime and
terrorist purposes. In our view, pushing several millions of
people into the financial black market would not achieve the
purposes of that Act. We feel rather, by allowing people that
are in this country, that are working hard, that are saving
their money, who want to be able to engage in a financial
transaction that is no more nefarious than wanting to pay their
bills, ought to be able to have access to the financial
services industry.
Mr. Shays. Isn't it a fact, sir, that you just in a sense
are facilitating the financial transactions of people who are
here illegally? Is that not true?
Mr. Abernathy. We are allowing those transactions to occur.
That is correct.
Mr. Shays. Right.
Mr. Abernathy. Yes, sir.
Mr. Shays. So when you say you are putting them in the
light of day, what you are doing is you are facilitating those
transactions.
Mr. Abernathy. We are getting them where we can see them;
bringing them out of the black market.
Mr. Shays. So is it your testimony by doing that you will
be able to crack down on terrorist activities by those who are
here illegally?
Mr. Abernathy. We think it is easier to crack down on
something you can see than it is on something that is hidden.
Mr. Shays. But something that is hidden may not be able to
take place. Let me just ask this. If it can happen and be
hidden, that suggests that it is easy to do. Is that your
testimony? And if it is easy to do, then why would we even need
to pass an Act to make it easy?
Mr. Abernathy. I think we are certainly on the record
saying that the ability for organized crime and others to
engage in financial transactions, in as much as it occurs, if
it occurs, is too easy. We want to stop all of those types of
illegal, nefarious transactions. But we do not think that we
are achieving that goal by preventing a young worker from being
able to open a bank account to pay his bills.
Mr. Shays. Thank you very much.
Mr. Bachus. Mr. Gutierrez?
Mr. Gutierrez. Mr. Abernathy, in your testimony you said
that foreign countries possess barriers that often adversely
affect transactions. For example, you said that one country did
not allow credit unions. Can you give us other examples of
barriers that foreign countries put in place that debilitate a
transaction?
Mr. Abernathy. I think one of the most significant problems
is that their financial systems are opaque and hard to access
across borders. The ability of financial transactions to occur
across borders is impaired by a number of procedures and
restrictions that make it difficult and raise the cost of any
kind of cross-border transaction. In another country, for
example, in order to engage in any kind of a cross-border
transaction, it is considered to be a foreign currency
transaction. All of those transactions have to be done through
the central bank or the State-owned bank, in essence
disenfranchising any other types of financial providers from
the remittances business and decreasing the competition.
Mr. Gutierrez. Could you provide the committee with a list
of those kinds of barriers so that we might look at them?
Mr. Abernathy. I would be happy to do that. I would say, we
do not yet have a comprehensive list.
Mr. Gutierrez. I understand. But the list that you do have,
I think it would be helpful. As I meet with the ambassadors of
these countries when they come to visit me, and I am sure other
members of the House do as well, we might discuss these issues
with them so that we can suggest they can make the necessary
reforms and changes.
Mr. Abernathy. Sure. I would be happy to do that.
Mr. Gutierrez. It seems to me that hard-working people
spend a large portion of their salaries sending remittances
back to their loved ones in their countries. You mentioned
testimony that competition in the marketplace is a key
component. How is a consumer able to find the best deal when
information is often not disclosed? And how can a consumer
negotiate the best price without proper information? And should
we do anything so that there is proper disclosure, as we have
when I buy a home, for instance, or when I buy a car, for
instance? There are state and federal regulations that dictate
what I need to know about the interest rate and the what fees
are charged.
Mr. Abernathy. As I mentioned, we are working on three
aspects: promoting competition abroad, promoting competition in
the United States, and working on removing barriers. I think
the biggest challenge we have in this country is helping to
educate people about the variety of financial services that are
available to them. I recently made a visit to a financial
institution in North Carolina. You will have the President of
that organization testifying here later today. They are doing a
wonderful job in educating the Latino community.
Mr. Gutierrez. Mr. Abernathy, since I only have five
minutes, what can we do? What do you propose that we do so that
we can have disclosure? Do you agree that there is a difference
in conversion fees, that is from dollars to pesos, that many
times is not adequately disclosed when a consumer goes to
transfer money?
Mr. Abernathy. I understand. I think the key thing is----
Mr. Gutierrez. I know you understand. Do you agree that
those conversion fees are not often clearly established and
stipulated when a consumer walks in?
Mr. Abernathy. I think there are a number of factors that
go into the cost of any particular financial product, and there
is continuing discussion about how much do you need to dissect
all the pieces to give the consumer adequate understanding of
what goes into a particular price.
Mr. Gutierrez. Let me give you an example. There is a
tragedy in Guadalajara, Mexico, an explosion. A company puts
ads on Univision and Telemundo saying, send money free, we are
waiving the fee, that is the $15 fee to send $300 to Mexico.
But is it really free in your opinion is there is a 14 to 18
percent difference in the conversion fee from those dollars to
pesos?
Mr. Abernathy. In order to provide a financial service, the
service provider needs to be compensated.
Mr. Gutierrez. I understand, but if someone says, $15 is
waived, and put that on the airways, waived, send money for
free, but if it was 15 percent on $300, that would be a $45 fee
for transferring it. So I made $45, and it really was not free.
I received $45. What I waived was the $15 fee, but not the
conversion fee.
So, Mr. Abernathy, I want competition in the marketplace,
and we have done that. I think it is part of the government's
responsibility, even if we have a marketplace, because I think
the marketplace in many instances is driven to competitiveness
because of the actions of our judicial system and the actions
of our executive branch, and the actions of our legislative
branch. This is the Los Angeles Times, Wednesday, October 10,
2001, court clears cash wiring settlement, discount coupons for
as much as $400 million. Western Union, MoneyGram and Orlande
Volute agree to pay over $5 million to community organizations,
and they said they would behave themselves. They saw a 10
percent decrease in their business after they began disclosing.
So you see, the courts and the people did get involved and that
is the way our system works. Sometimes when the executive or
the legislative branch ignores the needs of the people they go
to court.
I just want to commend you again because I think what we
have is disclosure: As we use the matricula consular, we are
allowing people to go to their bank, open up a bank account,
that is FDIC-insured and regulated; I know how much money is
sent to whom and when it was sent and by whom in the United
States. I think that kind of transparency is good for this
country.
Ms. Brown-Waite. [Presiding.] The gentleman's time has
expired.
Mr. Gutierrez. Thank you very much. If I could just have
one additional minute, by unanimous consent.
Ms. Brown-Waite. Without objection.
Mr. Gutierrez. Thank you.
I just think that as we approach these issues, because I
understand when the gentleman from Connecticut raises this
issue, that he genuinely feels that there is an issue of
national security here. I just want to work with members of the
committee, not on the Banking Committee, but in another
committee, simply to say if you ate a chicken recently, it was
probably plucked by the hands of an undocumented worker. That
is pretty much established. If you had apples or oranges or
just about anything that we produce agriculturally, it was
probably picked by undocumented workers. If you had a clean
dish at your hotel or your bed was nicely made, it was probably
cleaned by an undocumented worker.
So we all understand, and I will yield to the gentleman,
that there are eight to ten million undocumented workers in
this country. We do not have a program or the political will to
deport them, nor do we have a program or the assets to do it,
and if we did it, we do not know what the impact on our economy
would be. So why don't we integrate them fully so that they
don't need the matricula consular. They are here. They are
working. We receive their services. We should address the
issue.
Ms. Brown-Waite. The gentleman's time has expired, and
because it has expired, you cannot yield your time.
Next, Mr. Hensarling?
Mr. Hensarling. Thank you, Madam Chair.
Just for the record, as the son and grandson of chicken
farmers, I can attest to the fact that a lot of chickens are
plucked and a lot of eggs are hand-picked by those who are
American citizens as well.
I do thank the gentleman for bringing to our attention this
anecdote about the company advertising free remittance services
that perhaps are not free. I think that such charges are very
serious and need to be examined very closely. My first question
for you, Mr. Secretary, is, in your examination of this
industry, are such practices which we would commonly view as
fraudulent and misleading, is this widespread through this
industry?
Mr. Abernathy. We have not conducted a survey of the whole
industry with regard to whether or not there are fraudulent
practices, but we are aware that there are significant laws on
the books to deal with fraudulent practices should they occur.
FTC has resources. There are local laws in place. The federal
financial regulators when dealing with regulated entities are
constantly vigilant looking for fraudulent activities. We would
join with you that where fraudulent activities occur, they need
to be dealt with expeditiously. They need to be dealt with
firmly and in a way that sets an example so that you do not
have further fraudulent activities that spoil the reputation of
the honest service providers.
Mr. Hensarling. In looking at this marketplace, then, I am
trying to figure out what the shortcomings of the marketplace
may be. For example, in your survey of the industry, is
accessibility a challenge? Are there not sufficient locations
and insufficient financial firms offering these services? Is
accessibility a problem?
Mr. Abernathy. Accessibility is not a major problem in this
country. In some of the recipient countries, it is a huge
problem. In fact, what accounts in many cases for the
significant transfer costs is the cost not here at this end,
but of providing the service at the other end in the recipient
country.
Mr. Hensarling. Continuing on this line of questioning, do
you view perhaps financial literacy among, once again it
appears to be an immigrant population that largely uses these
services, is financial literacy a significant challenge? If so,
do you see a role for the federal government in that?
Mr. Abernathy. That is a major challenge. In my view,
financial education is probably the number one most significant
tool we can use to help immigrant populations in this country
make the best and most efficient use of the financial services
that we provide. That is one of the main tasks that I have in
my office. We have a deputy Assistant Secretary for financial
education who spends his whole time working on that issue. His
job is to organize the resources of the federal government and
the private sector to get at the need to helping people
understand how they can make best use of financial services
here.
Mr. Hensarling. Would you agree that some of this financial
literacy is being handled by the marketplace? I alluded earlier
to my hometown newspaper, the Dallas Morning News. An article
yesterday states that Western Union is touting its phenomenal
network in a new $300 million global ad campaign. Citigroup is
advertising that it offers a lower transfer fee of $5 to
Mexico, half the industry average of $10. Bank of America and
Wells Fargo are advertising a Buddy Card whereby receivers in
Mexico can use an ATM card to withdraw the money that is
transmitted. Credit union are teaming with Caja Popular
Mexicana, or CPM, Mexico's largest credit union. It appears to
me that a lot of the knowledge as far as prices and services
are already being disseminated by the players in the
marketplace.
Mr. Abernathy. The vast bulk of the resources that are
available for financial education are private resources. One of
the tasks that we have set for ourselves at Treasury is helping
these people, these private sources, that want to invest their
funds in helping educate populations, helping them recognize
what is the most effective means of doing that, how they can
best use their money. That is where most of the resources are.
Mr. Hensarling. Finally, Mr. Secretary, you mention in your
testimony that well-intentioned, but ill-advised government
initiatives in the remittance market could hurt competition.
Can you elaborate on the potential negative outcomes of
increased regulation?
Mr. Abernathy. I think the key is to understand that every
element of regulation carries a cost with it. In some cases, we
are willing to pay that cost because there is a greater good.
One of the areas is with regard to fighting money laundering.
Every financial service provider in this country has a certain
significant regulatory burden with regard to fighting money
laundering, but we have accepted that cost. We try to reduce it
as much as we can, but it is an acceptable cost.
But understand that each new regulation has a cost with it.
Many of these remittance providers are small operations. Their
margin, their ability to withstand costs, are not infinite. We
need to be careful to ask that if we are going to impose a
regulatory cost, is the value of what that regulation is
bringing worth the service that we are obtaining, and might we
be driving some people out of that market.
Mr. Hensarling. I am out of time. Thank you, Mr. Secretary.
Mr. Abernathy. Thank you.
Ms. Brown-Waite. The gentlelady from California, Ms. Lee,
is recognized.
Ms. Lee. Thank you, Madam Chair, and thank you, Mr.
Secretary, for being here.
Let me also thank Mr. Gutierrez for his very strong
leadership on this very important, but often neglected issue of
remittances.
We all understand the nature of predatory lending, just on
a domestic level. I think part of this disclosure effort with
regard to H.R. 2637, and I am very proud to be a cosponsor of
that bill, is to try to make sure that this predatory aspect of
what we are dealing with domestically here in many of our
communities is stopped in terms of the remittance industry. I
would just like to get your take once again as a follow up to
what Mr. Gutierrez asked with regard to disclosure and what we
can do to protect our constituents and protect those who
receive the remittances from this predatory type of practice.
Secondly, let me just ask you, and I think that this
hearing rightfully so is focused on Mexico, Central and Latin
America. But I am also interested in the character and nature
of the remittance industry as it relates to Haiti and, of
course, Cuba. That is a separate category because of the
embargo. What is the nature and character of that financial
structure? And finally, there are some countries in Africa such
as Ethiopia where we know that there are huge dollar amounts of
remittances taking place.
Then I would like, Madam Chair, to yield the balance of my
time to Mr. Gutierrez after the Assistant Secretary answers my
questions. Thank you.
Mr. Abernathy. Thank you for your questions. Information,
of course, is very valuable. What is done with the information
is equally as important. I think in any kind of consideration
of what kind of information should be available to people who
are deciding what kind of financial services they want to make
use of, is making sure that the people getting that information
understand it; that they know what they are doing with it; and
that it is the information that they particularly need.
One of the challenges that we have with government mandates
for information is there is a constant struggle to discover
whether or not the information that is being provided is
actually the information that is needed, in a form that is
usable. As you know, there is a real struggle going on right
now as we are looking at the Gramm-Leach-Bliley privacy
notices. Congress made a decision, a very good one, that people
ought to know what the privacy practices are of their financial
institutions, but I do not think anybody is satisfied that the
information that is provided subsequent to that law is very
usable. It is heavily legalistic. It is long. It is provided in
an inconvenient way, and it generally has just increased the
costs of financial services without really benefiting
consumers. The financial regulators are looking at that right
now to find out if there is a way to put that into a usable
form.
I think that is the same thing when looking at any kind of
financial service and trying to find out what is it that
consumers are really interested in, and how can we make sure
that that information is provided in a way that they can
understand. We would be interested in continuing to have a
dialogue with you on trying to discover just what are the
answers to those questions, but I think those are the
principles that govern, as well as making sure that any kind of
information requirement can be done in a way that encourages
and promotes competition, rather than increasing the cost of
it.
