Both resent having to pay Western Union a $10 fee to send money abroad and an additional cut to convert dollars to pesos. But these charges have fueled the company’s record profits and made it a relative outlier in the financial services industry.
As billions of dollars in fee income has evaporated at the nation’s largest banks because of regulations passed in the wake of the financial crisis, the money-transfer industry has escaped the crackdown.
Soon, however, the companies, which are largely regulated by states, will be subject to new federal rules. Starting in February, they will have to disclose more to customers about transfer fees and currency exchange rates. The rules, part of the Dodd-Frank financial regulation law, will also require companies to give customers up to 30 minutes after a transaction to get a full refund.
But consumer advocates are raising alarms that money-transfer companies face fewer restrictions because the rules do not touch the pricing of services.
“You still have a situation where customers are subjected to these predatory products with no cap on fees or exchange rates,” said Oscar Chacon, the executive director of the National Alliance of Latin American and Caribbean Communities in Chicago.
Money-transfer companies say that they offer an invaluable service for customers who might not have access to traditional banks and who would otherwise have no way of transmitting money to their families.
“The money-transfer industry is very competitive, and consumers have a range of choices for sending money,” said Tom Fitzgerald, a Western Union spokesman.
Western Union, which dominates the money-transfer market, notes that it already discloses the amount of money being submitted, the exchange rate and the amount that the recipient will receive. It also tells customers that “in addition to the transfer fee, Western Union also makes money when it changes your dollars into foreign currency.”
MoneyGram, among the largest companies, said, “We believe the new rules essentially standardize across the industry our existing high level of disclosure, which should benefit anyone wishing to send funds.”
Mr. Esparza, who sends money to his children in Mexico City, said that the $10 fee would not be onerous if he were sending a larger amount, but that it seemed exorbitant for $50. “Western Union’s fees are just too high,” he said.
Ms. Gonzalez said that even though $10 might not seem like a lot, “In Mexico, that money goes farther.”
Aside from the transfer fees, Western Union and other similar services profit as they buy batches of currencies at a wholesale rate. The money-transfer companies do not disclose the spreads they benefit from when they set exchange rates.
“It’s a big profit center for these companies, borne on the backs of the people who can least afford it,” said Matthew Piers, a lawyer in Chicago, who successfully brought a lawsuit on behalf of Mexican immigrants against Western Union in 2000 that accused the company of misrepresenting exchange spreads.
Western Union did not admit or deny wrongdoing, but agreed to pay more than $400 million to settle the claims.
Referring to the money it makes off the spread, Western Union said in its 2012 annual filing, “we generate revenues based on the difference between the exchange rate set by us to the customer and the rate at which we or our agents are able to acquire currency.”
Western Union received $1.15 billion in so-called foreign-exchange revenue in 2011, up from $910.3 million in 2009.
For Javaid Tariq, a taxi driver in New York City who sends money monthly to his family in Pakistan, the exchange rate is particularly infuriating because of how much money he loses. When he sent $300 to his family in April, he received 89.2 rupees for every dollar, less than the 91.2 exchange rate that he checks each morning, he said. For his family, that means 599 fewer rupees, or more than a week’s salary in Lahore.
Frustrated, Mr. Tariq said, “They are taking this money from the people who can least afford it.”
Analysts expect the market for money transfers to grow. The value of cross-border transfers is expected to reach $437 billion in 2012, up from $387 billion in 2009, according to the Aite Group, a research and advisory firm. In the United States, this is led partly by a growth in transfers to China and India and an influx of immigrants from western and eastern Africa, said Larry Berlin, an analyst with First Analysis in Chicago.
Western Union and rival companies are poised to profit. Western Union, with the largest share of the market at nearly 18 percent, recorded $4.2 billion in transaction fees last year, up 4 percent from 2010. The fees accounted for more than 75 percent of the company’s total revenue last year. In the first quarter, profits totaled $247.3 million, up 18 percent from the year-ago period, and for all of 2011, net income was $1.16 billion, up 28 percent from the year before.
Western Union and MoneyGram, which has nearly 4 percent of the money-transfer market, according to the Aite Group, are primarily regulated by the states in which they operate. The new rules, however, fall under the oversight of the new federal Consumer Financial Protection Bureau.
In the buildup to the Dodd-Frank rules, Elizabeth Warren, in her former role as a special adviser to President Obama charged with forming the consumer bureau, warned that with money-transfer companies, “you put your money in and take your chances.”
The central idea behind the new regulations was that having more transparency would promote greater competition and allow immigrants to shop for better rates, said Betsy Cavendish, the executive director of Appleseed, a nonprofit organization focused on policy reform that provided public comment during the rule-making process.
In a February speech to the League of United Latin American Citizens, Richard Cordray, the director of the consumer bureau, emphasized that “with our rule, we hope to increase competition.”
But competitors have made little progress in penetrating the money-transfer market largely because Western Union has half a million locations in 200 countries and territories, making it more difficult for others to edge in, industry consultants said. Although there was some hand-wringing in the industry during the rule-making, analysts said that disclosure requirements would not significantly dampen the revenue at Western Union.
“There will be some one-time costs, but not anything significant,” Mr. Berlin said. Western Union, he added, already works to make fees clear to customers.
