Monday, October 28, 2013

Betsy Cavendish: Big Day for Immigrant Finance, Opening of a New Era

Guest post by Betsy Cavendish of Appleseed

The big question looming in the political world is whether immigration reform can and will advance on the Hill, and on what terms.  But behind the scenes, a big advance for immigrants in the U.S. is going into effect today, October 28, 2013.  It may well save migrant workers and their families billions of dollars.

Landmark federal consumer protections are newly available to migrant workers sending money abroad.  The Consumer Financial Protection Bureau (CFPB) now requires that remittance transfer providers give consumers clear information, upfront, about the price of sending money to other countries. The new rule on remittances also provides complaint procedures and remedies if something goes wrong.   Information on the rule is found here on the CFPB’s website. 

The rule represents big change.  Globally, the remittance market has shot past $500 billion per year, and the world looks to the U.S. as a leader in remittance volume, law and policy.  Most migration in the world is spurred in part by the prospect of making more money, then sending some share of earnings home.  From the U.S. to developing countries, remittances dwarf both official development assistance and charitable giving. 

Before this regulation went into effect, the hard-earned money people sent, arrived on uncertain terms.  When it would be available was often uncertain, and even the terms of the transaction were uncertain. Some remittance companies advertised their low fees and hid the more important factor of exchange rates.  Customers sought low fees, and perhaps lost an hour or a half-day’s wages because of a high, undisclosed exchange rate or because surprise pick-up fees were subtracted from the amount delivered. 

Besides transparency, a second key piece of the new rule affords consumers remedies.  The rule establishes mandatory complaint resolution procedures at remittance companies and limited rights to cancellation and refunds.  The CFPB has established a complaints data base and an audit protocol.  Moreover, the section of Dodd-Frank establishing the remittance transparency regime amended the Electronic Funds Transfer Act, and provided its remedies.  This means that the threat of lawsuits and even class actions will impel providers to make good on their promises.

Previously, many migrants sending funds abroad felt disempowered from complaining when transactions went awry.  The new regime empowers consumers and re-sets the balance between vulnerable individuals and powerful companies.

A third pillar of the new remittance holds companies responsible for the acts of their agents.     No more can companies just tell a disappointed consumer that the “problem was on the other end.” 

How did this market transforming change come about?  How did Congress and the Administration come together on a change that benefits immigrants, some of whom may even lack legal status?  How on earth did progressives score a victory for the vulnerable?

It’s fair to say that it wouldn’t have happened without Appleseed, without committed legislators, and without an administration that persisted in the face of industry opposition.   

Many years ago, Appleseed Centers conducted surveys asking immigrants what were the hardest issues for them.  They frequently mentioned the high, unpredictable cost of remittances, as well as uncertainty surrounding delivery. 

In Appleseed fashion, we did a lot of talking to industry to understand the market and what was workable, and we tried a disclosure pilot with some companies and banks that were willing to give up-front disclosure a try.  Customer satisfaction was high and we found out a lot about what was cumbersome for business and what was possible with effort. 

The Dodd-Frank financial services and consumer protection reform bill was moving, so we leapt aboard, seeking modernization of the remittance market and consumer protections, and secured them in law, thanks to the interest of leaders like Rep. Luis Gutierrez of Chicago, former Rep. Barney Frank, and former Senator Daniel Akaka. 

It’s hard to say that an industry the size of banking and remittances, with its fearsome lobbying capacity, didn’t pay attention to Section 1071 of Dodd-Frank, but the remittance proposal  actually generated surprisingly little attention on the Hill during its consideration. 

We all know that many reform laws are enacted and then die a quiet death for want of follow through.  On the governmental side, there may be no appropriations, no staff, no enforcement, no communications.  Meanwhile non-profit advocates, legislative victory in hand, may move on to the next battle. 

Appleseed stuck with the issue, and turned to the regulations.  We scheduled meetings, responded to draft regulations, built coalitions, kept the pressure up, and were met with success.  CFPB Director Richard Cordray and his able staff took up the Congressional directive and embarked upon a thoughtful, thorough rulemaking process. 

What will the new regime bring?  Market pressures won through a transparency regime should  lower prices and improve reliability.  Companies should refine their systems and work with consumers to resolve any discrepancies.   With an extensive communications effort, immigrants  who work hard to send money to family and friends abroad will know that they no longer have to lump it if less money arrives than they expected.


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