President-elect Donald Trump's well-publicized plan to build a border wall and make Mexico pay for it could have significant ramifications for a major sector of the payments industry.
Trump has stated that the U.S. would suspend remittances to Mexico if it did not agree to cover the estimated $10 billion cost of building the wall. That is no small threat; Mexico is the fourth-largest recipient of remittances globally, about $28 billion in 2016, according to the World Bank. Some $24 billion of that comes from the U.S., according to Aite Group. According to Pew Trust, that $24 billion figure comprised the largest single portion of Mexico's foreign income that year.
"There's a question of whether Trump can cut off remittance to Mexico, either politically or logistically. It's unclear if the president could unilaterally order a remittance portal shutdown, due to the severity of the move," said Talie Baker, an analyst with Aite Group's retail payments and banking practice.
"I question if a U.S. president could make such a change without going through the democratic process to be able to do so," Baker said, adding it's questionable whether or not a Republican House and Senate would allow the president to meddle with American business in this way.
The Credit Union Role
Some credit unions in the United States – especially those located along the West Coast and Southwest, and in cities with large Mexican-American and Latin-American communities – also send remittances for members. According to the World Council of Credit Unions (WOCCU), international remittances are very important to some credit unions, including United Nations FCU (UNFCU), a $4.7 billion institution based in Long Island City, N.Y.; and GECU, a $2.5 billion institution based in El Paso, Texas, right on the Mexican border. Both CUs have fields of membership with international connections.
However, some credit union advocates point out that, because Trump will not take office for another two months and because banning such financial transactions might require much time and effort, it is premature to worry about the matter.
Scott Earl, president and CEO of Mountain West Credit Union Association (MWCUA), told Credit Union Journal that, for now, "we will watch to gain a better understanding of what the new administration will be focused on implementing, and will continue to communicate with our Congressional delegation to be sure that the concerns of the members of our credit unions are heard and addressed, in all possible scenarios."
Indeed, Trump's proposal would have to overcome a number of hurdles, both legislative and otherwise.
Michael S. Edwards, VP and general counsel at WOCCU, said that in order for President-elect Trump to suspend remittance payments to Mexico, Congress would likely need to repeal the Remittance Transfers provision of the Dodd-Frank Act. [The Consumer Financial Protection Bureau's (CFPB's) implementing regulation for this part of Dodd-Frank is called "CFPB Regulation E."]
"Under Dodd-Frank, a credit union has to reimburse its member who sent a remittance if the remittance transfer is not received by the sender's intended recipient in a foreign country like Mexico," Edwards said. "Because the credit union has to reimburse the sender if a remittance does not arrive at the intended destination, a U.S. government seizure of these payments to pay for a border wall would likely be what the courts call a 'regulatory taking' where the U.S. government would need to reimburse the credit union under the 'Takings Clause' of the Fifth Amendment to the U.S. Constitution for the amount of money seized that the credit union would have to reimburse to the remittance sender."
While Trump has indicated
Despite its international membership, United Nations FCU isn't worried about the election results – at least for now. A member services representative at United Nations FCU said in an emailed statement that the credit union will see "no impact" as a result of the election results.
"We will monitor any potential changes to U.S. financial services policies as they become more defined by the new administration," a UNFCU representative said. "Though we do not expect any material adverse impact, we will communicate any changes to our members should they arise."
Major Disruption?
George Hofheimer, chief knowledge officer at the Filene Research Institute, said that a suspension of personal remittances specifically from the U.S. to Mexico would cause a "major disruption" to the Mexican economy.
"The impact on Mexican-American members of credit unions who send money to networks in Mexico could be impacted in a number of ways," he pointed out. First, those credit union members might be forced to utilize unregulated remittance markets at higher levels, resulting in higher costs and less cash flow on their personal balance sheets. Second, those members might have more acute cash flow needs resulting in short-term credit needs.
"Filene is working on a variety of these types of loans in our Financial Empowerment Incubator, including a Non-Citizen Loan product which could help ameliorate the situation," Hofheimer said.
Hofheimer speculated that shutting off the remittance market could cause credit union members to leave the U.S. (and close their accounts at credit unions) in order to pursue economic opportunities elsewhere. "Finally, it is important to note that credit unions have largely stayed on the sidelines when talking about the remittance market," he added. "However, the indirect impact on credit unions and their members should not be overlooked should this proposal become reality."
But Michael Wishnow, SVP of marketing & communications at Pennsylvania Credit Union Association (PCUA), pointed out that many CUs are immune from these potential problems, since most CUs in the Keystone State and many others nationwide do not engage in this business.
"Ever since the Dodd-Frank rulings placed so many restrictions on doing foreign remittances, many credit unions pulled out of the business entirely," he said.
Indeed, under the provisions of Dodd-Frank, financial institutions seeking to issue foreign remittance payments were required to disclose information about fees, exchange rates and currency amounts to be sent to foreign recipients, among other items.
Related to this matter, Edwards noted that the WOCCU Services Group once had an international remittance transfer system – called "IRnet" – which was wound up a few years ago because the volume of cross-border remittances initiated by U.S.-based credit unions declined significantly in 2011 and 2012 after passage of the Dodd-Frank Act and the issuance of CFPB Regulation E.
"We believe that the volume of credit union initiated remittances fell after the passage of Dodd-Frank and the phase-in of Regulation E in large part because credit unions were concerned about being financially liable under Dodd-Frank/Regulation E for refunding remittances that did not arrive at their intended destination," Edwards explained.