Already there are signs that competition might be slow to materialize, banking analysts said. They pointed to a growing number of partnerships between Western Union and banks that might have competed for a slice of the business.
Regions Financial, for example, just finished introducing Western Union’s money-transfer services through its 1,800 branches. U.S. Bancorp gives customers access to Western Union services through its online banking site.
Immigrant advocates argue that many people do not have time to shop for better rates.
“These are people working who are often working minimum wage jobs with very little savvy or time about where to price-shop,” said Francis Calpotura, the founder and director of the Transnational Institute for Grassroots Research and Action in Oakland, Calif.
Some immigrants complain that while there might be multiple options to send money from the United States, there are not as many in the countries where their families live.
Mr. Tariq, the taxi driver with family in Lahore, says he must use Western Union to send $300 a month because “they have a monopoly on stores and are in every post office.”
That makes him feel “like a hostage,” he said.
Tax money pays for steaks - Dayton Daily News
Staff Writers Updated 10:17 PM Saturday, June 2, 2012
Funds that give Ohio county sheriffs and prosecutors the freedom to quickly and easily spend money to pursue and prosecute criminals have become a go-to source to pay for office parties, $40 entrees, employee gift cards and gas for one official’s daily commute.
And because of how the Furtherance of Justice funds are designed, sheriffs and prosecutors are encouraged to “use it or lose it,” meaning they must return all unspent money to county general operating funds at the end of each year. This means officials in some counties embark on spending sprees in December, buying tens of thousands of dollars in items such as office furniture, employee meals, computers and car wash tokens.
These are the findings of a Dayton Daily News investigation, reviewing three years of expenditures from the Furtherance of Justice funds in a seven-county area. Reporters also interviewed sheriffs, prosecutors and representatives of their statewide professional associations.
Guidelines for how sheriffs and prosecutors spend the money are intentionally vague.
Over the years, state officials have issued a patchwork of legal opinions as guidance. Now, the state auditor’s office is looking at peeling back some of the loose spending practices.
“There are instances where the expenditures appear to be outside the lines of the original intent of the statute, which is to identify, investigate and prosecute criminals,” said Bill Owen, the Ohio Auditor’s Office’s chief legal counsel, of expenditures auditors have found out in the field.
The FOJ funds are distributed annually from each county’s general fund, equal to one half of each sheriff’s or prosecutor’s salary. It is spent without the approval from commissioners and auditors required of other funds. This has made it a honey trap for some officials.
In the past year, two Ohio sheriffs have stepped down amid allegations they misspent FOJ funds. In March, state auditors ordered former Ottawa County Sheriff Robert Bratton to repay about $7,200 to the county after he used FOJ money to buy things like Cedar Point passes, belt buckles and cigars. In April, Delaware County Sheriff Walter Davis resigned from office amid allegations that he used FOJ money to pay for a hotel breakfast buffet with a female subordinate while at an out-of-state training event. In exchange for Davis’ resignation, a special prosecutor agreed to end a criminal investigation into the spending.
“Normally to spend any money, I have to go through the commissioners and auditor’s office,” said Greene County Prosecutor Stephen Haller. “But with the FOJ, I just write a check, like you would with your personal checkbook. I could see it could be tempting to someone who could want to misappropriate funds. It’s really not that difficult to do.”
“There’s multiple and good reasons to have this,” said Ohio Auditor Dave Yost. “But like any time you build flexibility into the system, there’s potential for abuse.”
The gas pump
When asked why the funds are needed, local sheriffs and prosecutors cite examples of imminent need in the midst of important cases: Detectives working late into the night need a bite to eat; investigators need money for an undercover drug buy; or a suspect or witness needs to be quickly transported from another state.
But the way the accounts are used is often different, the Daily News found.
Montgomery County Prosecutor Mat Heck between 2009 and 2011 billed taxpayers for about $4,000 in gas via FOJ to fill up his take-home, county-owned 2005 Dodge Durango. Receipts submitted to the county show Heck bought gas at filling stations near his Clayton home about two to three times a month.
Heck said in addition to driving to and from his home, he drives the SUV to meetings and crime scenes. Other staff members have access to it, too, he said. He said buying gas is cheaper than driving his personal car because of his office’s policy of reimbursing staff for 55 cents a mile.
“The most practical way to pay for it is out of the FOJ, and it’s also a legally appropriate way to do it,” Heck said.
Gift cards
Several counties use the fund to hand out employee perks, such as gifts or meals.
Butler County Prosecutor Michael Gmoser in December handed out $12,663 in Bridgewater Falls gift cards to his employees and two $100 performance bonuses to interns. Former Warren County Prosecutor Rachel Hutzel frequently dipped into the account for $25 gift cards to Target or restaurants such as Olive Garden or O’Charleys.
Gift cards can catch the attention of state auditors because there’s no way to track what they’re being spent on. It’s also illegal to spend public money on alcohol.
Gmoser defended the purchase: “Because of budget constraints we do not have the ability to give salary increases to my staff, but there are other mechanisms by which I can award their service, and that is what I did.”
The Warren County Prosecutor’s Office gave out $550 in $25 gift cards to employees over three years.
Prosecutor David Fornshell cut back on the practice substantially when he took office, but saw nothing wrong with it.
“Anytime that you recognize employees who work for a prosecutor for going above and beyond in a particular case, that increases the morale of an office,” he said.
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