Federal Judge OKs Money-Transfer Case Settlement

A federal judge has approved a final settlement that could bring to an end years of politically charged consumer litigation against the nation’s biggest money-transfer companies. The suits alleged the firms charged hidden and exorbitanxt fees to some of the country’s most vulnerable consumers--Mexican immigrants wiring money home.

The class-action settlement could soon put hundreds of millions of dollars in discount coupons into the hands of consumers who wired money through the companies over the last 13 years. It also compels Western Union, MoneyGram and Orlandi Valuta to disclose to consumers key information previously withheld regarding foreign exchange rates. The companies will also pay $4.6 million into a fund managed by Latino community organizations for Latino causes.

The settlement comes at a time of growing consumer awareness and competition in the money-transfer business. An estimated $7 billion flows from Mexican immigrants here to family back home, much of that from California.

At issue was the companies’ practice of earning substantial profits on the foreign-exchange spread--the difference in the rate at which they buy and sell pesos--without disclosing that to consumers. While the practice has been blasted by lawmakers and community activists as “reprehensible,” it is far from clear whether it is illegal.

In her 55-page ruling released Friday, U.S. District Judge Rebecca Pallmeyer in the Northern District of Illinois said, “Victory is far from certain with respect to any of the claims.” She called the massive coupon-based settlement “fair, reasonable and adequate.”

Matt J. Piers, the lead Chicago attorney who negotiated the settlement on behalf of the immigrant plaintiffs, said, “Consumers are in a dramatically better position than they were in before. . . . The companies’ sails are being trimmed.”

Pete Ziverts, a spokesman for First Data Corp.--the parent company of both Western Union and Orlandi Valuta--said the settlement “takes away this whole distraction from our business and lets us focus on what we need to do, which is serve our customers. . . . We still believe that our business practices are sound. We believe they always have been.”

A spokesman for MoneyGram parent Viad Corp. could not be reached.

The big companies once had a lock on the market but have lost market share recently to smaller competitors who slashed prices and offered better exchange rates. Piers said the settlement will encourage further competition.

The lawsuits were filed beginning in late 1997. The settlement was granted preliminary approval in May 1999, but months of disputes and hearings have delayed the final ruling.

Pallmeyer’s approval brings to an end more than half a dozen cases filed against the companies in California, Texas and Illinois, but is sure to generate its own controversy. Already, Los Angeles attorney Fred J. Kumetz has vowed to appeal the decision as unfair to California plaintiffs--a move that probably will delay any coupon payouts for months.

Kumetz filed California’s class-action case and formally objected to the settlement on behalf of a group of California plaintiffs. He has argued that Californians will get a better shake in state court here because he believes California laws clearly prohibit the companies’ conduct.

He has filed a more recent case that is pending in state court on behalf of those who have opted out of the proposed settlement or wired money to Mexico since September 1999.

“What has happened here is a federal judge in another state has sat and analyzed California law, rather than permitting a judge in California who has the case to do that analysis,” he said. “This is a poster child for what an abusive class-action settlement is all about.”

The proposed settlement deeply divided politicians and Latino community organizations. While some believed it to be the best possible deal in a legally murky case,others--including state Sen. Richard Polanco and California Atty. Gen. Bill Lockyer--weighed in against it, blasting the coupon deal as insufficient after years of alleged abuses.

In her opinion, Pallmeyer called Kumetz’s interpretation of California law “somewhat strained.” She also chided Kumetz, Polanco and Nativo Lopez, co-director of the Latino rights group Hermandad Mexicana Nacional--for first supporting the settlement and then changing their minds.

Kumetz said the allegations that he backed out of a deal were untrue. He also said that while the California Superior Court judge reviewing his case will no doubt read Pallmeyer’s decision, “she’s going to apply her own independent determination and not rely on a judge who is 2,000 miles away.”

Polanco said that although he initially supported the settlement, he withdrew his support after learning that some Latino community leaders were not on board. He wrote a Joint Senate Resolution in August condemning it and calling the companies’ conduct illegal.

He said he believes existing California law, which he wrote years ago, covers the conduct. Still, he plans to push new legislation that would “make sure there is full disclosure and that there’s no ambiguity.

“This is not over,” he said.

The settlement offers discount coupons that could be valued at as much as $400 million to consumers who wired money to Mexico dating back to 1987. However, the actual amount redeemed is likely to be much lower. Attorneys in the case have sent out millions of notices and placed Spanish-language advertisements in media here and in Mexico in an effort to locate the largely migratory class. Even those who can be located will not necessarily use the coupons.

The settlement has been criticized for directing consumers back to the very companies that allegedly defrauded them. Kumetz argues that could stifle any new competition. Still, Piers said, even those who choose not to give return business to the big companies can sell or give away the coupons. He also said there is nothing to stop smaller competitors from honoring them as well.

“There’s a market and a network,” he said. “You can say to your cousin, ‘Come over and help me paint my bedroom and I’ll give you a stack of coupons.’ ”

The settlement also calls for the companies to disclose the existence of the foreign exchange spread and to set up toll-free telephone lines where consumers can learn the daily rate. Currently, the rates are not posted or disclosed to consumers until they begin their transaction.