Law Jolts Border Money Changers : San Ysidro Currency Exchanges React to New Regulations

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 did not like what they read: A new city law will require the city’s money-exchange houses, mostly concentrated in the U.S.-Mexico 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 a time-honored ritual in San Ysidro: 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.

The new regulations, adopted by the San Diego City Council on Jan. 25, reflect a long-time 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 law, scheduled to take effect on April 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 throughout 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 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.

Could Shut Business

Critics of the new city law 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 down.

“We think the law’s unfair,” said Franciso Anzar, president of the Monte de Piedad, a major San Ysidro exchange house, pawnshop 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 law. The often-competing concerns have banded together and promised a lawsuit aimed at blocking implementation of the new regulations.

But not all exchange-house operators are against the law.

“I think the ordinance is long overdue,” said Fred Sobke, who runs three exchange houses in San Ysidro and largely 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 law contains a prospective dual benefit: Reduction of consumer fraud, and a much-needed 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 have 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.

‘Looks Like a Carnival’

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

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, although they suggest that there will be fewer jobs lost than opponents of the law contend.

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 earnings.

The new law will make exchange houses 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 last five years may lead to denial. In addition, city inspectors must attest that the businesses meet all health, fire building, zoning and sign-placement requirements before applications are approved.

Two Key Guidelines

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

First, the law 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 recording in triplicate the amount of the purchase, the rate of exchange and denominations received. The houses must maintain the records for a year.

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

Despite its breadth, the city law does not cover the problem of money-laundering, which is addressed in various federal statutes.

Exchange-house operators opposed to the San Diego law say they understand the need for some regulation, and 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 away consumers--and they charge that the paper work requirements are ridiculous, tripling the 30 seconds now required per every average transaction.

“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.”