CFPB Weighs Tougher Rules for Overseas Money Transfers

The industry scrutiny comes about a decade after the CFPB wrote rules requiring money-transfer firms to disclose the exchange rate and fees associated with each transfer. Now, the probe is part of a broader push by the bureau to crack down on what it describes as problematic fees, including for late credit-card payments and checking account overdrafts.

 “We continue to see a lack of transparency about fees, exchange rates, and taxes, which comprise the true cost to consumers of sending money abroad,” CFPB director

Rohit Chopra

said in a letter to Sen.

Elizabeth Warren

(D., Mass.) that was released Friday. He said the bureau “believes there is significant noncompliance” with the existing remittance rules by nonbank money-transfer companies.

Many money-transfer firms dispute that their fees are hidden or that it is difficult for consumers to shop for the best deal.

Western Union Co.

, one of the largest U.S. remittance providers, said it gives customers the information they need “to make informed decisions and to comparison shop among providers.” 

A CFPB official said the bureau is looking into boosting exchange-rate transparency but didn’t say what the agency plans to propose or when. 

The World Bank estimates that the total volume of remittance transfers reached $794 billion in 2022, of which $626 billion flowed to low- and middle-income countries. The U.S. is the largest remittance-sending country in the world, sending an estimated $72.7 billion in 2021. World Bank data only record remittances flowing through official channels; informal payments, such as those delivered by hand, aren’t captured by the f​​igures.

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

For instance, one money-transfer company might offer no upfront fees but use a higher exchange rate, meaning that the actual cost to the sender could be more than if they chose another provider who discloses upfront fees but employs a lower exchange rate. 

A consumer seeking to send $1,000 abroad also might find that some providers charge fees that come out of the $1,000, while others impose fees on top of the amount, making it more difficult for a sender to make an apples-to-apples comparison. 

Differences in fees among money-transfer companies may be relatively small, but many immigrants send funds overseas multiple times a month, and over time the cumulative impact of higher costs is significant, advocates say. 

A group of Senate Democrats, led by Ms. Warren, said in an October letter to Mr. Chopra that the current rules allowed remittance providers to “misrepresent the true cost of remittances to the consumer,” such as by offering a less-favorable exchange rate than a competitor.

Some newer entrants in the remittance space, who are looking to compete with traditional providers such as Western Union,

MoneyGram

International Inc. and banks, say more transparency around fees would help consumers compare options.

“We believe consumers struggle to understand how much it costs to send money abroad due to inconsistent pricing strategies from providers and the opaqueness of exchange rate margins,” said

Nick Catino,

global head of policy and social impact at Wise, a cross-border payments company. 

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

—Paul Kiernan contributed to this article.

Write to Andrew Ackerman at andrew.ackerman@wsj.com

The industry scrutiny comes about a decade after the CFPB wrote rules requiring money-transfer firms to disclose the exchange rate and fees associated with each transfer. Now, the probe is part of a broader push by the bureau to crack down on what it describes as problematic fees, including for late credit-card payments and checking account overdrafts.

 “We continue to see a lack of transparency about fees, exchange rates, and taxes, which comprise the true cost to consumers of sending money abroad,” CFPB director

Rohit Chopra

said in a letter to Sen.

Elizabeth Warren

(D., Mass.) that was released Friday. He said the bureau “believes there is significant noncompliance” with the existing remittance rules by nonbank money-transfer companies.

Many money-transfer firms dispute that their fees are hidden or that it is difficult for consumers to shop for the best deal.

Western Union Co.

, one of the largest U.S. remittance providers, said it gives customers the information they need “to make informed decisions and to comparison shop among providers.” 

A CFPB official said the bureau is looking into boosting exchange-rate transparency but didn’t say what the agency plans to propose or when. 

The World Bank estimates that the total volume of remittance transfers reached $794 billion in 2022, of which $626 billion flowed to low- and middle-income countries. The U.S. is the largest remittance-sending country in the world, sending an estimated $72.7 billion in 2021. World Bank data only record remittances flowing through official channels; informal payments, such as those delivered by hand, aren’t captured by the f​​igures.

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

For instance, one money-transfer company might offer no upfront fees but use a higher exchange rate, meaning that the actual cost to the sender could be more than if they chose another provider who discloses upfront fees but employs a lower exchange rate. 

A consumer seeking to send $1,000 abroad also might find that some providers charge fees that come out of the $1,000, while others impose fees on top of the amount, making it more difficult for a sender to make an apples-to-apples comparison. 

Differences in fees among money-transfer companies may be relatively small, but many immigrants send funds overseas multiple times a month, and over time the cumulative impact of higher costs is significant, advocates say. 

A group of Senate Democrats, led by Ms. Warren, said in an October letter to Mr. Chopra that the current rules allowed remittance providers to “misrepresent the true cost of remittances to the consumer,” such as by offering a less-favorable exchange rate than a competitor.

Some newer entrants in the remittance space, who are looking to compete with traditional providers such as Western Union,

MoneyGram

International Inc. and banks, say more transparency around fees would help consumers compare options.

“We believe consumers struggle to understand how much it costs to send money abroad due to inconsistent pricing strategies from providers and the opaqueness of exchange rate margins,” said

Nick Catino,

global head of policy and social impact at Wise, a cross-border payments company. 

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

—Paul Kiernan contributed to this article.

Write to Andrew Ackerman at andrew.ackerman@wsj.com