U.S. Regulations Expected to Increase Cost of Remittances

Mexico will likely be country most impacted

The U.S. government has implemented banking regulations in order to attempt to curtail terrorist financing and drug traffickers, but will likely make it more expensive and difficult for people to send money to their loved ones abroad. These actions also directly go against the recent declines in cost of sending money abroad, and will likely affect Mexico the most.

According to a report by the New York Times, nearly half of the $51.1 billion dollars in remittances sent from the United States in 2012 went to Mexico. These regulations will also impact other countries in Latin America and parts of Africa, and specifically Somalia, where remittances are a major source of the country’s income.

Bank of America and JPMorgan Chase got rid of low-cost services they had that allowed Mexican immigrants to send money to their families by way of Banorte banks in Mexico, and BBVA Bank is reportedly going to sell its unit that offers money wires to Mexico and Latin America. Citigroup’s Banamex USA has closed many branches in Texas, California, and Arizona that catered to Mexicans living in the U.S in light of allegations and a federal investigation aimed at whether it laundered money for drug cartels.

While there is no prohibition against banks offering services to transfer funds, under new regulations banks will now have to implement systems to monitor money transfers in order to ensure that these services are not being exploited by terrorists and drug cartels. Some banks apparently have preferred to eliminate these services altogether rather than having to develop costly compliance procedures and risk substantial penalties.

This will undoubtedly impact low income immigrants who reportedly regularly send three remittances a week to help their family members abroad pay for living expenses. Now that banks are no longer offering inexpensive services which favored banks by increasing their client base, immigrants will be forced to use money transfer services that charge higher fees, such as Western Union. As the competition for transferring funds gets smaller, the fear is that these services may end up being charged at a premium as competition will not be around to drive costs down.

Many people living in Mexico, specifically the ex-pat and retired U.S. community, have already been impacted by changes in policies, such as that by Bank of America which previously allowed free withdrawals at their affiliate Santander banks in Mexico and now imposes a 3% transaction fee. Other regulations impacting U.S. citizens abroad, including the FATCA act, which we reported on back in June, will also impact U.S. citizens with foreign bank accounts.

borderzonie@gmail.com

@borderzonie

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