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Eliminating junk fees and bringing transparency to international remittances

The CFPB have made it very clear that they dislike banks charging junk fees. They have an entire section on their website devoted to junk fees and have proposed new rules to address them.

Consumers hate junk fees and there has been a real movement by fintech companies to move away from punitive fees that provide little value.

Wise recently conducted a survey on junk fees (PDF report here) to delve more deeply into this topic. The survey polled 2,000 adults in November 2023 and found that 76% of Americans said junk fees have impacted how they choose which companies to buy from or use.

This survey was about junk fees overall but there were also pointed questions about junk fees with international payments. The survey found that of those people who are sending money across borders over 70% have experienced a junk fee.

While overdraft fees, NSF fees and late fees have received a great deal of attention, fees from sending international remittances is a real problem.

I caught up with Rina Wulfing, the North American Policy and Campaigns Senior Manager at Wise, to discuss the findings in their recent survey. “Huge populations of Americans are impacted by the costs of international payments, particularly those sending money to family in their home country”.

The reality is that for many years banks have charged billions of dollars in hidden exchange rate markups costing these populations real money – an estimated $5.8 billion was lost in hidden exchange rate markups in 2023 alone.

When sending money internationally most people have no idea whether the exchange rate they are getting is fair or not. There is no transparency into what it costs the bank or remittance company and how much margin they are making on these transactions.

And this is what Wise is on a mission to change. “We want to create more transparency, bring these fees into the open and make it more affordable for consumers,” said Wulfing.

Full disclosure, I am a Wise customer and have been for many years. I routinely move money from Euros and Australian dollars back and forth with my USD account. Wise provides you with their fee, the exchange rate and even provides a link to what others are charging when doing a foreign currency transaction. So, they don’t just talk about transparency, they walk the walk.

The CFPB has indicated that remittances are also in their sights. This is from a press release in October 2023:
CFPB examiners found remittance providers charged hidden fees by taking money out of the funds consumers sent without properly disclosing them. In other instances, CFPB examiners found remittance providers failed to refund fees when the money consumers sent failed to arrive on time.

The reality is that for many consumers the cost of cross-border payments is still too high, particularly with some of the traditional players that have physical storefronts. What we really need is a TILA for foreign exchange. Where all forex players would be mandated to display their own fees as well as the exchange rate they are using.

The World Bank estimates that there was $656 billion in remittance flows globally in 2023 and that number continues to grow. The average cost to send $200 was 6.2% and unfortunately, that cost has been increasing.

The United Nations has set a Sustainable Development Goal of reducing the cost of remittances below 3% by 2030. To do that, fintech needs to step up and make stronger inroads into the developing world.

As the world continues to get more access to smartphones and more people become aware of fintech solutions like Wise those numbers should come down. But we still have a lot of work to do.

In the meantime, what can we do about foreign exchange junk fees in this country? Well, the Wise report encourages consumers to take action. It wants people to share any experience of hidden fees with the CFPB.

Given the large population of immigrants we have, many of whom are sending money back home on a regular basis, change here can help achieve the UN goals.

The CFPB will likely be a driver of this change as well, as they continue to attack junk fees in all areas of finance.

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