At the end of 2023, the Department of the Treasury
Given this growing population and their experiences, as the Treasury and other regulatory bodies move forward on their strategy there are two key areas to focus on to more fully improve and address financial inclusion: price transparency in international payments and direct access to the U.S. payments system for nonbanks.
For many immigrants in the United States, sending money to and from their home country is incredibly common. However, these individuals — and for that matter, most Americans — are largely unaware of the actual costs of sending, spending or receiving money internationally. This is often due to financial providers misleading consumers about the fees they charge, claiming low or no fees while concealing extra charges in a marked-up exchange rate. These hidden exchange rate markups have cost Americans
The reality is that disclosing the "total cost" of an international payment — which is the transaction fee plus all currency conversion charges — will enable fair price comparison and eliminate hidden fees. That's why this transparent disclosure is recommended by the global remittance community, including the U.N. and the G20. Anyone looking to send money internationally could easily compare fees across providers. Adopting these practices across all banks and providers would make the market transparent with consistent pricing.
The Treasury Department has an opportunity to recommend that the Consumer Financial Protection Bureau require providers to show the "total cost," including both the exchange rate margin and upfront fees in a single amount. Doing so will enable consumers to understand their payments and comparison shop, fostering competition in the market and ultimately reducing the cost of international payments for the immigrant communities and broader American population who rely on them.
The Federal Reserve scored some important legal victories in lawsuits challenging its discretion to grant or deny applicants for master accounts. But whether those victories will last through the appeals process or scrutiny from Congress is uncertain.
Price transparency isn't the only action needed to address financial inclusion; there's more that can and should be done. Another opportunity is for regulators to look at options for expanded access to the Federal Reserve payments system. Specifically, allowing a wider group of financial services providers, including payments companies who provide services to underserved communities, to access this system. Opening up access will reduce prices for those sending money internationally, many of whom are immigrants.
How do we know this? Because we've seen what this looks like in practice. In 2018, the United Kingdom first allowed payment companies to gain direct access to its payment systems. In doing so, consumers and businesses were able to greatly benefit from lower fees and considerably faster speeds on their international payments. The positive impact of this is still being felt today, and it's not just the U.K. — every G7 economy other than the U.S. has opened up access or has plans to do so, in line with the recommendations from global leaders in the
We can do the same thing here in the U.S., and improve financial inclusion by updating our payments regulatory framework to permit nonbank entities direct access to the Federal Reserve payments system. A modernized regulatory framework allowing broader participation in the payments system would benefit consumers, notably underserved and immigrant communities, through lower costs, enhanced services and reduction of risk.
The Treasury, the CFPB and policymakers need to work together in a fight for transparency in international payments and direct access to the payments systems. We have an opportunity to enact real change that will help everyone in the country, whether you have a connection to an immigrant community or not. It's past time we looked to modernize the United States' financial services infrastructure and networks to become more inclusive to the many Americans who are currently underserved.
