Banks are stepping away from the business of transferring money from the U.S. to other countries as regulatory pressures and higher costs of compliance make the service a losing endeavor — and low-income immigrants are bearing the cost.
After years of declining costs for money wires, U.S.-based immigrants may now starting paying more to send cash back home to their families as banks shy away from the service, according to the New York Times.
Regulators have cracked down on international money transfers because they say the service aids terrorists and drug traffickers who use the big banks to launder money. As a result, they have required banks to implement more stringent and costly monitoring practices or face a fine, essentially putting these institutions in law enforcement role, experts say.
The new regulatory and cost demands have squeezed banks like JPMorgan Chase (JPM) and Bank of America (BA), both of which have canceled their money transfer services. BBVA (BBVA) is said to also be considering a sale of its Bancomer Transfer Services unit, and Citigroup [fortune-stocky symbol=”C”] has greatly downsized its money transfers to Mexico as it faces a government investigation related to money laundering controls.
But, other banks are still in the money transfer game, as well as independent services such as Western Union (WU). The problem is that the cost of sending money abroad through these outlets can be five times more expensive than a typical transfer. A jump in cost can put such money wires out of reach of many immigrants.
Higher fees and regulatory crack-downs will especially affect Mexican immigrants. Nearly half of the $51.1 billion in money wires from the U.S. in 2012 went there. Other countries in Latin America and Africa will also suffer from banks’ retreat from international transfers.