Within those boundaries, I think we are happy to have a
particularly detailed conversation with you to find the answers
to those.
Ms. Lee. How about as it relates to Cuba, the nature and
character of the remittance industry, as well as countries in
Africa and Haiti?
Mr. Abernathy. As you mentioned, Cuba is a particularly
special case because of the embargoes that we have in place.
The ability to send U.S. dollars abroad and keep them out of
the hands of a very repugnant regime is a challenging one. I do
not think we have the right answer for that, frankly, in any
kind of an ongoing basis. We had similar problems with regard
to countries in Southeast Asia for a time, terrible stories of
families that in essence were held hostage to try to get
remittances from this country that would ostensibly be going to
help the families abroad in these Southeast Asian countries,
but that would be actually gobbled up by the government. That
was not helping anybody.
Ms. Lee. How about the countries in Africa, such as
Ethiopia?
Mr. Abernathy. Countries in Africa, what we are trying to
do there is introduce a regulatory regime in those countries
that will allow financial services to thrive. If we can develop
financial services that reach the consumers, then we can get
remittances into the hands of the families themselves. That is
the biggest challenge there, and the success varies. In some
countries we are having greater success than others. I would
have to get back to you on Ethiopia. I just do not know exactly
what the status is.
Ms. Lee. Okay. Thank you. May I yield what time I have left
to Mr. Gutierrez?
Ms. Brown-Waite. Your time has expired.
Ms. Lee. Oh. Sorry.
Ms. Brown-Waite. The gentleman from Arizona, Mr. Shadegg,
is recognized.
Mr. Shadegg. Thank you, Madam Chairman, and thank you for
this interesting hearing.
Let me begin by asking, as I understand it there has been a
substantial increase in competition in this market in the last
few years. Is that your understanding?
Mr. Abernathy. Very significant. It is almost each month we
find a new product that is offering remittances at lower cost
and increasing variety that meets the needs of people in this
country and in the recipient countries.
Mr. Shadegg. There are companies that specialize in
remittances, and then I take it these companies are getting
into the business. Is that correct?
Mr. Abernathy. You have some specialized companies that do
little more than money transfers. Now, you are having an
increase of regular mainstream financial institutions that are
offering remittance products not only as a sideline, if you
will, as a package of other financial products that they offer
to consumers here.
Mr. Shadegg. Are there some small businesses getting into
this market and doing just a niche market in various areas?
Mr. Abernathy. There are a number of small businesses, a
number of mom-and-pop operations that are providing services
that I have to say must be meeting the need because they
continue to thrive. Customers are using them.
Mr. Shadegg. I understand the gentleman's concern about
competition. One of the concerns I have is, as you have pointed
out, any regulation we might add could in fact be a barrier to
entry and stifle competition. One of the concerns I would have
about any legislation would be if we impose a regulatory burden
which then drives out the small players, we are actually
decreasing competition and perhaps driving up prices. Is that
not correct?
Mr. Abernathy. Yes, I believe that if we just had the major
players in this market, you could see an increase in the costs
prices going back up. I think it is the threat that there could
be new entrants into the market that caused financial players
at all levels to try to lower their costs to gain marketshare.
Mr. Shadegg. To that point of driving up costs, you make
the point in your testimony that remittances to some countries
are easier and less expensive and could comply with a
regulatory scheme, I would assume, more readily than
remittances to other countries. For example, in your testimony
you make the point that remitting money to Mexico, where there
is a pretty established market in the exchange rate and knowing
it and publishing it or disclosing it would be fairly easy, is
much easier than making remittances to smaller countries. Could
you elaborate on that point?
Mr. Abernathy. The key is, you need to have a commercial
relationship to get the costs down absolutely as far as they
can be. One of the goals, I believe, of our effort to establish
free trade agreements around the world is not only to deal with
transfer of goods, but also transfer of services, and
remittance services are an important part of that.
Mr. Shadegg. The gentleman made the point about this
advertisement that disclosed they had waived their fee, and
then they in fact did not use a very favorable exchange rate.
Exchange rates are published for some countries, but are
exchange rates published and is there a market for exchange
rates for every country around the world?
Mr. Abernathy. A lot of countries fix their exchange rates,
so they do not float. They are not exchange rates that change
from time to time. They are either pegged, or in some cases
they are a hard exchange rate. The same exchange rate that
prevails today will prevail tomorrow until there is a
significant government change.
Mr. Shadegg. But aren't there also countries where it is
difficult to establish the exchange rate because there is no
ready market between the United States and that country?
Mr. Abernathy. Certainly. Yes, there are some currencies
that are just not convertible, and it is hard to figure out
what kind of appropriate exchange rate there may be.
Mr. Shadegg. One of the concerns I have is that some of the
legislation that is being contemplated turns a kind of a blind
eye to the differences between countries and says, well, you
must publish in advance the exchange rate for every country in
which you do business. As I understand it, that would be, if
not impossible, at least difficult, maybe in fact impossible,
and certainly would drive up costs for any business that was
involved in doing remittances to smaller countries.
Mr. Abernathy. Yes. I think what we need to be careful of
is any kind of regulatory regime that has at its heart a model
that does not apply in these countries. It may be a model that
might apply better in financial transactions between the United
States and Britain, than might be the case with a financial
transaction between the United States and a Caribbean country
or in a country that may have multiple exchange rates. Which
one do you publish? There are several countries that have
exchange rates for domestic transactions, another exchange rate
for international transactions. The variances and the varieties
are very wide and would be very difficult to capture by any one
single rule.
Mr. Shadegg. Do you know if, for example, requiring the
publication in advance of the exchange rate of every country
you did business with would in fact cause some of the major
players to quit doing remittances to certain small countries?
Mr. Abernathy. You certainly do not know for sure which
ones might, but certainly a company would have to ask this
question: Are remittances a major part of my business or is it
a sideline? A lot of companies offer it as a sideline.
Convenience stores might offer it as a sideline. And they might
consider, I am opening myself up now to a very significant
regulatory cost by offering this service. Am I going to be a
day late with my publication of exchange rates? Am I going to
have the latest list? Am I putting it in the right place? They
might decide, just forget about that.
Mr. Ose. [Presiding.] The gentleman's time has expired.
Mr. Shadegg. Thank you.
Mr. Ose. The gentleman from Wrigley Field.
Mr. Emanuel. Thank you, Mr. Chairman. I would like to yield
my time to my good friend and colleague from Chicago, with one
caveat, that if I can also just start with a question about
what we could do to encourage the credit unions and other
financial institutions to get into this marketplace. What are
the incentives we need to do that? And I yield the remaining
part of my time to my friend, Congressman Gutierrez.
Mr. Abernathy. There are a number of credit unions that are
already getting involved. We are excited by the number of
credit unions here in this country that are involved, because
in many cases credit unions have had the greatest success in
reaching out to immigrant populations. A lot of people that
come to this country come from countries where banks were not
friendly creatures. They were owned by governments or often
used to expropriate their customers' resources, so these people
are very reluctant to get into the banking system in this
country. But they have been open to the mutual concept of a
credit union and have been willing to join credit unions in
increasing numbers.
So the involvement of credit unions in this country is very
important. We are working with the credit union associations to
try to encourage that. Moreover, there is an international
association of credit unions that is working not only with our
credit unions, but credit unions abroad to increase the use of
credit unions in recipient countries as recipient venues for
remittances. I think that is important abroad because in many
cases a credit union can operate at a lower cost than a larger
mainstream financial institution can.
Mr. Gutierrez. Thank you. I thank the gentleman from
Illinois for yielding the time, and I was very happy with the
outcome of last night's game.
[Laughter.]
The issue is not that we want to curtail activity. The fact
is that some might extrapolate from comments made here that
there is this great community and there is all this competition
and that it all happened in a vacuum. That is to say, everybody
woke up one day and said, hey, let's be fair and competitive. I
do not think that is what happened. I think there were lawsuits
filed in the year 2000; millions of dollars paid out as a
result of those lawsuits. Of course, as in many lawsuits,
nobody claimed fault, just millions of dollars were paid. Up to
$400 million in coupons were offered. There was a settlement
reached.
I think what we want to do is have transparency. One of the
problems is that immigrants do not trust the banking systems
from the countries that they come from because of the lack of
transparency. I would like to assure them and to guarantee them
that in America there is transparency when you make some kind
of financial transaction. So I look at it, and I say, look at
our United States Postal Service. It is in the business. Now,
they charge you a fee. They tell you what the fee is, and they
partner with the Mexican bank, BancoMER, and they establish the
exchange rate. The fact is that there are different exchange
rates, and the public cannot know what it truly is costing them
to send money.
We have already established that this is a $1 billion
industry to Mexico alone.
Mr. Abernathy. Each month, each month. Yes.
Mr. Gutierrez. $12 billion a year, a huge industry. I do
not think anybody is going to walk away from it because we say
you have to establish what the exchange rate is. What we want
is for people to know what it is going to cost, because these
workers make some of the lowest wages, work the longest hours,
and then what do they do with their money? God, if we would all
do it. They send it back to their mom, their dad, their
brothers and sisters. So as you said, Mr. Secretary, they can
stay in school, they can get healthcare.
So, they are not investing it. The thing is, Mr. Secretary,
all we want to do is figure out a way so that I or any member
of this committee or any American tourist, when they visit
Mexico, can understand the exchange rates. You don't need to
have an MBA from the University of Chicago to understand
exchange rates. You go to your hotel. It says pesos to dollars.
You go to the local bank, it says pesos to dollars. They are
posted everywhere and they are clearly available.
Do they change on a day-to-day basis? Yes, they change on a
day-to-day basis, and they are competitive. But the fact is, we
should be able to reach some kind of way so that when I walk in
and I say I want to send $300 to mom, and they say it is going
to cost me $15, I should at least get somewhat the exchange
rate that the tourist in the hotel in Acapulco or Cancun is
getting. Don't you think we should try to get that kind of
exchange rate?
Mr. Ose. The gentleman's time has expired. We are going to
let the witness answer the question.
Mr. Abernathy. I think there is no disagreement between you
and the Treasury on the need to get these costs down, to make
sure people understand what the costs are. I think the problem
is extremely complex, however. I lived for two years in Spain,
not terribly long ago. I was a missionary. I in essence lived
by remittances, because each month I would get a check from my
parents that would keep me going for the following month. I
remember going around trying to find out what was the best
exchange rate. I found on any given day I could find four or
five different exchange rates depending on where I went,
because there are different ways that a financial institution
can be compensated. They can be compensated by just a regular
fee. They can be compensated in the exchange rate that they
offer you, or in the fee that they charge as a percentage of
that exchange rate. I do not know that we want to be in a
business of saying which is the best way for you to be
compensated. But we are eager to continue to have this dialogue
with you and to find out if there is a way to identify the best
means of getting the right information into people's hands, so
that we can promote these markets.
Mr. Ose. The chair, having arrived early and not having
claimed his time, is going to claim his time and yield to Mr.
Shays.
Mr. Shays. Thank you, Mr. Chairman. What I would do,
though, I would love to be able to utilize your time after my
other colleagues have spoken, with your permission.
Mr. Ose. We will rescind my recognition of time.
Mr. Shays. I hope you give it to me later, sir.
Mr. Ose. I don't know.
[Laughter.]
I will have to get back to you on that. I am going to
recognize the gentleman from California, Mr. Royce.
Mr. Royce. Thank you, Chairman.
Mr. Secretary, I want to thank you for your thoughtful
testimony on the topic of remittances this morning. This is a
very important subject to my district. I am pleased that this
issue is being debated before this committee.
Since we are fortunate, Mr. Abernathy, to have you here
this morning, I wanted to ask you a few questions about GSE
regulatory reform as well. Specifically, people engaged in the
GSE debate seem very concerned right now about the topic of
mission regulation, and specifically on product approval. I
believe the new regulator should have the authority for product
approval, but could you tell me the Treasury's position on
where product approval authority should reside? And could you
explain to me the rationale for that position?
Mr. Abernathy. Certainly, Congressman, and thank you for
asking that question. In essence, I will be just re-echoing the
testimony that Secretary Snow presented here. In our view, we
need to solve the problem. The problem today is that the
regulators for our GSEs, they were never given enough authority
and they have not grown in their authority, particularly not
nearly as quickly as the agencies they regulate have grown in
activities and significance in their markets.
One of the most significant authorities that the GSE
regulators currently do not have, and they suffer for not
having it, is the ability to review and on occasion perhaps to
say no to a new product or a new activity. If you ask a bank
regulator, you might have a discussion with members of the OCC
or the OTS, ask them how significant new activity authority,
the ability to review new activities, is as part of their
panoply of tools to properly regulate institutions. I think
they would say it is essential. They could not do their job
without it.
We are concerned that we get this legislation right so we
do not have to come back here a few years later and say we blew
it. We had an opportunity to give the regulator full
authorities that they need and we did not do it, and now we
have to come and do it again.
Mr. Royce. Thank you. I have another question. I have been
arguing for some time that the risk profile of the federal home
loan bank system is changing. I would like to ask if you agree
with me, and if so, if you could explain how the acquisition
and the retention of mortgage assets has changed that system in
terms of new types of interest rate risk and so forth.
Mr. Abernathy. Certainly, the federal home loan bank system
is an evolving one. It always has been, but I think the pace of
evolution has increased over the last 10 years, partly as a
result of new powers that were given to the federal home loan
bank system under the Gramm-Leach-Bliley Act; partly just
because of changes in the marketplace. In addition to the
traditional role of providing liquidity to banks, there are a
number of federal home loan banks that offer particular
products with regard to mortgages. Certainly, that has to
change the risk profile of these institutions. I do not know if
it makes them more or less risky. That is really an issue for
the regulators to evaluate, but it certainly changes the risk
profile. The regulators need to have the authority and ability
to adjust to those changes in risk.
