MoneyGram and Western Union announced a nationwide settlement Wednesday to compensate millions of immigrants who allegedly paid exorbitant hidden fees when wiring money from the United States to Mexico for more than a decade.
The settlement aims to remedy the companies' widely criticized practice of using currency exchange rates that are far less favorable than the prevailing daily rates without informing customers, many of them immigrants who can least afford it.
More than $4 billion a year is sent to Mexico from family and friends in the United States, much of that from California, and the bulk of the money transferred electronically is handled by the two companies.
The settlement announced by Western Union parent First Data Corp. and MoneyGram Payment Systems Inc. brings to an end class-action lawsuits filed against them in Illinois, Texas and California by predominantly low-income Latinos who relied on the services to send money to family and friends. The settlement also includes Orlandi Valuta, another First Data Corp. subsidiary.
The companies admitted no liability but pledged to offer discount coupons to customers who had wired money to Mexico since 1987. The corporations also announced plans to contribute more than $2.3 million to Latino community organizations in the United States--$2 million of it from First Data Corp. Furthermore, the companies agreed to disclose all currency exchange rates on money-transfer forms or receipts and in their advertising.
The U.S. District Court for the Northern District of Illinois gave preliminary approval to the settlement Wednesday and issued an injunction precluding similar suits, including those already filed in Texas and California.
"We are very pleased to have reached this settlement with the plaintiffs and avoid the costs and distraction of further litigation for all parties involved," Doug McNary, president of Western Union North America, said in a statement. "Western Union has a long history of not only helping our customers send their hard-earned money to Mexico but also of helping them in their local communities."
Added MoneyGram Chief Executive Phil Milne: "MoneyGram values its U.S.-to-Mexico customers and is committed to providing safe, affordable money-transfer services to Mexico."
According to the terms of the deal, each of the companies will issue discount coupons for future transactions to Mexico to customers who transferred money from the U.S. to Mexico after Jan. 1, 1987. In addition, Western Union will honor similar discount coupons that it will issue to MoneyGram customers who transferred money from Jan. 1, 1987, to Dec. 10, 1996. MoneyGram was owned by First Data Corp. before Dec. 11, 1996.
Western Union and Orlandi Valuta will also create a $2-million fund for Mexican and Mexican American causes, and MoneyGram has pledged $300,000.
"We believe that this fund . . . shows a commitment by the parties to address future needs of the Latino community," said Antonia Hernandez, president and general counsel of the Mexican-American Legal Defense and Educational Fund, on the advisory committee that will direct MoneyGram's contributions.
"We congratulate MoneyGram for deciding to settle this case in a way that will deliver benefits to customers sending money to Mexico now, rather than engaging in protracted litigation," added Arturo Vargas, executive director of the National Organization of Latino Elected and Appointed Officials.
While Latino community organizations applauded the settlement, the California attorney pressing separate class-action suits here decried it as a "sweetheart deal" that could deny millions of California plaintiffs their day in court. Attorney Fred J. Kumetz, who has filed his actions in state court, vowed to seek an order lifting the injunction.
More than 25 million wire transfers have been sent through the companies to Mexico in the last five years alone, about 30% from California, he said.
"I have a problem when a Chicago court . . . imposes its will on a California lawsuit when California has eight times as many affected people and its own set of laws," he said.
The Illinois and Texas lawsuits were filed in federal court and allege that Western Union and MoneyGram violated racketeering and consumer fraud laws by failing to disclose currency conversion fees. Kumetz first filed his cases in federal court but refiled them in state court after the corporations successfully challenged the federal jurisdiction.
The state cases allege that the money-transfer giants are violating California law that requires them to disclose all commissions and fees.
Western Union and Orlandi Valuta expect that the court will give final approval to the settlement this fall and that coupons will be issued in 2000.
The companies generally advertise and disclose a flat fee per transaction, but say nothing of the fees they collect by using unfavorable exchange rates. The practice has prompted a Mexican government pilot program in the U.S. to collect complaints and direct customers to the best deals. It has also riled Latino lawmakers across the country.
Assembly Speaker Antonio Villaraigosa (D-Los Angeles) and Assemblyman Thomas Calderon (D-Montebello) are writing a bill to tighten regulation of the industry, which Villaraigosa has likened to "highway robbery."
Villaraigosa also backed a recent initiative to promote low-cost wire transfers to Mexico through credit unions in California and Nevada.