New Rules Slow Freewheeling San Ysidro Exchange Houses

Regulation has arrived in that frenzied bastion of free enterprise known as San Ysidro Boulevard. The transition has not been smooth.

Long accustomed to doing business largely without oversight, many of the entrepreneurs who run the currency exchange houses that dominate so-called “Little Wall Street” near the U.S.-Mexican border are balking at a newly enacted San Diego law designed to impose some control on the freewheeling money trade.

At first, many of the businesses ignored the new regulations, but that changed in June when police seized more than $40,000 in cash from five of the houses and cited the owners for non-compliance. The money has been returned, but the bad feelings linger, possibly to be aired more fully in legal action.

Meantime, police Friday cited five exchange houses for alleged violations of the new requirement that clients receive receipts for each transaction.

‘Law’s Not Helping Any of Us’

“This law’s not helping any of us,” grumbled Celia Campos, general manager of The Golden Stars Inc. Money Exchange, who says a police seizure of more than $22,000 from her concern forced her to close shop for two months.

Francisco Anzar, president of an association of exchange houses, added: “It’s wasting time and it’s wasting money.”

San Diego city officials see it otherwise.

“Our perception is that it’s working well,” said Allen Jones, administrative assistant to Councilman Bob Filner, who represents the district and is a longtime proponent of the law.

The dispute offers a microcosmic look at the initial effects of government regulation on a free marketplace--in this instance, a group of highly individualistic, somewhat secretive and extremely competitive small-business operators who have thrived in a high-risk field. Officials have estimated that hundreds of millions of dollars change hands annually in the San Ysidro exchange houses, but no one knows with any certainty.

The city statute, which became effective April 25, established, for the first time, an extensive licensing procedure for the exchange houses, which have proliferated in San Ysidro and other U. S. border communities since the devaluations of the Mexican peso in 1982.

The San Diego law appears to be the most expansive effort nationwide aimed at regulating the border money concerns, some of whose employees have been implicated in schemes to disguise, or “launder,” drug profits.

The city statute does not address money laundering, which is covered by federal statutes. But city officials acknowledge that the newly required paper work could be made available, upon request, to federal agents investigating potential wrongdoing.

There are more than 50 exchange houses in San Ysidro, mostly concentrated on the boulevard, making the industry one of the largest employers in the economically depressed border neighborhood of 25,000. The concerns are situated in a heavily Latino community that, although within the San Diego city limits, is more akin culturally and economically to bilingual border cities such as Calexico, El Paso and Laredo, whose economic bases cross national boundaries.

The exchange houses make money in two ways: Through commissions and service charges, and by essentially playing the “spread” in the value of the peso relative to the dollar. In times of rapid peso devaluations, panicked Mexican citizens routinely flock to San Ysidro and other U. S. border communities to sell their currency for more stable dollars. During such “mini-panics,” the traders constantly adjust their rates based on hunches and other factors. The hope is that they are ahead at the end of a run--but there is always the possibility that they end up with surplus amounts of greatly devalued currency.

The city law had a dual purpose: cutting down on reported consumer rip-offs, and also cleaning up the cluttered, bazaar-like appearance of the boulevard, where the signs advertising the many competing exchange houses dominate the jumbled business strip. Officials say it is too early to draw any definitive conclusions, but they say early results indicate that the law is having its intended effects.

Weaker Links Eliminated

Indeed, as predicted, the law has forced some of the more marginal exchange houses out of business. These concerns, which sprang up almost overnight in booths, storefronts and kiosks with each new peso devaluation, were often considered the most visually offensive and most at odds with city codes. Some were operating illegally. Authorities aren’t mourning their demise.

Among other things, the new law, which includes a $224 annual licensing fee, imposes a police background check on the prospective operators of exchange houses. Felons may be excluded from ownership. The owners are required to allow access to police inspectors during normal business hours.

The statute also mandates that operators conform with city sign guidelines, zoning ordinances and other codes; that they clearly post signs informing consumers of commissions, service charges, and any other previously “hidden” fees, and that traders provide customers with receipts for each transaction. Violators can face fines of up to $500 and/or six-month jail terms, plus possible revocations of licenses.

Following San Diego’s lead, the state of California has also gotten into the regulation act.

Last month, Gov. George Deukmejian signed into law a statute, modeled on the San Diego measure, that requires money traders to post commission rates and provide customers with receipts. However, the state law, which will take effect Jan. 1, is less stringent in several respects than its San Diego counterpart. The measure has prompted no public criticism from exchange-house owners.

Labeled a Burden

By contrast, the owners have consistently objected to the San Diego statute as too burdensome. They have planned a court challenge, which they say is still possible.

Initially, many traders simply ignored the new requirements, apparently hoping that the law would never be enforced, police said. They received a rude awakening.

On June 15, city police acted, seizing about $43,000 in cash from five unlicensed exchanges and citing those exchanges for violating the new law.

“We originally wanted voluntary compliance, but it just wasn’t working out,” said Cindy Sergott, a police code compliance officer. “We knew we had to get their attention.”

That they did. The day after the seizures, Sergott recalled, “we had 39 applicants in our office applying for permits.”

As of last week, the city had issued permits to 49 exchange houses in San Ysidro; three other applications were pending. Although the impounded cash has been returned to the businesses, exchange-house operators are still smarting over the seizure.

“How can they just come inside without a warrant and start going through our office?” asked Anzar, who runs seven exchange houses here. “We think it’s unconstitutional.”

Police respond that their action was completely legal, that they don’t need warrants.

“We are clearly within our rights in what we did,” said Sgt. Stan Elmore, who denied charges that the officers were discourteous. “It’s no different than seizing a gun in a shooting, or seizing loot in a burglary. It’s evidence that a crime occurred.”

Apart from the possibility of police seizures, many exchange-house operators are upset with the new receipting requirements. Not only must they provide customers with receipts, but the slips must indicate the precise denominations of bills provided to each client. Many say the system is too time-consuming and cumbersome; customers are likely to walk away rather than wait, owners say.

“To do it this way is just not practical,” said Fred Sobke, who runs three exchange houses in San Ysidro and says he is attempting to negotiate a more moderate receipting requirement. “We can achieve what the city wants in a more efficient manner.”

Compliance with the receipting requirements has been mixed. San Diego police issued misdemeanor citations Friday to five houses--S. T. J., Gala, Pacific, La Plata and HBP Financial--that were charged with failing to provide receipts or providing inadequate receipts to consumers.

Meanwhile, a reporter who purchased $2 worth of Mexican pesos at three San Ysidro exchange houses--S. T. J., Via de San Ysidro and Hernandez--found that none of the three provided the required receipt until it was requested from clerks. The law requires that the exchange houses give the receipts automatically with each transaction.

“That’s one of the quickest ways for them to lose their licenses,” said Elmore, who heads the police licensing unit, when apprised of the results of the informal survey.

Drafted to Help Consumers

Ironically, although the law was designed largely to protect consumers, many clients interviewed on San Ysidro Boulevard on a recent afternoon were unaware of any differences in the way the money merchants did business.

“I didn’t know that they have to give us receipts,” said Dolores Heredia, who had just changed money at one concern. “I think that’s a good idea. It will make it easier for us.”