The Consumer Financial Protection Bureau and New York Attorney General Letitia James filed a civil lawsuit against MoneyGram International, one of the largest providers of remittance services, for allegedly repeatedly violating consumer financial protection laws.
The 22-page lawsuit, filed Thursday in U.S. District Court for the Southern District of New York, alleges that the money transfer company stranded customers waiting for their money when it failed to deliver funds promptly to recipients overseas. The lawsuit also names the company's payments systems unit as a defendant.
Most MoneyGram customers are financially vulnerable immigrants or refugees sending money to their countries of origin, according to the lawsuit. The filing goes on to explain that MoneyGram users often are employed in industries such as construction, energy, manufacturing, and retail that tend to be cyclical and more significantly impacted by weak economic conditions than other industries.
“MoneyGram spent years failing its customers and failing to follow the law, ignoring customer complaints and government warnings in the process,” CFPB Director Rohit Chopra said in a press release issued Thursday. “MoneyGram’s long pattern of misconduct must be halted.”
Added James: “Our immigrant communities trusted MoneyGram to send their hard-earned money back home to loved ones but MoneyGram let them down," she said in the release. "Consumers deserve to know where their money went.”
In 2010, Congress passed legislation that led the CFPB in 2013 to issue the Remittance Rule, which makes remittance transfers more transparent and less risky. The rule requires MoneyGram and other providers to disclose pricing information about each transfer that goes through their network. Consumers also are provided remedies when transfers fail to reach their intended destination.
“The Remittance Rule took effect in October 2013,” the lawsuit said. Even before that date, MoneyGram knew that it would have to comply with the Rule and that doing so would require changes in its operations. Yet, for years, MoneyGram has violated the Rule.”
The suit accuses MoneyGram of repeatedly giving senders inaccurate information about when their transfers would be available to recipients abroad. When consumers complained of remittance-transfer errors, MoneyGram repeatedly failed to provide the information required under the rule, the lawsuit said.
The company paid $18 million in 2009 to settle fraud charges brought by the Federal Trade Commission and agreed to make operational changes, but the lawsuit said it failed to do so. Nine years later, MoneyGram shelled out $125 million in 2018 for violating the FTC settlement.
The release said MoneyGram also violated a 2012 agreement with the Justice Department under which the company forfeited $100 million as part of a deferred prosecution agreement and admitted it aided wire fraud and failed to maintain effective anti-money laundering safeguards.
MoneyGram and the CFPB had held settlement talks to resolve the matter and the company set aside $7.5 million to cover the expected costs, the New York Times noted, citing a regulatory filing.
Dallas-based MoneyGram, for its part, denied any wrongdoing and denounced the lawsuit in a statement as “frivolous.” It also accused the CFPB of trying to strong-arm it into an unfair legal settlement.
“We have spent considerable time attempting to educate the CFPB about the Company’s robust and effective compliance efforts and the weakness of its case, including the complete absence of any consumer harm,” MoneyGram said in a press release. "Unfortunately, (the CFPB) chose to make increasingly unjustifiable and unprecedented demands upon the company,” the company added.
Earlier this year, Chicago-based private equity firm Madison Dearborn agreed to pay $1.8 billion to acquire MoneyGram, after years of the company being on and off the sales block. It isn’t clear if the company’s latest legal woes will jeopardize the transaction. Madison Dearborn didn't respond to an email or phone call seeking comment.
"The Company is fully prepared to vigorously defend itself and expose the meritless nature of today’s complaint in court," Moneygram said in its statement
New fintech competitors, such as Wise, Paysend and Remitly, among others, are undercutting historical fees and profits in the remittance industry.
Correction: The story has been updated to say that the CFPB issued the Remittance Rule in 2013, after legislation allowing for it was passed by Congress in 2010.