The Consumer Financial Protection Bureau (CFPB) and New York Attorney General Letitia James filed a civil lawsuit Thursday against remittance services provider MoneyGram International, for alleging the company repeatedly violating consumer financial protection laws.
The lawsuit claims the money transfer company stranded customers when it failed to promptly deliver funds to recipients overseas. MoneyGram's payments systems unit is also named as a defendant in the 22-page suit, filed in the U.S. District Court for the Southern District of New York.
“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.”
Most MoneyGram customers are financially vulnerable immigrants or refugees sending money to their countries of origin, the lawsuit states, adding that the company's clients often are 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 back home to loved ones but MoneyGram let them down," James said in the release. "Consumers deserve to know where their money went.”
The CFPB amended its remittance rule in 2020, making 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 for violating the FTC settlement.
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, according to Thursday's release.
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 as "frivolous" in a statement. 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 statement. "Unfortunately, [the CFPB] chose to make increasingly unjustifiable and unprecedented demands upon the Company."
Chicago-based private equity firm Madison Dearborn agreed this year to pay $1.8 billion to acquire MoneyGram, after the company spent years 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.
New fintech competitors, such as Wise, Paysend and Remitly, among others, are undercutting historical fees and profits in the remittance industry.