End hidden fees on remittances in the U.S.

Consumers are often unaware what they pay to send, spend, or receive money internationally, due to fees hidden in inflated exchange rates. That’s because pricing is misleading - with advertisements of “$0” or “no fee” while exchange rates are significantly inflated, sometimes 7% or more. This impacts migrant workers, small businesses, service members, people buying property abroad, foreign exchange students, vacationers, and others. 

Increased transparency on fees will increase competition and lower remittance costs, a goal shared by the UN/World Bank/G20 to address the global average cost of almost 7%. 

You send $10k from the US to Canada. You check prices - financial institution A shows a “fee” of $4.99 and financial institution B shows a “$0” fee. Without conducting a complicated calculation, you don’t know that A inflated the exchange rate by 4.35% ($435), while B inflated by 2.89% ($289). Both are household names. This is standard industry practice. 

Independent research found that American consumers and small businesses were charged $16.3B in fees when sending or spending money abroad. More than half ($8.7B) of the fees were hidden in the form of exchange rate markups. That includes markups of $2.2B on remittances sent to family and friends, $1.6B on investment earnings, $2.1B on vacationers, $151M in education spending (e.g. tuition), $301M on US service members stationed abroad, $2.3B on small businesses buying/selling goods and services abroad, and $66M on small businesses making international payroll. The $8.7B is up there with other consumer "hidden fees": overdraft ($11B), payday/car title loans ($8B), airlines ($7.6B), hotels ($2.9B). Additionally, in a survey of 1400 Americans, while 55% of consumers said they understood the costs of sending money abroad, only 18% of consumers correctly identified that exchange rates were part of the fee when sending remittances. 

The European Union has enacted rules for intra-EU online transactions, while the UK and Australia have pursued increased transparency on cross-border payment fees. The World Bank emphasizes “total cost” for comparison on its remittance price tool. U.S. regulators have acknowledged this issue, including the CFPB and Federal Reserve.

Ensure the fees shown to consumers include inflated exchange rates. With increasedawareness of fees (or “total cost”), consumers are more likely to choose better options, puttingdownward pressure on global remittance costs. A landmark UN/World Bank/IFAD remittance taskforce made similar recommendations in late 2020 (see measure 13). In the U.S., the CFPB should update its Remittance Rule to require disclosures to show the “total cost” that includes both exchangerate margin and upfront fees. The exchange rate shown to consumers would derive from an active mid-market rate published by an independent source or government entity.