Mr. Royce. A last question, again on the issue of GSE
reform. I put forward a proposal in which we constructed a new
regulator with independence from the Treasury, and that would
be along the same lines as the OCC and the OTS, the same
concept. It seems to me that there are a number of similarities
between my proposal and the Treasury's. However, the Treasury
does not want the ability to review policy. I was going to ask
you, why does the Treasury believe that this is an important
component of the reforms you are putting forward?
Mr. Abernathy. I think it would be impossible for me to
overemphasize how important that responsibility would be, to
place that responsibility with Treasury. While we are looking
at the mission of the GSE regulator, an even more important
mission that we have to keep in mind is, what is the mission of
the Treasury? The Treasury has the responsibility for the cash
flows, the in-comes and the out-goes of the entire federal
government. An essential element of that is the role that
Treasury plays in going into the marketplace, the Treasury
bills, the Treasury notes, and other instruments that carry the
full faith and credit of the federal government. We must do
nothing that compromises the ability of Treasury to go into
those markets clean and to preserve our reputation, our
spotless reputation in those international marketplaces.
To place the regulator for government-sponsored enterprises
that each year are into the marketplace for trillions of
dollars, not billions, trillions of dollars, if you are to
place that regulator within the Treasury, but not give the
Secretary of the Treasury any authority over how that entity
carries out its responsibility, is to place in jeopardy the
ability of the United States to offer its own debt instruments
and to protect them from contamination from whatever should
happen to the GSEs.
Do we want to be in a situation where the troubles of a GSE
can flow into and affect the ability of the federal government
to issue its own debt? We cannot be in that kind of a
situation. That would be an intolerable situation. All we have
asked is that the Treasury secretary be able to have
responsibility for reviewing new regulations and when policy
issues are presented to the Congress. I think that is the
minimum that is needed to make sure that we can protect the
Treasury from any kind of contamination in the regulatory
efforts over the GSEs from Treasury's main responsibility.
Mr. Ose. The gentleman's time has expired.
Mr. Royce. Thank you, Mr. Chairman.
Mr. Ose. The gentleman from California, Mr. Sherman.
Mr. Sherman. We do not have enough time to deal with the
GSEs. Let me just comment that you have state-regulated banks
that are reviewed for safety and soundness by the federal
government and federally insured. So the idea that the federal
governments needs program oversight in order to provide for
safety and soundness is one that you might respond to in the
record.
Mr. Abernathy. I would be happy to do that. Thank you.
Mr. Sherman. The idea that someone's immigration status
should cause us to not want to provide consumer protection
seems relatively absurd. If we want to deal with our
immigration laws, that is one thing. But when you sign up for
the do-not-call list, we do not ask you what your immigration
status is, nor has anyone suggested that we can reduce the
number of undocumented workers in this country if we just
afflict them with telemarketers, nor is afflicting them with
lack of consumer protection and financial services likely to be
an effective substitute for the immigration policy our country
does not have.
I think it is important that we move forward with reform in
this area for the terrorism control aspects. If we are
successful in pretty much driving out of business the gray
market operators, then they will be small enough so that law
enforcement can concentrate on what they do, while using
computers and cooperation to look at the big operators who will
then have most of the business. Terrorists will always use the
black and gray market operators, but when those operators are
doing billions of dollars, it is going to be hard to find the
needles in the haystack. If we can get all the hay out of the
black market, then you will be able to find the needles.
The question is, how do we get better consumer protection,
lower prices, better exchange rates, as Mr. Gutierrez has
pointed out the need for, to those who are sending money
abroad? We need more information for people, and especially
more competition. In the absence of competition and the absence
of information, certain companies make outrageously high
profits. Who is making the high profits now? Is it those who
control the incoming, the U.S. branches, or those who control
the branches in foreign countries?
It occurs to me that there are dozens of companies in my
district anxious to compete for this remittance business. But
if the only way they can get that money to a village in
Guatemala is contract with one company in Guatemala, then they
all are competing for the opportunity to pay a very high fee to
the Guatemalan side of the transactions. Perhaps, Mr.
Secretary, you can tell us, if you are paying $20, how much of
that is going to the U.S. side and how much of that is being
paid to those who control the foreign side, whether it be a
U.S. company or whether it be a Guatemalan company, or
whatever. Do we know?
Mr. Abernathy. I think you are demonstrating one of the
tough challenges that we have. Just by looking at a price
itself, you have no way of knowing how much of a profit is the
particular company obtaining from that. We do know that in
several countries, the recipient market, if you will, is so
controlled that there you do have parties that are obtaining
monopoly rates. You have to go through certain channels, and
those people, they take advantage of that.
Mr. Sherman. What I would ask the Department of the
Treasury to do is to issue a report, because this concerns us.
It is one thing if a foreign country is inefficient in this or
that transaction, but here it is a U.S.-foreign country
transaction. To issue a report as to which countries are doing
a good job of serving consumers on both ends of this
transaction, and which countries are not, that could be a very
powerful force in causing certain countries to get away from,
sometimes they are tied to tradition; sometimes the government
is making a fortune on this; sometimes, and I know it never
happens here in the United States, powerful political interests
are exercising some control as to how financial services are
operating. A U.S. government report that said, here are some
countries that could change in this or that area, so that both
sides of this U.S.-initiated transaction could be treated
fairly, could certainly open things up.
I would like to shift to one other question. I see you
nodding. Can we count on you to issue such a report?
Mr. Abernathy. Yes. I would be happy to comment. I think
that is an excellent idea. From time to time, the federal
government has issued reports on the barriers to financial
services. This is certainly an area where the barriers to
financial services have some very real human welfare
consequences to it. It is not just a matter of whether or not
an American company has the opportunity to market its products
abroad. We see here where the barriers are decreasing the
ability to send livelihood to a family, to help them meet their
daily needs or maybe even build for the future.
Mr. Sherman. Yes.
Mr. Ose. The gentleman's time has expired.
Mr. Sherman. My time has expired.
Mr. Ose. The gentleman from New Jersey.
Mr. Garrett. Good morning.
Mr. Abernathy. Good morning.
Mr. Garrett. I appreciate the testimony we have heard so
far, and I am encouraged on the one hand, by the positive
effects that the market forces have had in this area, basically
driving down the cost to consumers who want to engage in these
activities. I want to follow up with just one question along
the lines that my colleague from Connecticut was raising.
While we have the objective of trying to make it easier for
immigrants to our country to be able to engage in this activity
and send money back, as the Statement over here on this side of
the aisle was, to mom and dad who are still living overseas and
need the funds and benefit to the other countries, I think we
can agree that we do not have the objective of providing this
service for illegal immigrants to do so, whatever the noble
causes they may have over there, where they are sending the
money back.
This committee has had the opportunity in past months to
have hearings in the area of money laundering and terrorism use
of funds that are sent back. My colleague raised some of those
points. I was struck by your comment when they were raised, to
say that, well, we do not do this in the area of checking for
identification at the food store or what have you. And my
colleague on the other side raised the interesting point as far
as telemarketers. Maybe we should just say that the only people
that telemarketers can call are illegal immigrants, and that
might have an impact on immigration here.
You raise a point in a serious note that we do not do this
in other areas, but obviously in the financial area we are
talking about something that is regulated by the federal
government. The banks are chartered by the federal government.
It is only in a banking situation where we already have the
law, correct me if I am wrong, that if I want to go in and open
up an account at my local bank that I have used for 20 years, I
have to provide proof of identification now. Is that correct?
Mr. Abernathy. Yes.
Mr. Garrett. But I do not have to do that if I go to the
food store or if I go to use a telemarketer. I do not have to
do that in those areas. So we are regulating and provide for
identification in these areas. So can't we in this committee be
able to draw a distinction where there are certain areas where
we need to provide identification and there are laws already on
the books saying you have to provide identification, that that
identification has to be a valid form of identification? And
the other areas such as food stores, telemarketing companies,
the dry cleaners, where we are not asking for identifications,
we can draw a bright line between those two areas and say which
ones we will regulate and which ones we won't.
Mr. Abernathy. Yes, sir. I agree with that entirely. In
fact, the regulation we put forward places an affirmative
obligation on the part of financial institutions to be sure
that the form of identification that they are receiving is a
valid form of identification. That is the obligation that is
placed upon the financial institution. It is enforced by the
financial regulator. When they examine a bank, they ask the
bank, what are your practices to make sure that your new
accounts that are opened are being opened by people who present
to you valid forms of identification? Frankly, the burden is on
the financial institution to convince the regulator that their
system is a bona fide system to verify that that person is who
that person says he is.
Mr. Garrett. And would it be satisfactory to a regulator
that the bank provides them with something as far as
identification?
Mr. Abernathy. Currently, most regulators do, yes. It is a
bank-by-bank relationship, but as I understand it, bank
regulators will rely upon ID cards, and there are a variety of
different forms of identification that they use, in many cases
multiple forms of identification where they think that
additional forms are necessary.
Mr. Garrett. Why, then, should I feel satisfied that there
is any legitimacy whatsoever to that form of identification if
this state or this nation has no control over the adequacy of
the documentation initially required to get that form of
identification? Why should I feel satisfied that the regulators
are doing a good job by accepting that identification?
Mr. Abernathy. I think really the proof would be in the
pudding. If it turns out that the regulators are allowing forms
of identification that are lending themselves to significant
volumes of fraudulent identities, then they ought to look at
those and say, that does not work for us.
Mr. Garrett. Let me ask you this question, then. Who would
be using those forms of identification?
Mr. Abernathy. The consular ID's?
Mr. Garrett. Yes.
Mr. Abernathy. In many case in this country, probably the
vast number of them are used by people who are otherwise
undocumented here in this country.
Mr. Garrett. So can you think of anyone who is in this
country, other than an illegal immigrant, that would be using
one of those forms of identification?
Mr. Abernathy. We have received information from the State
Department and others that they are used by a lot of people
here for valid reasons, so that they do not have to produce
their passport frequently, for fear of losing their passport,
or people who have lost their passport. People who come here
from Canada, for example, they do not bring their passport with
them. They use a driver's license as their form of
identification. We do not require a passport to come from
Canada.
The question that the financial services regulator is
supposed to ask is not are you here legally; the question is,
are you the person that this form of identification claims that
you are. That is the issue that I need to know as a financial
service provider.
Mr. Ose. The gentleman's time has expired.
Mr. Garrett. If I could just ask this final question?
Mr. Ose. You are going to have to get it on the second
round.
Mr. Garrett. Okay. Thank you.
Mr. Ose. The gentleman from North Carolina.
Mr. Miller of North Carolina. Mr. Chairman, I yield my time
to Mr. Gutierrez.
Mr. Gutierrez. Thank you very much.
As you can see, I guess that is why we have two parties,
differing opinions on how we see things. But I think there is
some commonality that is being derived as I listen to my
colleagues on both sides of the aisle. And that is that there
is an optimism on one side of the aisle that things are pretty
good and if we leave them alone, they will probably get better.
There is a slightly more pessimistic look on this side of the
aisle that things are getting better, and we need to make them
better and we should do some things to make them better because
there are still some problems out there.
I think we can all agree there are still some problems out
there; that we do not have a perfect system; that we have a $12
billion industry just to one country alone, and that country
happens to be, what is it, our second trading partner in the
world, Mexico?
Mr. Abernathy. Second, and perhaps quickly becoming our
first.
Mr. Gutierrez. And quickly becoming our first, which means
that when we send these dollars back to Mexico, and they are
converted to pesos, the more pesos they have, the more they can
buy American goods, so more American workers thrive and have
jobs, because our economy is global. When one person has money
and spends it, he buys goods and products.
Secondly, immigration issues are raised. I think you were
pretty clear, Secretary Abernathy, when you said their kids
have more of a tendency to be in school. They will be better
educated, less likely to emigrate to another country and stay
in their country, and very, very important, probably,
strengthen that country; strengthen the intellectual fortitude
of that country so it can be stronger and provide a more robust
economy that will provide jobs for their people. Because people
do not wake up one day and say, I want to travel thousands of
miles across a dangerous border to a country where I do not
understand the culture, the mores or the language, simply
because that is what I want to do as an adventure. They do it
because they have very serious needs.
So I think that maybe if we could establish some kind of
working force, because it seems to me, Mr. Secretary, that the
President was very wise and very prudent in the very early
months of his administration when he set forth, with President
Fox of Mexico, to figure this out. Probably as the former
governor of Texas, he had very good experience at understanding
the relationship between the United States and Mexico. As I
recall, he said he wanted to figure this out, figure out what
we do with the undocumented workers here and how we provide for
them to come across the border and work in industries where we
do not have enough workers. He also wanted to establish some
kind of sense of certainty about the money.
I have listened to Secretary Colin Powell, state the same
things, that we need to go back. Maybe we need to go back to
that discussion and that debate so that we can take care,
because I think that Mr. Shays' concerns and Mr. Garrett's
concerns about issues of national security are prudent and
reasonable and well-founded concerns, and we should address
them. But I think we are going to need a holistic approach to
address them, so that we can get at them.
I, as a member of Congress, which last time I checked was
among the number one percent of wage earners. Does $155,000
count for number one percent of wage earners?
Mr. Abernathy. I would think so, probably yes.
Mr. Gutierrez. We have Treasury to establish, the number
one percent of wage earners in the United States. I pay $2 to
get $300 exchanged. We need to look into this framework, so
that I, a person among the number one percent of wage earners
in the United States, go on vacation, use the money to rent a
jet ski, then the person who makes minimum wage, who is sending
money back home so that his mom, his wife, his children can be
better fed and better educated, obviously a higher purpose than
a jet ski, can get somewhere a better exchange rate or a
similar exchange rate to the one I get. I think that there is
probably no disagreement on either side of the aisle that that
should be a goal.
How can we work, because we will have this hearing.
Everyone will go back home and things might not change. How do
we get there, Mr. Secretary? What would you propose we do?
Mr. Abernathy. I can tell you, after this hearing I go back
to work on these issues. These are issues that we deal with
every day. I think we have had a lot of success. But you are
correct, there is a lot more that needs to be done.
I think it is not only the exchange costs that we want to
reduce. There are a lot of other fees that we would like to get
down. We would like to reduce the fees of just obtaining the
kind of cards that allow the low-cost transactions to be
executed. We are trying to get a lot more people in this
country to establish savings accounts, checking accounts; to
get their credit card so that they can take advantage of the
products of some of these large banks that are establishing a
system where people in Mexico can just have a card and go to a
number of different merchants, and they avoid the exchange fees
almost entirely.
