US Immigrants Struggling To Get Fair Financial Services

• CFPB seeking public input on challenges facing immigrants
• Fintechs come forth to disrupt costly financial services

The Consumer Financial Protection Bureau (CFPB) is looking at a number of issues that more than 44m US immigrants face when they try to access financial services.

The agency has identified four main areas where foreign-born migrants are struggling to gain access to fair and affordable financial services.

“For too many immigrants, challenges in consumer finance limit, slow, and frustrate the process of achieving full participation in American life,” the CFPB said.

These barriers make it more difficult for them to get the funding necessary for home purchases or achieve small business growth and other wealth creation.

According to the latest estimates, the US has more than 44m immigrants who were born outside the country, including approximately 11m unauthorised immigrants.

The CFPB notes that immigrants are “extraordinarily diverse” as a population, but they have some common concerns in the consumer financial marketplace.

This is particularly so among low and moderate-income households “whose needs are not well met due to a range of systemic barriers that diminish access, fair competition, and transparency”, according to the agency.

Main challenges

One of the common issues that immigrants are struggling with is access to bank accounts.

Many financial institutions have policies and practices in place that effectively exclude some migrants from access to banking services and to credit, due to their immigration status, even if they have prime or near-prime credit scores.

This may affect people with deferred action for childhood arrivals (DACA), an administrative relief that protects undocumented immigrants who came to the United States when they were children from deportation and gives them a work permit.

Language barriers are also hindering fair and competitive access to financial services. In-language communication is frequently limited or lacking, which practically prevents consumers from accessing services, understanding terms and conditions, and resolving concerns.

This could affect around 17m consumers who, according to the Census Bureau, speak English less than “very well”.

With limited or no access to mainstream financial services and products, many immigrants are driven to high-cost or even predatory service providers who charge steep fees or otherwise engage in exploitative practices.

Often, these actors target and mislead immigrant consumers with in-language marketing, convenient access and familiarity with cultural norms, but without adequate disclosure of terms and conditions, the CFPB notes.

In addition to these challenges, those who have recently come to the US as refugees or other humanitarian migrants may struggle to understand how credit extension works in the US and get access to credit.

Stakeholders also described how financial “missteps” in the first years due to “systemic barriers” to access, as well as a lack of information and resources, can have long-lasting consequences.

The CFPB is now looking at issues that foreign-born US immigrants are facing and is seeking input from immigrant consumers, service providers, community groups and other stakeholders.

The agency emphasised it is “committed to using our tools and authorities to support immigrant families in accessing opportunity to build wealth and fully contribute to their communities”.

Fintechs fill the gap

The millions of people living in the US without easy access to financial services provide opportunities for fintechs to meet the market need, targeting the 44m people who are struggling to open a bank account, get credit and send money home at a reasonable cost, said one executive.

In its inquiry, the CFPB noted that the cost of remittances is one of the “emerging issues” facing immigrants in their communities.

“Ironically, the remittance industry is huge, but it is still so costly, cumbersome and complex to send money back home, let alone to bring to the US the savings you have there,” Piero Núñez del Risco founder and CEO at fintech firm Pana told VIXIO.

Traditional remittance providers typically charge a 6 percent fee on cross-border transactions or roughly $12 for a $200 transfer. Further fees apply on top of that at the receiving end when the currency exchange is made.

In 2021, remittance flows going into Latin America and the Caribbean were estimated to reach a record $126bn, meaning that people could pay as high as $7.56m in total cross-border fees throughout the year.

Part of the reason is that remittances are still based on legacy technology, according to Núñez, but also because many players “leverage the fact that they are the only ones with a kiosk at the corner shop and people cannot send their cash money because they do not have a bank account”.

These firms “are taking advantage because they can”, Núñez said, emphasising that “it is way beyond time that they stop charging for things that they really do not have to charge [for]”.

By relying on technology, fintechs can provide a much more affordable alternative, according to Núñez, whose company allows for free remittances if customers have a direct deposit or use their debit card above a certain amount.

“Our technology allows us to cut costs for the user by focusing our revenue drivers on our banking relationships,” he explained.

In some communities, there is an additional cultural aspect that holds people back from the traditional financial system, Núñez noted. This is particularly the case with those who have arrived in the US recently and are in a transition phase.

Latino communities, which account for half of the foreign-born immigrants in the US, often favour peer-to-peer lending and savings over traditional credit extension.

“We’ve seen how trust or the lack of it is usually a huge factor when considering using the traditional financial system. Performing these basic ‘banking or financial activities’ among peers has proven to be more effective and useful for them," according to Núñez.

Peer-to-peer lending offers them money without the need to pay interest or go through a credit check because it is based on the trust between the parties. In addition to this, banks are not perceived to have a product for them.

Looking at these opportunities, fintechs are now coming forth with technology-based solutions to disrupt traditional solutions. Most recently, Brazilian super app Inter made headlines after it listed its shares on Nasdaq and is planning to enter the US market with a particular focus on providing services to immigrants.