Credit Unions Link Up in Effort to Cut High Cost of Money Transfers

Assembly Speaker Antonio Villaraigosa on Monday helped launch a low-fee money-transfer service to Mexico for credit union members in California and Nevada, bringing more competition to a multibillion-dollar industry that has been criticized for high and allegedly hidden costs.

Beginning this week, 620 credit unions in California and 30 in Nevada will be able to offer money-transfer service to Mexico’s largest credit union for a flat $6.50 per transaction, less than half the rates charged by many services and less than a third those charged by Western Union.

The program brings some reform to an industry that has been plagued by more than high costs. Fly-by-night agencies and some courier services have also lost and stolen money.

The International Remittance Network, or IRNet, was developed by the World Council of Credit Unions and the California and Texas credit union leagues. So far, only a handful of credit unions have enrolled in the program, and only a small number of their 8 million members wire money to Mexico.

But despite its limited reach, the program was lauded as a needed step that will protect consumers and help to open up the industry.

“It’s very significant,” said Villaraigosa, who is coauthoring a bill with Assemblyman Thomas Calderon (D-Montebello) to tighten regulation of the industry. “We had a situation where the cost of wiring money to Mexico and other countries was almost 30% of the money that people were sending. That’s more than usury, its almost highway robbery.”

The $6.50 flat rate represents a departure from the biggest money-transfer services, some of which charge more than $40 for a $500 transaction.

In addition, Western Union and MoneyGram have been sued in Los Angeles Superior Court over their fees to convert dollars to pesos--reduced rates of exchange that the lawsuits allege are not disclosed to consumers. The class-action lawsuits are pending.

MoneyGram officials could not be reached for comment. Western Union spokeswoman Colleen Emigh declined to comment on the lawsuit but said that “Western Union welcomes competition.”

The program could also help to lure more immigrants to community credit unions, Villaraigosa said. “Many of these people live in a cash economy,” he said. “This moves them away from check-cashing outfits to . . . new methods of payment.”

More than $4 billion a year is sent to Mexico from family and friends in the U.S., making such remittances Mexico’s third-largest source of foreign exchange. About half of that comes from California, Villaraigosa said. Salvadorans in the U.S. send an additional $1 billion home each year, much of that from the Los Angeles region.

The network launched Monday links credit unions here with Caja Popular Mexicana, which has 330 branch offices in 25 of Mexico’s 32 states and serves about 380,000 members there. Family members must pick up their money at a Caja Popular location, but the program may be expanded to include other credit unions in Mexico, said David Chatfield, president of the California Credit Union League, which also covers Nevada.

The network launched a pilot program in February to El Salvador and Guatemala at similar rates. The Comunidades Federal Credit Union, in Pico Union, has independently been offering the same $6.50 service for money transfers to El Salvador since September and will soon expand the service to Guatemala.

Advocates for industry reform said the presence of credit unions in the market could help reduce costs industrywide.

“A credit union is a legitimate, authorized-by-California-law competition to the . . . practices of Western Union and MoneyGram,” said Los Angeles attorney Fred Kumetz, who filed the class-action lawsuits against the companies.

The past year has seen mounting scrutiny of the money-transfer industry.

Costs are so high and alternative services--such as some couriers--so unreliable, that many immigrants choose to send cash home instead through friends.

In December, the Mexican government launched an educational program in Los Angeles and Chicago to help consumers shop around for the best rates. Consumers can call (877) 868-8722 for information.