Making Change: Money Houses Rankled by New Ordinance

The letter from the San Diego Police Department arrived in Benito Hernandez’s mailbox last week. Others in Hernandez’s business--currency-exchange houses, or casas de cambio-- also received the correspondence in recent days. Many didn’t like what they read: A new city ordinance will require the city’s money-exchange houses, mostly concentrated in the border community of San Ysidro, to comply with a host of new regulations, including police licensing and supervision.

“It’s going to create too much paper work, take too much time,” said Hernandez, who runs a tiny currency-exchange kiosk outside a feed store on San Ysidro Boulevard, the community’s main drag and a kind of Wall Street for the Mexican peso.

Hernandez spoke shortly after he had mounted a ladder and performed San Ysidro’s time-honored ritual: adjusting the numbers on the signs overlooking his shop to reflect the latest changes in the ever-fluctuating value of the peso.

“People who want to change money, they want to be in and out in a hurry; they don’t want to have to wait,” Hernandez explained as he re-read the Police Department letter. “The city will have to modify the law.”

Hernandez’s sentiment is widespread these days in San Ysidro, an economically depressed community of 25,000 where the 100 or so exchange houses represent one of its biggest employers. The exchange-house operators--entrepreneurs who have journeyed from throughout Europe, Asia, the Middle East and South as well as North America to set up storefronts, trailers and kiosks in San Ysidro--have long been accustomed to working at a frenzied, free-market pace, largely without regulation.

That is about to change, drastically.

Responding to reports that consumers were being cheated and that the physical appearance of San Ysidro Boulevard was deteriorating, the San Diego City Council last month changed the rules about the operation of exchange houses inside the city.

The new regulations reflect a longtime concern about the proliferating exchange houses in San Ysidro, which some experts estimate conduct hundreds of millions--perhaps billions--of dollars worth of transactions a year. Employees of some houses have been linked to drug-related money-laundering schemes. Many money traders are in violation of city zoning, housing and sign ordinances, officials say. Moreover, reports have frequently surfaced that the houses have been defrauding consumers through hidden charges.

Among other things, the new ordinance--passed Jan. 25--requires police background checks on prospective exchange-house operators, as well as mandating that the firms provide consumers with detailed receipts and state clearly if commissions are charged on transactions.

While such money-exchange houses proliferate along the 1,900-mile border, the new regulations in San Diego appear to represent by far the most stringent such initiative in the country. Meanwhile, proposed state legislation aimed at regulating the exchange houses throughout California is currently pending in Sacramento. The bill, sponsored by Sen. Wadie P. Deddeh (D-Chula Vista), is considerably milder than the San Diego statute, and has engendered less controversy.

Threat to Businesses?

Critics of the new city regulation say its enforcement could force as many as half of San Ysidro’s money-exchange houses out of business. City officials acknowledge that a third of the firms may have to shut.

“We think the law’s unfair,” said Franciso Anzar, president of the Monte de Piedad, a major San Ysidro exchange house, pawn shop and precious-metals trader.

Anzar also heads the newly created California Currency Exchange Assn., which claims to represent the majority of the houses, all opposed to the ordinance. The often-competing concerns have banded together and promised a lawsuit aimed at blocking implementation of the new regulations, which are scheduled to take effect April 25.

“The law is just too burdensome; our business will go way down,” said Ladislav Svoboda, a Czech-born import-export entrepreneur who heads the Viking Money Exchange and is the association’s vice president.

But not all exchange-house operators are so dead set against the new rules.

“I think the ordinance is long overdue,” said Fred Sobke, who runs three exchange houses in San Ysidro and basically supports the city statute, although he says the paper-work requirements should be modified. “To be honest about it, people are being ripped off here.”

From the city’s perspective, the new ordinance contains a prospective dual benefit: Reduction of consumer fraud and a cleanup of the disarray that is San Ysidro Boulevard, where the houses are concentrated. The rapid, helter-skelter growth of the industry since the peso devaluations of 1982 has lent the boulevard the cluttered air of a Third World bazaar. The street, which mirrors commercial strips in other border cities, is currently being widened--a long-awaited improvement.

“It looks like a carnival down here,” said Sobke. “It’s about time they cleaned it up.”

