If you're among the millions of U.S. residents who each year send tens of billions of dollars to family, friends or foreign businesses overseas, here's good news: The Consumer Financial Protection Bureau (CFPB) recently instituted new rules governing international electronic money transfers to better protect consumers against hidden fees and improve dispute resolution policies.
The CFPB was given oversight over international money transfers as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Up until then, federal consumer protection rules did not apply to most "remittance transfers," whose exchange rates, processing fees and taxes often vary widely and can be hard to decipher.
Here's an overview of the new remittance transfer rules:
In general, most foreign money transfers for more than $15 sent by money transmitters (like Western Union and MoneyGram), banks, credit unions and other financial services companies that consistently send more than 100 international money transfers each year are covered under the new regulations.
These institutions are now required to fully disclose their fees, taxes and foreign currency exchange rates so consumers will have a clearer picture of the true cost of transactions and be able to more easily comparison shop. (Although, as explained below, you still need to do a bit of math to make apples-to-apples comparisons.)
Also, once a transaction has been concluded, the company now must provide a receipt that repeats this same information, as well as shows the date when the money will arrive and directions for reporting any problems with the transfer.The new regulations include several additional protections:
- Consumers are allowed 30 minutes (and sometimes longer) to cancel a transfer after they've paid -- in which case, they're entitled to a full refund. (However, if the recipient has already picked up the funds or had them deposited into their account before 30 minutes have passed, the refund guarantee is voided.)
- If the wire was scheduled in advance, you can cancel it up to three business days before the transmission and receive a full refund.
- Senders have 180 days to report any errors they later uncover. By law, the company must investigate such reports within 90 days. For certain errors (e.g., if the money never arrived), you can ask for a full refund or have the money resent.
While the new regulations are certainly welcome, they don't go far enough when it comes to helping customers compare the net costs of making money transfers at different vendors. You'll still need to carefully weigh each company's exchange rate (which fluctuates frequently) and fees (which vary depending on how much you're sending, how quickly you want the money to arrive and the funding method) to determine which one provides the best value -- the so-called "effective exchange rate."
One company may have a more favorable exchange rate than another but charge higher fees. Depending on how much money you're trying to transfer and by what method, however, the balance could shift over which transaction is more cost-effective.
To calculate various effective exchange rates, add the amount you're sending (in U.S. dollars) plus all fees; then divide that into the amount of foreign currency to be delivered. The company with the highest result provides the best value.
For example, say you want to send $200 to Mexico: Company A charges $10 in fees and has an exchange rate of 12.69 pesos per $1, while Company B charges $7 in fees and has a 12.57 exchange rate. Their effective exchange rates are 12.09 and 12.14, respectively, making Company B a slightly better value. (You'd save about $0.89.)
However, if you wanted to send $1,000 to Mexico, the outcome would be different: The exchange rates stay the same but Company B charges an increased fee of $15, while Company A's fee remains at $7. Thus their effective exchange rates become 12.50 and 12.48, respectively, making Company A the slightly better value -a $1.88 savings.For someone who makes a lot of transfers over time, these differences could really add up. If you don't trust your math skills, the money transfer company Viamericas has a handy comparison tool that lets you plug in fees and exchange rates for up to three additional vendors and it will calculate their effective exchange rates. Use the tool's manual comparison option to allow for more choices. Here are a few tips for lowering the cost of sending money overseas:
- Check whether it's cheaper to use a vendor's walk-in location versus their website.
- Don't pay extra for a rush delivery if getting there a day or two later doesn't matter.
- Avoid extra transfer fees by making fewer, larger transfers if that's financially feasible. (Just make sure the higher amount doesn't increase the fee too much.)
- Avoid automatic transfers, which may occur when exchange rates are less favorable.
For more information on the new remittance transfer rule, visit this CFPB site.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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