Mr. Ose. The gentleman's time has expired.
The chair is going to claim his time now, and yield to the
gentleman from New Jersey.
Mr. Garrett. Thank you. Just a clarification, you said
there has not been a preponderance of evidence to indicate that
the matricula consular cards are being used in this manner, and
if it were, then maybe you wanted to have the regulators look
into whether they should be accepting them or not.
Mr. Abernathy. Used in a fraudulent manner.
Mr. Garrett. Right. My question then is, how can you make
that statement since we do not have control over what
documentation is necessary to prove who these people are? It is
a foreign nation that is doing that. So how do you verify there
is not illicit use of these cards, that the people really are
who they are, then?
Mr. Abernathy. Well, based upon law enforcement processes
where you have people who are trying to engage in fraudulent
transactions on the basis of a fraudulent ID, the same way that
we would find out whether or not someone has a fraudulent
Virginia driver's license or a fraudulent Canadian driver's
license. We do not see that the incidence of fraudulent use of
consular ID's is any higher than it is for domestic driver's
licenses or many other foreign sources of identification.
Mr. Garrett. Okay. Thank you.
Mr. Shays. Thank you.
When you talk about the whole issue of immigration, it gets
touchy. So you watch your words carefully and Mr. Garrett does
and all of us are trying to. But it gets more touchy when we
try to deal with the issue of illegal immigration. I just want
to say, I would double legal immigration, but I want us to
crack down on illegal immigration. I am troubled that we have
people who jump in line in front of the people I am trying to
help. They range in thousands, who come to my office who are
trying to get their parents here legally, their children here
legally and so on.
It bugs the heck out of me that we have a government, the
Department of the Treasury, that is facilitating illegal
immigrants. That is why I raise these questions. It bugs me
that we passed a PATRIOT Act that said you need to verify who
is registering. I find it, Mr. Abernathy, extraordinarily
disingenuous for you to suggest that these cards that are
issued by foreign countries are valid identifications. We were
trying to stop this stuff.
Now, under the rules you adopted, you said a taxpayer
identification number, Social Security number, individual
taxpayer identification number, employer identification number
and so on. Now, is it legal for a company to hire an illegal
alien?
Mr. Abernathy. I am no expert.
Mr. Shays. You don't have to be an expert.
Mr. Abernathy. I am not an expert on immigration laws, but
I believe that there are rules governing that.
Mr. Shays. The answer is no.
Mr. Abernathy. Okay.
Mr. Shays. The fact that you don't know that, and you would
say you are not an expert and would not answer it, I find mind-
boggling. You know it is illegal to hire illegal aliens, don't
you?
Mr. Abernathy. I don't know the total details of how and
under what circumstances.
Mr. Shays. I am not asking the total details. Is it legal
to hire an illegal alien?
Mr. Abernathy. As a general proposition, no.
Mr. Shays. Thank you.
So then you get, in your numbers you say in one of the
requirements, number and country of issuance of any other
government-issued document evidencing nationality or residence,
and bearing a photograph or similar safeguard. Isn't it true
that this will allow people who are illegal aliens to be able
to make financial transactions?
Mr. Abernathy. It would allow financial institutions to
accept identifications from people who are illegally here, yes.
Mr. Shays. So how can you suggest otherwise, then you are
enabling financial institutions to basically assist the
financial transactions of people who are here illegally?
Mr. Abernathy. I am not quibbling with that. I think they
do. They allow people who are here illegally to engage in
financial transactions.
Mr. Shays. Then why would we do that if we make it illegal
for someone to work here illegally? Isn't the money that they
earn, earned illegally if they are working illegally?
Mr. Abernathy. I presume that it is, but I wouldn't know.
There are many people that might receive money from other
sources.
Mr. Shays. But the bottom line is, the answer is yes again.
So we are left with the fact that our government, contrary
to the PATRIOT Act, has decided to facilitate individuals who
are here illegally, working illegally, and enabling them to
make financial transactions. I find that a contradiction I
cannot figure out.
Mr. Abernathy. Our regulations are not only fully compliant
with the PATRIOT Act, but they carry out both the letter and
the intent of the PATRIOT Act.
Mr. Shays. No. I am going to dispute that, because the
PATRIOT Act says we want verification. And you know and I know
that this is the easiest way to have fraud, the easiest way to
allow people who are here illegally to not disclose their true
names, the easiest way to allow for the very thing we are
trying to prevent, corruption and terrorism et cetera.
Mr. Abernathy. I would have to disagree with that. I don't
think the evidence demonstrates that.
Mr. Ose. The gentleman from Texas, Mr. Gonzalez.
Mr. Gonzalez. Thank you very much, Mr. Chairman. I am going
to try to be as quick as possible. I apologize for getting here
late, Mr. Secretary, and missing your testimony. In reviewing
your written submission, though, you indicate promoting
competition in remittances, and what you feel are three main
components of this efforts, one, promoting competition in the
United States for the origination of remittances. Do you have
any comments, does the department have a position regarding the
proposed merger of First Data and Concord EFS?
Mr. Abernathy. No, we do not have any particular view on
that, not that I am aware of.
Mr. Gonzalez. Do you know if that is up for consideration,
that you will be expressing any kind of opinion? Because we
know that there is going to be some inquiry and certain groups
may be opposing it and asking the Department of Justice to look
at, which I would imagine that is appropriate. What would your
department in essence be doing, if anything, that you know of?
Mr. Abernathy. That is not something that is handled in my
office, but I can certainly make inquiries with other parts of
Treasury that would be dealing with that, and get back to you.
Mr. Gonzalez. Yes, because some opinions are being
expressed that it goes against what you are proposing in the
way of increasing competition. That is all I am asking. I have
not taken a formal position. We have discussed it with
different representatives from both opposing sides to the
argument. I was just wondering if anything had been done on
that.
I do want to touch on a couple of issues that have been
brought up by my colleagues. I think we all respect one
another's opinions. We just come from different perspectives
and for different reasons. But in the whole scheme of things,
when we are talking about remittances and we are talking about
identification, and we think of the PATRIOT Act and what we are
trying to accomplish, in the big scheme of things, when you
think of terrorists, when you think of how they accomplish
their goals, is truly what we are talking about here at this
hearing today, remittances, does it really pose that great a
danger?
Everything is a danger, and we can only safeguard against
some and better against others. Better against others should be
we have a priority list, like anything else. But again, the
terrorists of September 11, my understanding is the way they
got around was using credit cards. The night before, they were
even at Wal-Mart buying the most curious items, but
nevertheless purchasing them. My understanding is that there
are false identifications, rather appropriate ones, used to
open accounts here in the United States with financial
institutions. It is my understanding that we have third-
parties, basic fraud, using those accounts of legitimate third
parties, organizations, foundations and so on, to finance
terrorism. Isn't that the greater concern that what we are
trying to accomplish here regarding a remittance by anyone here
in the United States, whether legal or illegal?
Mr. Abernathy. The regulation squarely and clearly outlaws
any fraudulent use of any form of identification, whether it is
a U.S.-based form of identification or foreign-based form of
identification. The question that the financial institution has
to verify is, are you the person whose name and photo appears
on that document. If you are not that person you are pretending
to be, then that is a fraudulent use of the identification. It
is not a question of, are you properly here in the United
States. The question is, are you who you pretend to be. That is
the question the financial institution has to ask.
Mr. Gonzalez. But in your determination, when it comes to
your responsibility under the PATRIOT Act, you feel that you
are fulfilling that responsibility, both letter and the spirit.
When we come to the spirit it is, what are we doing to
safeguard ourselves from terrorist attacks from within, and how
people get financed and how the terrorists operate and how they
get their cash, their dollars, their credit and so on. But what
you are proposing here does not go contrary to that mission or
responsibility.
Mr. Abernathy. In fact, Congressman, it is our view that
were we to adopt a regulation that said to eight million or
more people in this country, get out of our financial system,
go into the black market, we think that would be a serious
security risk.
Mr. Gonzalez. And I agree, because I think the criminal
mind would welcome the opportunity to service a great segment
of the population of the United States, whether they are here
documented or not documented. That is another day, another
committee, and it is called immigration policy in the United
States.
Mr. Shays. Will the gentleman yield for a question?
Mr. Gonzalez. Let me see if I can rush this last question.
Mr. Shays. I am not really disagreeing with you. I just
would like to ask one question that was just stated, if I
could.
Mr. Gonzalez. Okay. The last thing on the GSEs. I know that
was interjected in this, and we have to address it. The concern
is, you are saying that Treasury should be looking at products.
I think if you have a GSE that is responsible, imaginative,
creative and innovative, they will remain competitive. The
reason you have to do that is if you look at charter, mission,
product. You start a product to allow you to accomplish your
mission. You do your mission to allow you to do that which your
charter dictates. If we give Treasury, which can be highly
politicized, the ability to sanction or disapprove of certain
products, you could accomplish changing mission and charter de
facto because you really are going at the very lifeblood, and
that is the product. Would you agree with that assessment?
Mr. Ose. The gentleman's time has expired. We are going to
have you respond to the question.
Mr. Shays. Sir, I interrupted him and I would like to give
him a little more time. I am sorry.
Mr. Ose. I have it under control here. Mr. Secretary, if
you would respond to Mr. Gonzalez's question we would
appreciate it.
Mr. Abernathy. Yes, thank you, Mr. Chairman.
In our view, the key issue is, if you are going to take a
new agency that has responsibility for the government-sponsored
enterprises, and the intention is to place that agency in the
Treasury, which by the way Secretary Snow did not ask for. If
you look at his testimony, he said we need to have a new agency
and it needs to have all the powers to be able to do its full
job. If the intention is to place that agency in Treasury,
there are certain standards. We have to insist on those
standards because of Treasury's main responsibility, which is
with regard to the debt and the financial management of this
country.
If you want to place this new agency within the Treasury,
you have to allow the Secretary of the Treasury to have some
say over what that agency does, or else you end up worsening
the current problem, the current perception in the country that
the government stands behind the financial products of those
government-sponsored enterprises. We cannot reinforce that.
That is all that you would achieve if you took a new agency,
put it in Treasury, and the Secretary had no say over the
policy, all you will have achieved is reinforced that
misperception that is already in the marketplace.
Mr. Ose. The gentleman from California, Mr. Baca.
Mr. Baca. Thank you very much, Mr. Chairman.
Mr. Secretary, regulated credit unions in Mexico still do
not have direct access to banks in Mexico's clearing settlement
system. I believe that we need to reach out to Mexican
communities that are served solely by credit unions. What can
we do in Congress to ensure that safe and sound Mexican credit
unions are afforded direct access to clearing and settlement
systems?
Mr. Abernathy. I agree with you entirely, Congressman, that
what we want to be able to have is the widest reach of
financial service products to people not only in this country,
but in Mexico as well. In many cases, particularly in low-
income areas, credit unions may be the more successful
financial institution to reach those people. That is the kind
of conversation that we have with Mexico and other countries as
well, trying to do what we can to encourage them to broaden
their financial regulation to allow all of their financial
institutions to be involved in the remittance business.
Mr. Baca. Thank you. The next question that I have, Mr.
Secretary, remittance senders are often unaware of the full
costs they are paying for money transfer. According to the Pew
Hispanic Center studies, about half did not know why additional
costs were being paid; less than one-fifth knew the difference
between published exchange rates and the rates used in the
transfer process reduced the amount delivered. More than three-
quarters described themselves as lacking knowledge of the
available options for sending remittances. Given these
statistics, how would you rate the effectiveness of existing
financial literacy programs, which is question one, and what
more can be done by the financial service industry or by the
Treasury Department and/or by Congress?
Mr. Abernathy. You have identified one of the biggest
problems that we have with regard to consumer financial
services in this country. I would say it is probably second
only to the problem of identity theft. That is the problem of
educating consumers on how they can best make use of the wide
variety of financial services that are available to them. The
financial literacy problem is huge. I liken it really to the
State of literacy in general that was in this country 100 years
ago. We have that large of a problem in the area of financial
literacy, of reaching out to people and helping them understand
what are the basic building blocks of just day-to-day financial
services. How do I manage a checking account? What can a bank
do for me? What can a credit union do for me? How do I best
manage my debt? Should I borrow or shouldn't I borrow? What are
the different fees that are charged and where do they come
from?
We have made some good progress on addressing the issue of
financial literacy, but there is a lot more work that needs to
be done.
Mr. Baca. Okay. Thank you. My final question would be in
reference to responding to the question that Mr. Shays asked
you. The responsibility of the Treasury Department or financial
institutions, is clearly just to match the ID with that
particular person. That is correct, right?
Mr. Abernathy. Yes.
Mr. Baca. It is not your responsibility to be an INS, to
determine whether that person is illegal or legal. Is that
correct?
Mr. Abernathy. The responsibility is, are you who you
pretend to be?
Mr. Baca. Right. And it is normally the employer, who
happens to be a non-minority normally, that ends up hiring the
individual, where they are actually making the money, and the
other individuals are just trying to send that money or
whatever money they made by the illegal employer who actually
hired him. Right? Is that correct?
Mr. Abernathy. I certainly would not want to address the
employment issues. I am just not an expert.
Mr. Baca. I realize that, but as we were asking the
question, I know that there had to be some kind of a
transaction that happened before, which means that an employer
happened to hire that person before the banking institution
even transferred anything, and all you are doing is complying
with the law.
Mr. Abernathy. That could have been illegal, for all I
know, in terms of the employment transaction. Sure.
Mr. Baca. Thank you very much.
Mr. Ose. Does the gentleman with to yield his remaining
minute to Mr. Gutierrez?
Mr. Baca. Yes, I will yield to Mr. Gutierrez the remaining
minute.
Mr. Gutierrez. Thank you very much.
I would like to yield to Mr. Shays.
Mr. Shays. I would like to just ask unanimous consent that
both sides could have two minutes each.
Mr. Ose. Hearing no objection, so ordered. We will assign
two minutes to you and two minutes to Mr. Gutierrez for
allocation as he sees fit on the minority side. Mr. Shays?