Protection Called Necessary

As for the prospect of lost jobs--exchange-house operators say several hundred could be jeopardized--officials and others say the trade-off is necessary.

“This new ordinance,” said City Councilman Bob Filner, who represents the district, “will provide the protection necessary for the consumer and . . . enable us to continue our efforts to beautify San Ysidro.”

City officials also suggest that the amount of lost jobs is exaggerated. Although the exchange-house operators say their margins of profit are modest, some of their critics state privately that owners are reluctant to take any steps--such as revealing commissions and providing receipts--that may cut into their substantial earnings.

The operators say they have no objection to providing basic receipts and posting commissions and service charges. But they point out that the new ordinance will make doing business more difficult, and that many exchange houses have in fact gone out of business in recent years, as Mexico has moved to cut down on peso speculation.

Still, commerce is brisk.

“Quite a bit of money changes hands there,” noted Celia Ballesteros, the former city councilwoman who initiated the push for the new curbs, “and there has been hardly minimal regulation.”

The ordinance will make exchange houses a police-regulated business and open to police inspection, just like card rooms, massage parlors, taxi operators and a host of other concerns. Operators will be required to apply for and purchase city permits, at an annual cost of $224 per business. Applicants must state all criminal convictions. Convictions of crimes of violence, theft or embezzlement within the past five years may lead to denial of a permit. In addition, city inspectors must attest that the businesses meet all health, fire building, zoning and sign-placement requirements before applications are approved.

Once approval has been granted, money traders must work within new guidelines. Two requirements stand out.

First, the ordinance mandates that all advertising and signs concerning the rates of exchange include fees and commissions. “There can be no hidden charges to the consumer,” the regulations state.

Secondly, the statute states that all transactions be recorded in a detailed form that includes a host of information, including the amount of the purchase, the rate of exchange and a complete summary of the exchange by denomination received. For instance, a client receiving 1,200 pesos might receive a slip detailing receipt of two 500-peso notes and two 100-peso notes. Three copies of the form must be made--one for the consumer, one for the exchange house, and one for the police. The houses must maintain the records for a year.

Violations can cost operators fines of up to $500 and/or jail terms of up to six months, plus possible revocation of licenses.

Despite its breadth, the new rules do not cover the problem of money laundering, which is addressed in various federal statutes.

Balk at Paper Work

Even many exchange-house operators opposed to the San Diego ordinance say they understand the need for some regulation, and they agree that police background checks for exchange-house owners are advisable. However, they balk at the idea of on-site police inspections--they maintain that the sight of uniformed police officers will scare consumers away--and they charge that the paper-work requirements are ridiculous, tripling the current 30 seconds required per average transaction.

“For us to have to mark down every denomination is just way too much,” said Svoboda of Viking Money Exchange.

The industry association estimates that the regulation will create some 4-million pieces of paper annually, all to be filed with the Police Department. “The review and storage costs from day one are astronomical,” said Miguel Rodriguez, an attorney hired by the exchange houses.

But city officials say the extra work is worth it. They maintain that many consumers have been short-changed after exchanging dollars for huge wads of pesos, without receiving receipts. Moreover, officials note that many houses do not inform consumers that transactions often involve service charges or commissions--sometimes as much as 10% or more of the amount exchanged.

“By saying these new requirements are too onerous, they (exchange house operators) are placing the burden on the consumer, which isn’t right,” said Ballesteros. “I’m sorry if some people feel they’ll have to go out of business. But I don’t agree that the law is too strict.”

Benito Hernandez, who calls his business Money Exchange Hernandez, hopes that the exchange houses will prevail upon the city to modify the ordinance. He says the police background checks are needed, but, like others, he says that the triplicate paper-work requirements are extreme.

A 37-year-old native of Sinaloa, Mexico, and a former banker in Mexico, Hernandez says he returned to the money-exchange business last week, renting the one-room kiosk for $400 a month after a two-year hiatus from the hectic industry. His is one of the smaller operations--and perhaps one of the most vulnerable.

“If things are going to move slowly with all this new paper work, the clients are just going to move on, or exchange money in Mexico,” Hernandez said. “I think I’ll survive, but this will make it a lot more difficult.”