Advertisement
YOU ARE HERE: LAT HomeCollectionsFixme

Firms Are Wired Into Profits

Business: Money order companies charge fees to send money to Mexico, then benefit from spread in currency exchange rates.

November 07, 1997|NANCY CLEELAND | TIMES STAFF WRITER

SANTA ANA — 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 has resigned himself to using Western Union and MoneyGram, the two largest money wire companies, despite the 20% he must pay in fees and commissions.

He's not alone. People send several billion dollars to Mexico every year, creating a lucrative and fast-growing industry that critics say takes unfair advantage of its customers by charging high and hidden fees.

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.

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 by these two companies would be worth about $88 when it arrived in Mexico.

The Mexican government has long complained about the high cost of money transfers, which injected more than $4 billion into that nation's economy last year. The issue was highlighted several months ago by a U.S.-Mexico commission studying northbound immigration, which strongly recommended government intervention to reduce the fees.

"We know it's a fairly big business, and we know that the kinds of people who are using the transfer system are not the world's most sophisticated," said Philip Martin, a UC Davis researcher who helped write the binational report. "There's a problem of fairness and equity here."

On Monday, Los Angeles attorney Fred Kumetz weighed in on the issue by filing class-action lawsuits against Western Union and MoneyGram, seeking at least $1 billion in damages.

Kumetz, who was born in Mexico, said he has been aware of high fees for years but was angered into action last month by Western Union ads offering "free" money wire service to help victims of Hurricane Pauline.

For a month, Western Union waived its fee of $12 for amounts up to $300, but Kumetz said it continued to make large profits on the foreign exchange spread.

"They're making 12% percent 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."

Kumetz cited a 1989 state law that says money transfer agencies must "clearly state the rates of exchange . . . and shall state all commissions and fees charged on all transactions." He said most customers are not aware of what he called "secret charges."

Spokesmen for Western Union and MoneyGram denied their companies had done anything wrong and said the exchange rates they use to build profits are determined by supply and demand.

Peter Ziverts, a spokesman for Western Union, said all customers are told the company's exchange rate when they place an order, and it's up to them to compare the rate with market prices.

Ziverts said most consumers are aware that they're paying a premium of 10% to 12% on the exchange rate. "The market has become very competitive, and every year, our business [with Mexico] is growing at about 25%," he said. "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 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?"

Cervantes said he sent money by wire service for almost 10 years before trying other methods to avoid paying the bad exchange rate. He mailed money orders through the U.S. Postal Service, but three times the envelopes arrived empty.

He said he also sent dollars south through a store owner with business links in Mexico who runs a money transfer service on the side. But that hasn't solved his problems because he is in a dispute with the store owner over whether some of the money was stolen, Cervantes said.

"The whole thing is a nightmare, but what can I do?" said Cervantes, who has lived in Santa Ana 14 years. "My mother depends on me. My mother-in-law depends on me. If I didn't send this money, they would have nothing to live on."

MoneyGram agent Juan Soto, who runs a check cashing store on 17th Street in Santa Ana, said he believes the wire fees are excessive, but that customers have no choice. "They're ripping people off because they know people can't go anywhere else," Soto said. "We try to be honest with our customers, but it's hard for them to understand."

Advertisement
Los Angeles Times Articles
|
|
|