Mr. Shays. Thank you.
Mr. Abernathy, I know you are a good man. My intensity is
just listening to your answers, because I disagree with them
and because I have worked on this issue for five years. I chair
the National Security Subcommittee, and I know that these
documents from other countries are a joke. We have had hearings
on it. We know they are a joke.
Now, I understand the logic of you saying we do not want
eight million people underground, but now you have really
answered the question that I had. In order to get those eight
million people who are underground, we have basically put in
our rules, in my judgment, a process that is not verifiable. A
bank has no way to verify the authenticity of a document given
to an illegal alien. They have no way to do that.
So I want to ask you how you think you live both in the
letter and the spirit of the law when you are allowing for a
process that, one, is not verifiable? And I want to understand
why I should have confidence in your answer when you were so
reluctant to tell me something that should roll off your
tongue. Is it illegal to hire illegal aliens? It is illegal to
hire illegal aliens. The answer is yes, and you know that and I
know it.
So why should I be comfortable when you tell me that this
is verifiable, when I have five years of hearings that say they
are not? Help me out.
Mr. Abernathy. Certainly, Congressman. You are certainly
focusing on a very key problem that we have as an entire
society, and it is not just the United States. It is many
countries, the problem of coming up with a system of fully,
rigorously reliable identification documents. The criticisms
that can be made of consular IDs, I hear the same criticisms
made of driver's licenses. I hear, frankly, many similar
criticisms made of passports.
The ability to counterfeit identification documents has
expanded tremendously, and we need to come up with measures
that can get ahead of the counterfeiters. There is a lot of
promising technology out there, but right now it is expensive.
Mr. Shays. Okay. Let me just interrupt you there. But the
one problem is, the one that is the easiest to have fraud in is
the very issue of number and country of issuance of any
government. When you say it is illegal for someone to lie when
they come before the bank, that they have broken the law, it is
almost humorous because you are making it legal for an illegal
alien to do that. So you are an illegal alien, but you are
going to tell the truth. It just does not buy. It doesn't meet
the test.
That is why I have a problem with your regulations. I thank
the gentleman.
Mr. Ose. The chair recognizes the gentleman from Illinois
for three minutes.
Mr. Gutierrez. I think that Mr. Shays is very passionate
and very eloquent in stating his position, a position that has
a lot of stature in the Congress of the United States. Let me
just say that we are not going to resolve it by eliminating the
matricula consular. People won't stop sending money back home.
People won't say, God, they cancelled the matricula consular; I
guess it is time for me to cross the border once again and go
back home, because I am just not going to stay in the United
States of America if I do not have a matricula consular to send
money back.
What is going to happen, I will go to Western Union. I will
give them $300 in cash and they will send the money back to my
family members. That is what is going to happen. We are going
to increase the expense to people because there are legal ways
for undocumented workers, which they used prior to the
matricula consular to send the money back. And that is what we
are simply going to do. We are going to turn the clock back.
I think what is at the crux of Mr. Shays issue here, at
least I believe it as I listen to him, and I am trying to
listen to him very carefully, is that of all these undocumented
workers, millions of them, some of them could pose a threat to
the United States of America. Well, they haven't posed a threat
as of yet. Mexico is an ally, along with the rest of Central
America in our war against terrorism.
What is more, if we really want to eliminate them as a
security issue for the United States, I would simply say, let's
complete a process started by President Bush in the early
months of his administration, to regularize or legalize their
status here we must confront the issue that this country does
not have a policy, nor does it have the political will, nor the
requisite resources, to deport eight million people. Given that
reality, isn't it better that we integrate them fully into our
society because we eat from the plates that they wash. We all
know it. We don't stop eating at the restaurant. We eat the
fruit. We don't stop eating oranges, asking who picked this; or
stop eating the chicken or stop staying in the hotel room. We
all know this.
So really, we are all part of this great conspiracy,
because we all know they are here. We all benefit from their
services. As a matter of fact, we all take in their services
every day in common life that we live here. So I say, let's get
their fingerprints. Let's get them checked by the CIA. Let's
get them checked by the FBI. Let's get them checked by
Interpol. Let's tax them. Let's incorporate them. And then
those who remain, we can focus on them, because if they did not
come forward, they must have something to hide.
Thank you very much for your testimony, Mr. Secretary.
Mr. Abernathy. Thank you.
Mr. Ose. The chair thanks the members and the witnesses.
The chair notes that some members may have additional questions
for the panel, this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for members to submit written questions to this
witness, so that we can place their response in the record.
Mr. Secretary, we appreciate your coming. It was a long
panel. Your patience is noted.
Mr. Abernathy. Thank you, Mr. Chairman. It is always a
pleasure to come before this committee.
Mr. Ose. Thank you.
This panel is excused. If we could have the second panel
come forward, that would be Mr. Roberto Suro, Dr. Manuel
Orozco, Mr. David Valenzuela, Ms. Alice Perez, Mr. John
Herrera, and Mr. Ezra Levine.
Our second panel is composed of six witnesses. I am going
to introduce them. Our first witness is Mr. Roberto Suro,
Director of the Pew Hispanic Center. Welcome sir. We are also
joined by Dr. Manuel Orozco, who is the Project Director for
the Central America Inter-American Dialogue. Our third witness
is Mr. David Valenzuela, who is President of the Inter-American
Foundation. Welcome, sir.
Our fourth witness is Ms. Alice Perez, who is the Vice
President and Hispanic Market Manager for U.S. Bank. She is
here on behalf of the Consumer Bankers Association. Welcome.
Our fifth witness is Mr. John Herrera, who is the Board
President of the Latino Community Credit Union. He is here on
behalf of the Credit Union National Association and the World
Council of Credit Unions. Welcome. And our sixth witness is Mr.
Ezra Levine, who is a Partner with Howrey Simon Arnold and
White, appearing on behalf of the Non-Bank Funds Transmitters
Group.
Welcome to all of you. Without objection, your written
statements will be made a part of the record. You will each be
recognized in turn for a five-minute summary of your testimony.
So we are just going to go from my left to my write. So Mr.
Suro, you are recognized for five minutes. Welcome.
STATEMENT OF ROBERTO SURO, DIRECTOR, PEW HISPANIC CENTER
Mr. Suro. Thank you, Mr. Chairman and members of the
committee.
Roughly seven million Latino immigrants to the United
States send remittances to their home countries on a regular
basis. According to the 2002 national survey of Latinos
conducted jointly by the Pew Hispanic Center and the Kaiser
Family Foundation, two-thirds of remittance senders are
employed as unskilled laborers; about an equal share have not
completed high school; about an equal share earn less than
$30,000 a year. About half do not have either bank accounts or
credit cards, and nearly three-quarters rent, rather than own,
their homes. They are, however, both the generators of wealth
in this industry and the prime consumers. Their decisions about
how to manage their money will decide how the remittance flow
evolves.
In order to better understand how both remittance senders
and receivers view the rapid changes taking place in the money
transfer industry, the Pew Hispanic Center and the Multilateral
Investment Fund at the Inter-American Development Bank have
collaborated on a series of studies in the United States and
Latin America. I have provided the committee with copies of our
November 2002 report, Billions in Motion: Latino Immigrants
Remittances and Banking, which explores how remitters choose
the means to send money home. An upcoming report to be
published this November will look at the process from the
remittance receiver's point of view, with studies conducted in
Ecuador, Guatemala, Honduras, El Salvador and Mexico.
Through telephone surveys, focus groups and in-depth
interviews, that have gathered information from some 10,000
individuals, I have tried to assess the senders' and receivers'
understanding of the methods and costs involved in transferring
money. Allow me to summarize a few of the key findings. First,
both remittance senders and receivers are often unaware of the
full cost they are paying for money transfers. Many complain
that the money received is less than expected. Yet in a study
of remittance senders in Miami and Los Angeles, about half said
that they did not know why additional costs were being paid.
This is the research that Congressman Baca referenced. Less
than one-fifth, for example, knew that differences between
published exchange rates and the rates used in the transfer
process could reduce the amounts delivered.
It is tempting sometimes to think of this as a matter of
ignorance or poor math skills, or even to assign it entirely to
the realm of financial literacy. It is important to note that
one of the results of a rapidly changing market is a very rapid
multiplication of the types of products, and often very
different types of pricing schemes. As a result, different
remittance products have very different ways of packaging their
fees, and it is not always transparent to somebody looking at
two different vendors what the benefits are either way.
Second, it is important to recognize that remittance
senders are often passive consumers. More than three-quarters
of the participants in our Los Angeles-Miami study described
themselves as lacking knowledge of the available options for
sending remittances and indicated they had done little to
explore the market. Instead, they tend to rely on word-of-mouth
recommendations. Familiarity and convenience are often deciding
factors in choosing a means of transferring money, even when
individuals are concerned that they are paying high fees.
On the receiving end as well, our studies indicate that
simple expediency and force of habit are powerful factors in
determining the means for collecting remittances. To understand
this better, perhaps you could all think back to that time not
long ago when one went to a savings and loan or a bank in this
country. There was a local institution staffed by familiar
folk, and it was common enough to have a favorite teller.
One way to achieve the committee's aims of increasing
competition and improving consumer access would be to promote
the entry of new players, such as banks and credit unions, into
the marketplace for remittance services. In this regard, it is
important to consider limitations posed by infrastructure, on
the receiving end especially, but also on the sending end. Many
of these consumers live in areas that are underserved by
financial institutions. Over the last 20 years or so, wire
transfer companies have created financial conduits which
previously were nonexistent between many Hispanic immigrant
communities here and the urban neighborhoods and rural villages
they left behind in Latin America. New players in the
remittance market will have to duplicate this infrastructure
and compete on the level of location and convenience, even as
they compete on the basis of price.
In pursuing the committee's goals in the existing market
for remittance services, our study suggests that greater
transparency in pricing and simplicity in procedures could have
an impact. Obviously, one cannot oblige consumers to do
comparison shopping, but these studies have revealed a
sufficiently high level of confusion and dissatisfaction over
the extent of information now available to suggest that the
information flow can be improved. If consumers can make easy
apples-to-apples comparisons about the cost of transfer
services, they might be more likely to shop around. To be
effective, such comparisons must cover all costs, including
exchange rates and any fees charged on the receiving end.
Mr. Chairman, again thank you for the opportunity to appear
here. I will be happy to respond to any questions.
[The prepared statement of Roberto Suro can be found on
page 119 in the appendix.]
Mr. Ose. Thank you for your testimony.
Our next witness is Dr. Manuel Orozco, who is the Project
Director for the Central America Inter-American Dialogue.
Welcome, sir. You are recognized for five minutes.
STATEMENT OF MANUEL OROZCO, PROJECT DIRECTOR, CENTRAL AMERICA
INTER-AMERICAN DIALOGUE
Mr. Orozco. Thank you very much, Mr. Chairman and the
members of the committee. And thank you to Congressman
Gutierrez for sponsoring also this idea.
I think the issue of family remittances has gained
increased relevance in the past few years, partly because of
the sheer volume of these transfers, but also by certain issues
that have been raised. One of them deals with costs; the other
one deals with the role of remittances potentially as a tool to
bank the unbanked, and another one that is reflects the market
preference of a significant group of individuals in the United
States that relates to other issues like transportation,
telecommunication, tourism or trade.
There are several challenges that have been identified with
regard to these issues. One of them is that the cost continues
to be significantly in many countries expensive, despite the
fact that there has been a declining cost in some countries.
The other issue that I think is so important to consider as a
challenge is that there is a weak link between money transfers
and access to other financial services. And finally, another
challenge is the poor financial location of senders.
I think in order to address these issues, we can identify
several recommendations that can improve this series of
challenges. One of them deals with competition. The report by
Treasury expressed nicely that there has been an increase of
competition and that is very important to identify and
recognize. However, the quality of the competition is another
matter. There is still need to improve the quality of
competition at different levels.
I think it is important to identify the stumbling blocks
that are preventing a more efficient money transfer system and
a competitive one. So one of the stumbling blocks deals with
the presence of informality that controls certain monopolies in
certain money transfer corridors, as well as issues related to
agent control over the pricing of the fee. There are many parts
of the United States in cities like New York where agents
charge 75 percent of the commission of the fee of the transfer
to be sent. That increases the cost of sending money abroad.
Within that context, I think it is important to implement
some sort of a report card, which I describe very clearly in
the testimony, that basically looks at the different types of
practices of money transfers and the quality of them, using
several indicators. I think in addition to looking at the
competition in the money transfer business, we also need to
think of the role of remittances to bank the unbanked. The
reason is very simple. We are talking about at least 20 million
people sending remittances abroad, not only to Latin America,
but many other places in the world. In a way, half at least of
the senders are unbanked. That is particularly the case among
Latino individuals. I think a strategy that will use
remittances as a way to bank the unbanked will increase the
savings rate of the country, as well as the quality of life of
the sender.
There are three ways to deal with this issue specifically.
One is the promotion of alliances between more remittance
businesses and banks. This is a very important issue because by
establishing that alliance, what you do is you actually reduce
the intermediary, in this case the agent that charges, that
prompts the money transfer businesses to increase charges. The
alliance would also facilitate the ability of people to be
banked into financial institutions. I think remittance
transfers should be included as an indicator of service
provisions under the CRA, the Community Reinvestment Act.
And finally, I think another step in this direction with
regard to money transfers deal with financial location. The
financial location issue is very important at different levels.
We need to educate the immigrants about the advantages of
different economic opportunities that exist in this country,
but we also need to inform customers about the best practices
that exist in the market, and a situation that does not exist
very much. I monitored somewhere around 120 money transfer
businesses. I wish there was a way to make individuals aware of
the different opportunities to look for different market types
of services, and not be basically victims of exchange rates,
for example, in many countries. I think the problem of the
exchange rate is one issue that affects the sender, but there
are other problems, too, that have not been addressed and I
think it is important to pay attention to them by using some
sort of report card.
Thank you very much.
[The prepared statement of Manuel Orozco can be found on
page 85 in the appendix.]
Mr. Ose. Thank you, Dr. Orozco.
Our next witness is Mr. David Valenzuela, who is the
President of the Inter-American Foundation. Welcome, sir, you
are recognized for five minutes.
