No Easy Route for Money Going to Mexico

Every two weeks, Alfredo Cervantes sends home all the money he can spare--$50, $100, sometimes $200. Saving the cash from his factory job has been tough, Cervantes said, but getting it to relatives in the small Mexican town of Sahuayo has been even tougher.

Money orders disappeared in the mail. Dollars sent through an informal cross-border network were stolen. Friends who traveled to Tijuana to deposit money in Mexican banks were robbed at knifepoint.

And so Cervantes is resigned to using Western Union and MoneyGram, the two largest money-wiring companies, despite the 20% cost in fees and commissions.

He is not alone. Immigrants send several billion dollars to Mexico every year, creating a lucrative and fast-growing industry that critics say takes unfair advantage of its customers.

Advertised fees are relatively low--about $12 to send $300--but the companies make enormous profits from a large spread in the exchange rate for pesos.

For example, on Thursday, Western Union and MoneyGram offered customers 7.3 pesos to the dollar, while the official exchange rate was 8.3 pesos. Thus $100 wired through either of those companies would be worth about $88 when it arrived in Mexico.

Claiming that the spreads amount to hidden fees, Los Angeles attorney Fred Kumetz on Monday filed class-action lawsuits against Western Union and MoneyGram, seeking at least $1 billion in damages.

“They’re making 12% on the exchange rate, and they’re not telling the customers,” Kumetz said. “And this money is being taken from people who can least afford to pay it.”

Spokespersons for Western Union and MoneyGram denied that their companies had done anything wrong and said their exchange rates are disclosed at the time of each order. It is up to customers to compare those rates with open market prices.

“The market has become very competitive, and every year, our business is growing,” said Peter Ziverts of Western Union. “I think that says a lot about what our customers think.”

But six customers interviewed at Western Union and MoneyGram agencies in Santa Ana this week said they were unaware of the 12% difference in exchange rates.

“That doesn’t seem right to me,” said Jose Luis Arredondo, who sends $400 to Michoacan state every two weeks. “Why are they taking that money without telling me?”

The lawsuits are the latest development in a long-standing issue, which was highlighted earlier this year by a two-nation commission on Mexico-to-U.S. migration. The commission strongly recommended reducing such commissions and fees, which it said took as much as a $1-billion bite out of the $4 billion to $5 billion sent to Mexico last year.

In recent years, responding to the growing market, more competition has sprung up. From banks to mail couriers to the U.S. Postal Service, businesses are trying to appeal to immigrants with lower costs and safe, insured service.

For $15, one of the upstart companies, Mexico Express, delivers overnight letters containing money orders up to $1,000. Customers in Mexico can then convert the dollars to pesos at the market rate.