The Consumer Financial Protection Bureau (CFPB) and New York Attorney General Letitia James filed a civil lawsuit on Thursday against money transfer service provider MoneyGram International, alleging the company repeatedly violated consumer financial protection laws.
The lawsuit claims the money transfer company blocked customers when it failed to quickly deliver funds to overseas recipients. MoneyGram’s Payments Systems Unit is also named as a defendant in the 22-page lawsuit, filed in the United States District Court for the Southern District of New York.
“MoneyGram spent years neglecting its customers and breaking the law, ignoring customer complaints and government warnings in the process,” CFPB Director Rohit Chopra said in a press release released Thursday. “MoneyGram’s a long pattern of misconduct must be stopped.
Most of MoneyGram’s customers are financially vulnerable immigrants or refugees sending money home, the lawsuit says, adding that the company’s customers are often employed in industries such as construction, energy, manufacturing and retail, which tend to be cyclical and more significantly affected. by weak economic conditions than other industries.
“Our immigrant communities trusted MoneyGram to send their hard-earned money to loved ones, but MoneyGram let them down,” James said in the statement. “Consumers deserve to know where their money went.”
The CFPB changed its remittance rule in 2020, making remittances more transparent and less risky. The rule requires MoneyGram and other providers to disclose price information for every transfer that passes through their network. Consumers also have recourse when transfers do not reach their intended destination.
“The discount rule went into effect in October 2013,” the lawsuit states. “Even before then, MoneyGram knew it would have to comply with the rule and that it would require changes to its operations. Yet for years MoneyGram broke the Rule.
The lawsuit accuses MoneyGram of repeatedly giving senders inaccurate information about when their transfers would be available to recipients overseas. When consumers complained about money transfer errors, MoneyGram repeatedly failed to provide the information required under the rule, according to the lawsuit.
The company paid $18 million in 2009 to settle Federal Trade Commission fraud charges and agreed to make operational changes, but the lawsuit said it did not. Nine years later, MoneyGram paid out $125 million for violation FTC rules.
MoneyGram also violated a 2012 agreement with the Department of Justice under which the company lost $100 million in a deferred prosecution agreement and admitted that it assisted in wire fraud and did not had failed to maintain effective safeguards against money laundering, according to Thursday’s statement.
MoneyGram and the CFPB had held settlement talks to resolve the case and the company set aside $7.5 million to cover expected costs, The New York Times noted, citing a regulatory filing.
Dallas-based MoneyGram, for its part, denied any wrongdoing and called the lawsuit “frivolous” in a statement. He also accused the CFPB of trying to force him into an unfair court settlement.
“We spent considerable time attempting to educate the CFPB on the company’s robust and effective compliance efforts and its weak record, including the complete absence of any consumer harm,” MoneyGram said. in a press release. “Unfortunately, [the CFPB] has chosen to impose increasingly unjustifiable and unprecedented demands on the Company.”
Chicago-based private equity firm Madison Dearborn agreed to pay $1.8 billion this year to acquire MoneyGram, after the company spent years on and off the sell block. It’s unclear whether the company’s latest legal setbacks will jeopardize the deal. Madison Dearborn did not respond to an email or phone call seeking comment.
New fintech competitorssuch as Wise, Paysend, and Remitly, among others, are reducing the historical fees and profits of the remittance industry.