STATEMENT OF DAVID VALENZUELA, PRESIDENT, INTER-AMERICAN
FOUNDATION
Mr. Valenzuela. Thank you, Mr. Chairman. I am pleased to
testify before this committee to share the experience and
insight of the Inter-American Foundation regarding the
potential impact of remittances to help improve the social and
economic conditions of many poor communities in Latin America
and the Caribbean.
It is estimated that migrants from Mexico, Central America,
South America and the Caribbean send approximately $32 billion
each year to family members left behind. This flow of dollars
represents a critical safety net for millions of people.
Increasingly, organizations of migrants in the United States
are also joining forces to invest in their communities of
origin to promote sustainable development through improved
production and job creation.
The Inter-American Foundation, a small federal agency, was
established by Congress in 1969 to support grassroots
development led by local people in their own communities. Since
that time, the Foundation has made over 4,400 grants throughout
Latin America and the Caribbean to support the self-help
efforts of poor communities to improve their productive
capacity, their education, health and environment.
The Foundation was among the first agencies to recognize
the importance of the remittance flow to Latin America and the
Caribbean. In March 2001, we sponsored a conference in
Washington with the cooperation of the World Bank and the
United Nations Economic Commission for Latin America and the
Caribbean. This conference explored the issue of transaction
costs, but it also introduced the potential development impact
of remittances based on experiences of foundation grantees in
Mexico and in Haiti. Since that time, the Foundation has
broadened its effort to direct some of the flow of remittances
to sustainable development in home communities.
This work has led the Foundation to come into contact with
organizations of migrants that have sprung up throughout the
United States. Mexican migrants, for example, have over 600
hometown associations that are actively engaged in helping
their home communities. Haitians, Salvadorans, Dominicans,
Guatemalans, to name a few, also have similar organizations.
Several recent grants awarded by the Inter-American Foundation
to grassroots organizations in these countries rely on or are
complemented by counterpart funds raised by these hometown
associations in the United States.
Mr. Chairman, I would like to share two insights with the
committee based on our experience with remittances. The first
is that the resources that migrants send to family and the home
communities are an important aspect. But potentially of greater
significance are other non-monetary contributions. Here, I am
referring to ideas, practices, know-how, values,
entrepreneurial skill and business linkages that migrants
acquire in the United States and transfer to their home
countries.
Secondly, a large number of migrants maintain active ties
with their communities of origin to such an extent that they
are becoming transnational communities. Transnationalism can be
defined as a process in which human, financial and social
capital flows back and forth between sending and receiving
communities, thus greatly impacting the process of social and
economic development in both sending and receiving communities.
In this manner, we can no longer look at helping poor
communities in many countries of Latin America and the
Caribbean without taking into consideration the interaction
between these communities and their brethren who have migrated
to the United States.
The Inter-American Foundation is pleased to testify at this
committee and will provide any additional information that you
might need. Thank you.
[The prepared statement of David Valenzuela can be found on
page 121 in the appendix.]
Ms. Brown-Waite. [Presiding.] Next, we will hear from Ms.
Alice Perez, Vice President and Hispanic Market Manager, U.S.
Bank, on behalf of the Consumer Bankers Association. Welcome,
Ms. Perez.
STATEMENT OF ALICE PEREZ, VICE PRESIDENT, HISPANIC MARKET
MANAGER, US BANK ON BEHALF OF THE CONSUMER BANKERS ASSOCIATION
Ms. Perez. Thank you. Good afternoon, members of the
committee. My name is Alice Perez. I am the Hispanic Market
Manager for U.S. Bank, the eighth-largest financial institution
across 24 states in the U.S.
I would like to thank you for inviting us today to testify
on behalf of the Consumer Bankers Association and U.S. Bank
regarding expanding consumer access to mainstream financial
institutions and reducing the costs and increasing the
competition in remittance services.
In my role at U.S. Bank, I lead the development of
programs, products and services that will benefit the Hispanic
market. U.S. Bank is striving to be the best bank of choice for
Hispanic consumers. U.S. Bank is testifying today on behalf of
the Consumer Bankers Association, which I will refer to as CBA.
CBA has been actively involved in issues of financial access
for many years. In 2000, CBA began to undertake a series of
annual surveys to determine the level of financial literacy
efforts of its member banks. In addition, CBA is currently
developing a forum on Hispanic outreach to be held in the
spring of 2004.
Banks are increasingly offering low-cost alternatives to
traditional wire transfers. Bank remittance services have
proven to be of tremendous value to bank customers and non-
customers, particularly in immigrant populations where many
people send money to relatives in their country of origin and
do not traditionally have a relationship with financial
institutions.
At U.S. Bank, our vision is to become the best bank in
America to Hispanics. To deliver on our commitment, we are
providing product, services and support to the Hispanic market
and we focus our strategy in four key areas. Those areas
include: (1) staffing, we mirror the markets in which we do
business; (2) Marketing, ensuring that our materials are
available in a language that individuals can understand; (3)
Products, ensuring that the products are the proper products to
target the segment; and (4) community involvement, which means
two-fold, providing financial literacy, education to different
individuals on products and services that financial
institutions offer in the U.S., as well as providing for and
sponsoring different organizations.
As part of this effort, in partnering with community
organizations for financial literacy, we have developed a
program to serve the needs of individuals that need access to
remittance services. We refer to this as our secured money
transfer service. What this does is offer low transfer fees and
competitive foreign exchange rates that enable consumers to get
more money into the hands of their family member. The program
provides consumers the choice of how the beneficiary receives
the funds, either cash at an ATM, cash at a bank branch, or
funds deposited directly into a savings account.
The first program available across our 24-state footprint
enables individuals to send funds within the United States and
to Mexico via an ATM Visa-plus network system. Through the
recommendation of the Mexican consul, as well as other entities
in the U.S., they have encouraged us to provide this type of
service to individuals through the use of an ATM card. The
beneficiary can use this card to withdraw funds in any of the
network ATMs in the U.S., as well as the 20,000 ATMs in Mexico.
Not all funds need to be withdrawn at one time, providing an
added level of safety for the sender and recipient. Remittance
funds are immediately available to the beneficiary each time
the money is spent.
Realizing that alternatives need to be offered to
individuals to receive funds, we decided to take on another
venture, which is our partnership with L@Red de la Gente, which
is currently being piloted in San Diego, Los Angeles and
Chicago. This enables individuals to send money to any branch
of the L@Red de la Gente network. It focuses not just on the
remittance, but on providing access to financial services on
both sides of the border, enabling consumers to build upon
their economic status by utilizing financial services.
The partnership was created to provide low-cost remittances
and to encourage more people to become bank accountholders and
savers on both sides of the border. This service is priced at
$6 when the transfer is directed to an account at the L@Red de
la Gente network, and $8 when the funds are picked up in cash.
On our ATM product, the service is available for a transfer fee
of $8 for accountholders, and if it is a non-accountholder, it
is a $10 fee.
Combined, the U.S. Bank remittance services allow
individuals to reach friends or family in both metropolitan
areas of Mexico, where many ATM networks are located, and in
rural areas of Mexico where many of the L@Red de la Gente
branches are located. Individuals who do not have a banking
relationship are of high importance to us. U.S. Bank offers a
variety of safe and convenient stored value cards for consumers
who do not have a banking relationship. We have also created
credit products to individuals without established credit. With
our Secured Visa card and our Credit Builder secured loan,
consumers enjoy the benefits of a credit card or an installment
loan to begin building a credit history with a financial
institution.
In conclusion, low-cost competitive alternatives to wire
transfers are offered by many financial services institutions.
Banks are increasingly recognizing that offering low-cost
solutions for money transfers saves consumers money up front,
and encourages them to begin other mainstream banking
relationships that provide benefits in the long run. Providing
safe, efficient and affordable money transfer service is the
goal of U.S. Bank and our peers in the financial services
industry. Our customers tell us that it is assuring to them to
walk into one of our financial institutions, deposit funds with
a secure money transfer, walk out the door, call their loved
ones, and know that the money is already there, safely, quickly
and affordable.
On behalf of U.S. Bank and the Consumer Bankers
Association, thank you for the opportunity to present our
initiatives and our progress to date.
[The prepared statement of Alice Perez can be found on page
100 in the appendix.]
Ms. Brown-Waite. Thank you very much.
Next, we will hear from John Herrera, Board President,
Latino Community Credit Union, on behalf of the Credit Union
National Association and the World Council of Credit Unions.
Welcome, Mr. Herrera.
STATEMENT OF JOHN HERRERA, BOARD PRESIDENT, LATINO COMMUNITY
CREDIT UNION ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION
AND THE WORLD COUNCIL OF CREDIT UNIONS
Mr. Herrera. Thank you and good afternoon, Madam Chair and
distinguished members of this committee, and my congressman
from North Carolina, Mr. Miller. Thank you, Congressman
Gutierrez, for your leadership on putting this issue on the
table.
And thank you for the opportunity to provide comments on
the developments of the remittance industry. My name is John
Herrera. I am Vice President of Latino Hispanic affairs for
Self-Help Credit Union. Also, I am a founding member and the
current board chair of the Latino Community Credit Union based
in Durham, North Carolina.
I appear before you today on behalf of the Credit Union
National Association and the World Council of Credit Unions. We
represent more than 10,000 state and federal credit unions and
their 83 million credit union members in the United States and
over 100 countries around the world.
I would like to provide the committee with an overview of
credit unions' efforts to reduce costs of remittances in the
financial services market. First, a little bit about the Latino
Community Credit Union. We started in 2000, because Latino
immigrants did not have a safe place to bank and they were
being robbed as they walked out of their check-cashing stores.
When we started, we hoped to have 500 members in our first
year. Today, three years later, we have 14,000 members, and 40
bilingual and bicultural branches.
Remittances have been important for our growth. Today, CUNA
and the World Council of Credit Unions have joined efforts to
expand the credit union participation in the international
remittances network, IRnet, partnering with both Vigo
remittance and Travelex, the world's largest retail foreign
exchange provider. IRnet has transferred millions of dollars
and reduced rates to over 40 countries throughout our 850
credit union points of service throughout the United States.
It is easy to understand why any Friday afternoon unbanked
immigrants who have just received their paychecks, cash them at
an informal finance company at a cost of 1 to 3 percent of the
face value. Latino immigrants send home an average of $300
transferred to their families at a cost of about $15 plus the
check-cashing fee and the remittance fee and the exchange rate
difference, resulting in an average of about $42. The total
cost of these transactions from the credit union IRnet service
is $14, or one-third to one-half of the cost of the
competitors. But there are many benefits to the consumer and to
the U.S. economy.
Once we get these folks into our credit union, we can help
them learn what is available to them financially. They might
start with a savings account, move to a checking account, a car
loan, develop credit history, and eventually apply for a home
mortgage and a small business loan. Fifty percent of all
Mexicans in the United States are unbanked today. This is
unacceptable. We offer these services to introduce them to
having a banking account which is one of the most important
factors in helping people accumulate assets to climb the ladder
of financial security.
I believe strongly in bringing the power of market forces
into all communities to benefit consumers. As is the case with
most markets that credit unions enter, as competition
increases, prices decrease. In fact, prices have dropped
approximately 37 percent for transfers to Mexico since credit
unions got involved with remittances in mid-2000. I recently
spent several weeks in Mexico as an Eisenhower Fellow, studying
economic development and migration, where I saw entire
communities that had been developed by the money that the
relatives in the United States had sent to them.
Through our partnership with Mexican credit unions, we want
to help these families save part of their remittances to start
a small business and develop Mexico's economy, which would
reduce the need for migration. A recent survey by the Inter-
American Development Bank shows that the single largest reason
many Latino immigrants do not have a bank account is because of
the lack of awareness of the benefits of having an account. One
program providing help in this area is the Treasury
Department's First Accounts program from which my credit union
received significant help to bring the unbanked people into the
financial system. There are $4 million of appropriated funds
for this program left unspent because the authorizing
legislation to release this funding has not been passed by
Congress. I urge the members of this committee to take action
to release the funding.
Credit union average efforts in this area could also be
greatly helped by a policy change. Credit unions, as you know,
may only serve in the regions of the members, and we applaud
the efforts of this committee in including in the regulatory
relief bill, the provision that will permit credit unions to
provide check-cashing and remittance services to nonmembers
within their field of membership.
In closing, we would like to commend the Treasury's
evenhandedness in its review of section 326 of the U.S. PATRIOT
Act regarding account-opening procedures. We believe that
providing financial institutions with the guidelines for the
types of ID that can be accepted establishes the proper balance
between national security and access to financial security.
Thank you for holding this important hearing.
[The prepared statement of John A. Herrera can be found on
page 67 in the appendix.]
Ms. Brown-Waite. Thank you very much for being with us.
Next, we will hear from Mr. Ezra Levine, who is a Partner
in Howrey Simon Arnold and White. He is here on behalf of Non-
Bank Funds Transmitters Group. Welcome
STATEMENT OF EZRA LEVINE, PARTNER, HOWREY SIMON ARNOLD AND
WHITE, ON BEHALF OF NON-BANK FUNDS TRANSMITTERS GROUP
Mr. Levine. Thank you, Madam Chairman.
My name is Ezra Levine. I am a partner at Howrey Simon
Arnold and White here in DC. I am counsel to the Non-Bank Funds
Transmitters Group. The group has been in existence since 1989
and it is comprised of the leading national money transmitters.
Travelex Americas, which was just mentioned, is one of the
members. Western Union, American Express, MoneyGram, Comdata,
and RIA Financial Services are the members. Each of these
companies is licensed by the 45 largest states, the District of
Columbia and Puerto Rico, to transmit funds and issue payment
instruments such as money orders, travelers checks and drafts.
Commonly-held perceptions are incorrect. The non-bank funds
transmission industry is highly regulated. Traditionally,
however, the States have regulated non-bank money transmitters
for safety and soundness through comprehensive licensing laws.
The laws impose a high degree of regulation. They are intended
to assure safety and soundness. States conduct periodic on-site
exams, require the filing of extensive reports, and the
maintenance of 100 percent financial reserves. In fact, the
State regulators are very often the very same individuals who
regulate state-chartered credit unions, as well as state-
chartered banks.
