The two largest money transmission companies have been sued in California on claims of false advertising and charging hidden fees to consumers.

The complaints were filed this month in federal court in Los Angeles against Western Union Financial Services Inc., a First Data Corp. subsidiary, and First Data spinoff Moneygram Payment Systems Inc.

The separate class actions accuse the companies of advertising "free" money transfers to Mexico to aid victims of Hurricane Pauline this fall, then charging fees for currency conversion.

Both suits were filed by the same lawyer, who contends that Western Union and Moneygram routinely charge currency conversion fees without disclosing them.

The money order companies called the lawsuits groundless. A Western Union spokesman said the fee waived in the Mexican relief effort was a "consumer" fee, which is separate from a foreign exchange fee.

"We think the lawsuit has no merit, and we will defend ourselves in court," said the spokesman, Peter Ziverts.

Western Union, based in Denver, and Moneygram of Saddle Brook, N.J., are the largest nonbank funds transfer services in the United States, with a combined 97% of the market. First Data Corp., the Hackensack, N.J.-based transaction processing giant, owned both companies before divesting Moneygram to comply with a Federal Trade Commission antitrust requirement. First Data retained a 13% stake in Moneygram.

The attorney behind the class action, Fred J. Kumetz of Kumetz & Glick in Los Angeles, said Western Union and Moneygram charge "consumer fees" of $9 to $12 to send up to $300. On top of that, he said, the companies keep a currency conversion fee of 10% to 12% of the amount being sent.

Mr. Kumetz said the companies do not tell customers about the conversion fees.

The suit against Western Union also names as a defendant Ralphs Grocery Co., a California supermarket chain that advertises the money transmission services.

"The companies are discriminating against people who are either unsophisticated or poor, or do not have adequate protection against the gouging that is taking place," Mr. Kumetz said.

Mr. Ziverts of Western Union did not dispute that the services were advertised as free, and said that "free" meant consumer fees were not being charged.

Mr. Ziverts said that consumers know they will be charged currency exchange fees.

"It's possible some consumers don't know the fees are there," he said. But Western Union "can't account for individual people" because "the vast majority of customers know there is a foreign exchange fee."

Warren Bechtel, a spokesman for Moneygram, said 10 companies in California offered wire transfer services to Mexico. He said Moneygram charged a higher commission on transfers to Mexico to protect against the devalued peso. "A spread figures into all international monetary transactions originated in one currency and finished in another," he said.

Mr. Bechtel also said commissions charged for commercial currency exchanges by banks are typically lower than those charged in retail exchanges by nonbank companies such as Moneygram and Western Union.

Mr. Kumetz called the companies' practices deceptive. He is seeking an injunction to stop the companies from charging the fees that he says are hidden. He is also seeking damages up to $1 billion.

The lawyer said about $2 billion a year is wired to Mexico from the United States, about half from California. About a million Californians use Moneygram and Western Union to wire money to Mexico each year, he said.

In 1989, California added two statutes meant to protect the growing number of immigrants sending money abroad. One requires that receipts "clearly state the rate of exchange for the particular transaction, the amount of commission or fees, and the net exchange after all fees and commissions have been deducted."

Mr. Ziverts and Mr. Bechtel said Western Union and Moneygram disclose this information on the forms consumers fill out to conduct business.

Observers of the situation said the case may come down to semantics. "If they were actually charging fees after advertising no fees, it's likely there could be a basis for a suit," said David B. Lipkin, partner, Drinker, Biddle & Reath, Philadelphia. "The real question is what they call these charges."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.