Sunlight on remittances

When Congress passed the Dodd-Frank law in 2010, it included a little-noticed provision requiring financial companies and banks to provide greater disclosure to customers sending money overseas. Last week, the new rules took effect, guaranteeing consumers much-needed protections and greater transparency.

Until now, banks and money-transfer companies have been required to comply with federal laws aimed at curbing money laundering and fighting terrorism. But there have been no federal regulations in place mandating what they were required to disclose to consumers. It was pretty much left up to the individual companies to decide what information to provide.

Some voluntarily provided much of the information that is now federally mandated. Others, however, offered far less, and were able to build in hidden fees or to delay delivering the funds or to change currency at disadvantageous rates — all of which consumers only learned about after the fact.

Under the new provision, however, all companies are required to provide the same information up front to customers about the various fees and taxes they will be charged, as well as the exchange rate used at the time they wire the money. Additionally, the remittance providers must say how much money the recipient will get and guarantee that the funds will be available by a specific date. The new rules will be enforced by the Consumer Financial Protection Bureau, created as part of Dodd-Frank.

The changes may seem small, but remittances are a multibillion-dollar business. Last year, total remittances sent worldwide totaled more than $500 billion, according to Manuel Orozco, an expert at the Inter-American Dialogue, a Washington research group. About 25% of that money was sent from the United States, much of it by immigrants to relatives in Mexico, China, India and elsewhere.

The regulations standardize the way remittance companies operate, allowing customers to shop around and compare fees, seeking the company that delivers the best and most efficient service. In response, companies may lower or eliminate unnecessary fees, thus attracting more clients.

Clearly, the new rules will carry some costs, but these are outweighed by the benefits to consumers.