In addition to the State laws, these non-bank money
transmitters, the group members are subject to the federal
anti-money laundering laws, including the preexisting Bank
Secrecy Act, as well as the relatively new U.S. PATRIOT Act.
The group members have developed and implemented comprehensive
BSA anti-money laundering compliance programs for themselves,
and importantly for their sales outlets. As somebody commented
earlier, there are approximately, depending who you listen to,
150,000 or more sales outlets in the United States. They are
independent businesses. One of the things the companies do as
part of the compliance program, particularly with regard to
remittances, is to check both the name of the sender and the
recipient against the OFAC list. Of course, that is for anti-
terrorism and blocked individuals.
The Wall Street Journal reported in November 2002 that
approximately $14 billion of funds are remitted from the U.S.
to Mexico and Central America. This represents a 28 percent
increase from 2000 to 2001. It is expected to grow by at least
10 percent. I saw something in the papers the other day that it
is something like 20 percent already in 2003. While the bulk of
funds are sent to Mexico and Latin America, funds are also sent
to locations throughout the world. We cited that.
In the past several years, this high transaction volume has
attracted both big and small entities which are eager to
capture some of the funds transmission business by offering new
service, new features, and different prices. For example,
looking only a the traditional money transmission arena of non-
bank funds transmitters, there are now over 50 licensed money
transmitters in such states as California. Some years ago,
there were only 12 or 13 in California. There are over 50 in
Illinois; over 60 in Texas and New York; over 100 in Florida,
just as an example. Each of these, of course, has thousands of
independent sales outlets in every one of the States. These
agent locations, these independent businesses like convenience
stores, have the face-to-face contact with the customers. They
are small businesses and they are located in the communities
that they serve, particularly inner-cities.
As I mentioned, these licensed non-bank entities range from
small niche companies to the larger multi-state corporations.
Some licensees focus on transmissions to only one or a select
group of countries. Some provide only limited services. The
extensive networks of the large companies, however, often reach
areas that many banks, credit unions or other remittance
providers do not serve. The large companies pioneered
transmission services to the world, and the large ones now
serve over 160 countries.
The domestic market for remittance services is dynamic and
competitive. I think we heard that from the Treasury Assistant
Secretary. I think we have heard that from members of this
panel. As an example of the positive effects of competition in
the remittance arena, it has been estimated that the average
cost of remittances to Mexico has decreased by over 60 percent
since 1999. That is only a few years. The bottom line is that
competition is alive and well in the transmission business.
There has been a veritable explosion in the number of service
providers. This explosion has presented consumers with an
unprecedented array of choices. Again, we have heard some of
them from this panel. The prices are reducing. The prices are
continuing to fall. And who are the beneficiaries? The
beneficiaries are the consumers of this explosion of competing
service.
Some of the new competition comes from banks. They have
been attracted to the growing market. Credit unions and the
U.S. Postal Service provide remittance services aimed at
Mexico. Competition also exists from courier services, which
physically transport currency and payment instruments on behalf
of consumers.
I am about to wrap up. To sum up, customers are the winners
as additional funds transmission services are offered.
Customers reap the rewards of competition. The trend is
continuing.
Thank you.
[The prepared statement of Ezra Levine can be found on page
76 in the appendix.]
Ms. Brown-Waite. Thank you very much. I want to thank all
the members of the panel.
Mr. Levine, you indicated that the average cost of the
remittances to Mexico have decreased by some 60 percent since
1999. Has the decrease in price led to an increase in
remittances? Do you anticipate that with increased competition,
the market price of sending remittances will continue to fall?
Mr. Levine. I think it will continue to fall. I think from
one of the individuals on this panel, and it may have been U.S.
Bank, indicated that for certain of their customers, for
example, the price, I do not want to misstate her testimony,
was significantly lower than the $9.99 amount. The volume of
transaction is going up and obviously I think that reflects
immigration patterns. But there is transmission to all over the
world. Mexico is clearly the single most competitive segment. I
believe the trend will continue. It is continuing.
Ms. Brown-Waite. Thank you.
Ms. Perez, do you believe that greater government
regulation would help or hinder competition? And how would the
consumer ultimately be affected?
Ms. Perez. On behalf of U.S. Bank, I can state that we
disclose to our customer, at the time that we offer them a
product, what exchange rates and what the actual costs of the
product are. I think in today's environment we do a very good
job at that. My recommendation would be to allow us to continue
to do it the way that we do it, because we are disclosing to
the customer all fees associated with the service that we are
providing.
Ms. Brown-Waite. Thank you very much.
Mr. Gutierrez?
Mr. Gutierrez. I want to thank the panelists for their
information, starting with Mr. Suro who explained to us that
the people need more information. They need more information
about the products. I think Dr. Orozco was very eloquent when
he said, just because we have more people in the marketplace
providing the service, that the quantity of people does not
belie the fact that the quality has not improved. That is to
say, if I have 10 grocery stores and they are all selling bad
milk and eggs, and all of a sudden there are 20 and they are
also selling bad eggs and milk, I have more grocery stores, but
it does not mean I am getting better groceries because of the
number of grocery stores in my neighborhood.
I think that it is very clear from Mr. Valenzuela's
testimony that we need to bring some diplomacy to the issues,
not only Treasury, but the State Department, so that we can
engage in the kind of conversations that have been conducted,
dispassionate conversations about the growth of our hemisphere,
the American hemisphere and Africa.
Ms. Perez, I agree with you totally. I like the way banks
do it, because that is the way I do my money transfers when I
travel around the world. I like the security and the confidence
that I have when I take out my ATM card and I travel across the
world. I take it and I put it in and I know exactly what I am
going to get, and I know it is a reliable service. So I can
understand why, if you are meeting certain thresholds of
openness and transparency, why you would say, why do we need to
be regulated, we are going a good job.
To Mr. Herrera, thank you so much for all of the great work
that you have done in North Carolina, in taking from 500 to
14,000 members you have now, and taking the un-banked and
making them banked in a very sensitive manner. I know that many
other institutions are following your lead, because you bring
competition to the market. You make sure that the Bank of
America and the others say, well, you know, there is somebody
out there fighting for the dollars and the investments and the
deposits of the people who are there. So I want to thank you
for all of the great work that has come before, and we look
forward to you coming again in the future and helping me, as I
know you have helped many other members of this panel on both
sides of the aisle, get better educated about the issues that
we have before us.
In terms of the industry, Mr. Levine, the fact is that the
industry that you represent is the most costly industry that
exists in the United States of America. That is just evident by
all of the testimony that we have received today. Indeed, if
there were a segment of the community that my legislation
focuses on, I understand how you might feel targeted by it
which is your industry targets my constituents by bombarding
them with ads on Univision and Telemundo, telling them what a
kinder and gentler institution you are. The fact remains that
you are the institutions that have been sued in federal court
and have received settlement issues in federal court. It is
Western Union and MoneyGram that shelled out the $5 million in
the settlement, along with Orlando Volute. If the plaintiffs in
California had their way, I think we might have done better,
and I say this with much chagrin, given the fact that it was
the plaintiffs and the lawyers for the plaintiffs in Chicago
that succeeded in settling the case, a case that I never really
felt should have been settled at that point. It should not have
been settled at that point.
I know Mr. Levine is going to say, that they did not admit
any culpability in this issue. But the issues were clear; they
were transferring money and what disclosure is. All I ask, Mr.
Levine, is that you go back to this industry. I want this
industry to grow. I want it to do well. All I want them to do
is this: when I walk into Western Union or MoneyGram, I just
want them to say that it is $14.94, Mr. Gutierrez, to wire
$300, and Mr. Gutierrez, here is how many pesos today the
recipients back in Mexico are going to get, and write that on
the receipt each and every time you do it. I know you are
shaking your head because as part of the settlement in the
lawsuit, as you are very well aware, those were part of the
conditions of the lawsuit.
Mr. Levine. Not quite.
Mr. Gutierrez. Then we are going to beg to disagree on that
issue. That is what we want. We want transparency in the
market. I do not quite understand why we cannot secure
transparency in the market.
Thank you very much, Madam Chairman.
Ms. Brown-Waite. The gentleman's time has expired.
Mr. Levine, would you like to respond to that?
Mr. Levine. Sure I would. Thank you very much.
Mr. Gutierrez, you were talking before about security and
confidence. One of the reasons that immigrant populations use
Western Union, MoneyGram, RIA, and Travelex is because they are
secure, they are safe, and they do what they say. Even before
the class action, and I have a view of the class action, but I
will only repeat what the Seventh Circuit said about the class
action. Even before the class action suit, each of the
companies was giving out a receipt, and the receipt clearly
states the amount of U.S. dollars paid by the sender, the
foreign exchange rate applicable if it is a fixed-rate
transaction, and the amount of fees, and the amount to be
received in pesos by the recipient.
You are absolutely correct, there were additional
disclosures mandated as part of the settlement. Let me say one
thing about the settlement. The whole lawsuit was not so clear.
I did not defend the companies and I was not a lawyer for the
companies in any of that litigation. However, I did read the
Seventh Circuit opinion written by Judge Frank Estabrook, one
of the most respected circuit court judges in the United
States, with regard to the approval from the challenge of some
class action lawyers of the settlement. What Judge Estabrook
and the full panel of the Seventh Circuit said was that the
case was frivolous; that the case amounted to commercial
extortion, and these are not my words, these are the words of
the Seventh Circuit, but that he understood the necessity from
a public relations standpoint of companies needing to settle
this class action, and with great reluctance the Seventh
Circuit approved the settlement. That is in the opinion.
Mr. Gutierrez. Let me just respond, if I could have a
unanimous consent for one additional minute since Mr. Levine
went over and was given the additional time. I ask unanimous
consent.
Ms. Brown-Waite. Without objection, for one minute, Mr.
Gutierrez.
Mr. Gutierrez. Let me just say, they do provide the sender
with the transaction dealing with the countries. Now, here is a
fact, Mr. Levine. I saw the actual transmittal. I went to a
Western Union and a MoneyGram. One of us is wrong. I don't know
if you actually went personally to a Western Union, MoneyGram
office at a currency exchange anywhere in a metropolitan area.
Had you done that, I am going to tell you what you would have
found. You would have found that they did not disclose those
fees; that they were unaware of the exchange rate because it
was nowhere on the form, Mr. Levine. I saw it personally before
I ever engaged in this matter.
Secondly, the fact is, Mr. Levine, it is curious process
when only Mexico and Latin America are targeted, because
although Mexico is the closest country to us, it is cheaper on
the exchange rate to send money to Poland or the Philippines,
thousands of miles away, than it is to send money across the
Rio Grande.
Thank you very much, Madam Chairman.
Ms. Brown-Waite. The gentleman from Arizona, Mr. Shadegg,
is recognized.
Mr. Shadegg. Thank you, Madam Chairman.
Let me begin, Ms. Perez, with you. Does U.S. Bank do most
of its business, did I hear you testify, with Mexico? Is that
right? Most of the remittances?
Ms. Perez. Currently, our remittance products are with
Mexico.
Mr. Shadegg. And you do remittance products with other
countries?
Ms. Perez. At this time, no. Both of our initiatives are
very new as of this year.
Mr. Shadegg. I was not here, but I believe Dr. Orozco made
the point that competition in fact exists in the market, but
that does not necessarily mean there aren't people abusing the
process in that competition. I think that makes sense.
My question of you is, with regard to Mexico, do you
believe there has been an increase in competition? Do you see
abuse occurring or do you see the competition as assisting
people who need to transfer money to Mexico?
Ms. Perez. I see the competition increasing. I think it is
positive competition because as a result of the competition,
the pricing structure has decreased, which benefits the
consumer.
Mr. Shadegg. Does U.S. Bank disclose the exchange rate when
it does a transfer to Mexico?
Ms. Perez. Yes, we do.
Mr. Shadegg. I think the gentleman who is the sponsor of
the legislation, I guess he left the room. I think that is a
valid request, at least when the exchange rate is known. One of
the reasons I was interested in whether you do business in
other countries is that I understand the very established
market in the exchange rate between the United States dollar
and the peso. We do not necessarily have the same established
market for other currencies. So you do disclose the exchange
rate when you do a transaction for a remittance to Mexico, is
that right?
Ms. Perez. At the time of the transaction, we disclose
fully to the consumer.
Mr. Shadegg. And that goes in writing?
Ms. Perez. Yes, it does.
Mr. Shadegg. Do you know, is there also a disclosure in
Spanish as well?
Ms. Perez. Yes, we disclose in both.
Mr. Shadegg. I want to compliment you and Mr. Herrera for
the education. I think at the end of the day, what we are
really talking about here is education. We need to make sure
that the consumers of these products are educated and we need
to be sure that the industry is clean, not only that the big
players are playing by the rules and fair, but small players do
not come in and abuse people. Competition is one way to clarify
that problem and to make sure that it does not occur.
Mr. Levine, let's go to this point about countries where
there is not an established exchange rate. First of all, let me
begin by saying that the major players that you represent, they
disclose the currency exchange rate when they have an
established market. Is that correct?
Mr. Levine. Yes, indeed. In fact, we would be pleased to
provide to the committee subsequent to the hearing copies of
the actual receipt forms that are used in every single state in
the United States, which have a blank stop for the entry of the
FX rate when in fact there is one. But Mr. Congressman, in
certain countries there is no exchange rate. For example,
Brazil is one of those countries where you can't quote an
exchange rate because the Brazilian government bars it. They
set the exchange rate at the time of receipt. You cannot know
ahead, sir.
Mr. Shadegg. I read that in your testimony, and I was a
little shocked. I had understood that in some countries that is
not an established market, so you might not know it until you
transmit it. But you are saying that in other countries, the
government itself establishes the exchange rate after you send
the money.
Mr. Levine. Exactly. In some, the number of transactions is
so small overall that in fact there really isn't an established
exchange rate. You certainly will not see it published anywhere
or even on the Internet.
Mr. Shadegg. With regard to those countries where there is
an established exchange rate, you would disclose that
information, and that would include countries other than
Mexico, I take it.
Mr. Levine. Absolutely.
Mr. Shadegg. So for Poland or Russia or someplace like
that, you would disclose the rate?
Mr. Levine. Yes, and the companies also offer, Mr.
Congressman, a floating rate option. So a consumer who decides,
look, it may be that the dollar is going to go down or the
foreign exchange is going to go down, we offer them the
floating rate option, and that is disclosed, if they want that.
Or a customer could say, it is called will-call, I am going to
send money to my son or daughter who is traveling in Europe,
but I don't know where they are going to pick it up. It might
be France, it might be Germany, well, of course, they are euro
countries, but it might be England, still on the pound. So you
cannot quote an exchange rate when it is a will-call
transaction.
All I am saying is, there are many different kinds of
services and one size does not fit all, basically.
Mr. Shadegg. So the large national players offer a service
under which I have a child who is traveling in Europe; I put
some money in, but I do not know where they are going to pick
that up?
Mr. Levine. Absolutely. They can go pick it up at any one
of the recipient location outlets in any country of the 140 or
160 where the large companies maintain a presence.
Mr. Shadegg. That would create a problem both for the issue
of disclosing exchange rate, and for the issue of what language
in which to disclose that. Is that right?
Mr. Levine. Absolutely.
Mr. Shadegg. What is your sense, of course, as your
testimony has indicated, the price of these remittances is
coming down. Do they notice or are they concerned about
somebody in the market who is playing with the exchange rate,
the example that was given earlier where somebody says, well,
we will waive our fee, but then they have an exchange rate that
they don't disclose?
Mr. Levine. Yes. Obviously, we want a level regulatory
playing field, but we are also very, very sensitive to the
competitive pressures. In fact, both companies now, I think it
is Western Union will send to Mexico for $9.99 overnight, $300.
I think MoneyGram, if my memory serves me, is $500 instantly at
$9.99. These prices are way down from where they were before,
and everybody is sensitive, and they are also sensitive about
reducing the FX spread where they can. Again, some of that
depends on which country you are sending it to. We really only
here talk about Mexico. In fact, you are talking about the
world.
Mr. Shadegg. My time has expired, but in light of the
absence of other questioners over here, could I ask one last
question?
Ms. Brown-Waite. Without objection.
Mr. Shadegg. Is there any effort within the industry to set
an internal set of standards? That is, for the players, U.S.
Bank is now apparently becoming a big player, Mr. Herrera is
representing the credit unions, to set an internal set of
standards saying, well, all of us will voluntarily subscribe to
this set of principles when we engage in a transaction? Has
that been discussed or does that exist?
Mr. Levine. No, it hasn't. On the non-bank money
transmitter front, I cannot really speak to the banks, a number
of the States have imposed, California for example; Illinois
most recently, and we supported the Illinois effort; Texas;
State of Washington; there are a couple of others I cannot
remember, which have imposed, in fact, receipt requirements,
requiring disclosure of FX rates, et cetera, and fees. So in
fact, that is happening at the State level, even without
industry agreement.
Mr. Shadegg. I thank all the witnesses for their testimony
and for their efforts in this area.
Ms. Brown-Waite. Thank you very much.
I would remind the members that we are supposed to be out
of the room about 1:00 p.m., so we are going to have to closely
adhere to the five-minute rule.
Next, the gentleman from North Carolina, Mr. Watt, you are
recognized.
Mr. Watt. Thank you, Madam Chair. I will try not to take
the full five minutes. I first want to welcome my friend John
Herrera from North Carolina, and compliment him on the
outstanding work that he and the credit unions have done there
to make a major outreach into the Latino community, and to do
what it is doing and what the banking community is now doing,
to put a slightly different spin than Mr. Gutierrez has, which
is push to provide a service that in some locations we have
just not been able to take for granted. So you have had other
providers step into the community to provide check-cashing and
transmittal services. Sometimes they have not always lived up
to the code of conduct or to the regulatory scheme that applies
to credit unions and banks.
That is kind of a back-handed compliment to Mr. Levine's
industry, because some of those institutions that he represents
were there providing a service, not necessarily at the standard
that we would have wanted them to be providing the service, but
pushing the banks and credit unions to be more responsive to
the community. I think this evolution is taking place.
Let me pick up on something Mr. Levine said, which is that
there are a number of different providers coming into the
marketplace now. There is more money out there that is being
transmitted. There is more service to be provided, more profit
to be made, more apparent need. That leads me to the question
that I would like to pose to Mr. Levine and to Mr. Herrera and
Ms. Perez, in particular, of whether in light of the
proliferation of providers in the market, whether we might not
need a more uniform set of standards, or some best practices
guidelines. I do not have the sense that necessarily Western
Union or maybe even all of the providers that members of your
industry group, but some of these people who are proliferating
out there are not necessarily looking at the same standards in
this industry as we would want to have applied.
My question is, in light of the proliferation, in light of
the increased use of these kind of services, is there a need
for a more uniform regulatory structure, either at the State or
Federal level, and since this is international stuff we are
dealing with, whether that regulatory structure ought to be
done more at the Federal level than at the State level. I would
like to get the response at least from the three people on this
end of the panel.
Mr. Levine. I think that in fact the market is regulating
things quite well right now. I think consumers are voting with
their feet. They are voting with their feet by going to the
credit unions. They are going to the money remitters. They are
going to the U.S. Banks and the other banks like Bank of
America, Wells Fargo. They are comparing products. They are
looking at fees. They are looking at exchange rates. The
migration among the folks, whether those people are Hispanics;
whether those people, for example in Illinois there is a huge
Polish community that wires money; there are people that wire
money to Southeast Asia. They are looking, they are comparing.
They are savvy. Maybe they are not savvy in the very first
transaction they do, but when these folks are sending money
week after week or month after month, they are comparing. They
are talking to their friends. They are shopping. Often in these
areas, particularly for example on the east side of L.A., other
areas of Chicago and Texas, Arizona, and now in North Carolina.
Mr. Watt. So you think the market is regulating.
Mr. Levine. Yes, the market.
Mr. Watt. I don't mean to rush you, but the red light is
on.
Mr. Levine. Go ahead.
Mr. Watt. I am not asking another question. I am just
trying to get a response to this question.
Mr. Herrera. Congressman Watt, I would say on behalf of
CUNA and the World Council of Credit Unions that we need
regulation relief rather than more regulation, to stimulate
competition. For the chairman of a small community development
credit union, you know credit unions are not-for-profit
financial institutions, and we come in all kinds of size, shape
and flavors. We are state regulated and federally regulated. So
more regulation to force different standards, especially for
community development credit unions, will really put an extra
burden. I can see in community development credit unions, small
size, are really struggling to comply with the current
regulations.
We already have as a matter today the board of the Credit
Union National Association is adopting a guideline of best
practices for wire transfers. We want for our members, we are
not-for-profit full service financial institutions, and we want
for our members the same thing I want for myself. I want to
know, if I am sending money, how much it is going to cost; how
many pesos my family is going to get on the other side. You
know, full disclosure. We have adopted and it is in the written
testimony, the seven principles that all credit unions
voluntarily will adopt and are already practicing.
Ms. Brown-Waite. Ms. Perez, if you would submit your
response in writing, that would be very helpful, or we are
going to be running over here.
Next, I will recognize the gentleman from Texas, Mr.
Gonzalez.
Mr. Gonzalez. Thank you very much, Madam Chair.
Quickly, I do not want to gloss over the situation we are
trying to correct and improve on. We know people have been
victimized, and we should not kid ourselves. If you come from
San Antonio as I do, and from Texas, you would know exactly
what I am talking about. I think many of you probably have had
personal experiences. I know Congressman Gutierrez has
witnessed it himself.
Those are the sins of the past and everyone seeks
redemption. Let's just make sure it is complete and total
redemption, with a little help from the government. That is
what we really would try to achieve here. Everyone says prices
have come down because of competition and such, and only as
long as those competitors are allowed to compete equally, then
prices do come down and the market is a wonderful place in the
final analysis.
My question is going to go to the merger of First Data and
Concord EFS, and if anyone has an opinion on how that would
impact not just the non-bankers, but the banking part and the
credit union part of transmitters. I am going to start with Mr.
Suro, and again thank you for all the hard work that you are
doing over there at Pew.
Ms. Brown-Waite. Mr. Suro, you are recognized.
Mr. Suro. Yes, congressman. I just do not know enough about
that proposed merger and the companies involved to really have
an opinion on what impact it would have on the market.
Mr. Gonzalez. Dr. Orozco?
Mr. Orozco. Thank you. I think the proposed merger actually
poses a threat to competition because of what it means to merge
to major giant non-bank financial institutions. It will drive
out a lot of small competitors that are coming just now, like
the credit unions and the community banks. I think it is very
threatening.
I also think that we might face problems with foreign
exchange issues again, because there are differences in the
companies that are doing this business, and some of that Ezra
represents, not all, provide the same level of transparency. In
some countries, there is a very serious problem of foreign
exchange speculation, and that needs to be addressed. That is
why we need to adhere to certain standards.
I do not think punitive regulation is necessary, but we
need to have some sort of oversight that is missing at this
point. The situation that might occur with the merger between
First Data and Concord might be an illustration of where prices
might go up instead of go down.
Mr. Gonzalez. Okay. Thank you.
Mr. Valenzuela?
Mr. Valenzuela. I do not have anything meaningful to say on
this subject.
Mr. Gonzalez. Okay. Thank you.
Ms. Perez?
Ms. Perez. Unfortunately, I do not know enough about the
merger to comment at this time.
Mr. Gonzalez. Thank you.
Mr. Herrera?
Mr. Herrera. Likewise.
Mr. Gonzalez. Okay.
Mr. Levine?
Mr. Levine. I do not represent Western Union with regard to
their antitrust issues.
Mr. Gonzalez. You do not have an opinion from the non-bank
side of transmitters as to whether this is potentially harmful
to competition, or not, it does not pose any threat?
Mr. Levine. I am not aware of any adverse consequences with
regard to that. This is my own personal statement, with regard
to that proposed merger.
Mr. Gonzalez. Okay. Thank you very much.
I yield back the balance of my time.
Ms. Brown-Waite. Thank you very much.
Ms. Waters, the gentlelady from California is recognized.
Ms. Waters. Thank you very much.
Let me ask, first, Mr. Suro, in the fourth paragraph of
your testimony, you mention that for example about half said,
when you were talking about the remittance senders and
receivers, they are often unaware of the full cost. You said
that less than one-fifth, for example, knew the difference
between published exchange rates and the rates used in the
transfer process. What do you mean by that?
Mr. Suro. In this survey, less than one-fifth of the
senders were aware of the differences between the published
costs and the actual foreign exchange costs. It was an
important factor in the difference between what they thought
was going to be received and what was actually received by
their families. Often the pricing comes in a kind of packaging
where there is a flat fee for sending. There is the actual rate
of exchange. Sometimes there is a foreign exchange cost as
well. And there is often a lack of understanding of all the
different elements of that pricing package which can affect
what is actually paid for the transmission.
Ms. Waters. So what you are describing is, there could be
something advertised that says send $300, it costs $9.99, but
it does not talk about it costs more if you send $500 and other
things apply and that kind of description of the cost.
Mr. Suro. Right. A transmitter or even a bank or anybody
engaged in this business might say the fee for transmitting
$200 is $5 per transmission, but there may be additional costs
that come up when the transmission is being completed. There is
not a uniform system of totaling up these costs or even using
the same names for them in different venues.
Ms. Waters. Okay.
Ms. Perez, how many of your non-banked customers, your
remittance senders, become banked customers of the bank once
you have dealt with them?
Ms. Perez. Based on our products so far, most of the
customers that we do business with do eventually end up
becoming customers because it is a lower rate to send it as a
customer.
Ms. Waters. Do you have any statistics or data on that?
Ms. Perez. I would say about 80 percent.
Ms. Waters. Would you get to me some documentation of that?
Ms. Perez. Yes, sure.
Ms. Waters. Let me just wrap this up by saying, of course I
am from Los Angeles and I am very familiar with the class
action lawsuit. I do not believe that there would have been a
settlement unless there was some basis for the class action
lawsuit. The settlement, to me, was kind of a joke. As I
remember it, the settlement included or basically gave coupons
to the remittance senders to do more business with Western
Union at a little bitty discount of some kind. So it was
actually a great advertisement, recruitment, and probably
expanded the business even more, with a little bit of a
discount.
I am very interested in this issue for a lot of reasons. I
do believe that the poorest people in our society are the most
vulnerable, and that they are the most abused in the financial
services industry. I just believe that. As a matter of fact,
when I look at some of the organizations, such as MoneyGram and
Western Union, they seem to be coupled with payday loan
operations where you get a check cashed for an amount, you get
a payday loan for 1,000 percent interest, and I guess you can
do a remittance if you can figure out the cost, and get charged
for that, too.
So it seems to me there is a consolidation of that part of
the financial services community that is convenient for poor
people, for people who do not speak English very well, for
people who do not understand the game. It seems that these
services are concentrated more and more, which makes them even
more vulnerable. I really like the idea of the credit union
because people sign up; they become a part of an organization;
they have access to all of the products of the credit union. It
treats them as a real person, rather than payday loan
operations, check-cashing operations, and transmitting
remittance operations all in one.
So I do not know where all of this is going, except to say
I would like to do whatever is possible to keep people from
being exploited or ripped off. I will work closely with Mr.
Gutierrez and others. I think expanding competition may have
some value, particularly if the ownership of that competition
is by the very people who have helped to make the industry as
strong as it is. I don't see Western Union or MoneyGram talking
about any joint ventures with any Latinos or Latin Americans.
Ms. Brown-Waite. The gentlelady's time has expired.
Ms. Waters. And when I begin to see that kind of
involvement, then I will have a lot more respect for the
industry.
Thank you very much.
Ms. Brown-Waite. The chair notes that some members may have
additional questions for this panel which they may wish to
submit in writing. Without objection, the hearing record will
remain open for 30 days for members to submit written questions
to these witnesses and to place their responses in the record.
Ladies and gentlemen of the panel, thank you very much for
being here. We appreciate it. You are dismissed.
This hearing is officially adjourned.
[Whereupon, at 1:03 p.m., the subcommittee was adjourned.]
A P P E N D I X
October 1, 2003
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