Posted on July 19, 2005

Embracing Illegals

Business Week Online, July 18


For more than two decades, America’s illegal aliens have been the target of national attention — largely for negative reasons. Their growing numbers put downward pressure on U.S. wages and new demands on schools, hospitals, and other public services. Fears of heavier social burdens and higher tax bills have led citizens and local officials to object with renewed vigor to what many perceive as an unwanted invasion from Mexico and other countries, especially to newer destination states such as Alabama, Georgia, North Carolina, and Tennessee (BW, July 4, 2005). Yet all the while, farms, hotels, restaurants, small manufacturers, and other employers have continued to hire the undocumented with little regard to the federal laws intended to stop them.

At the same time, though, the fast-growing undocumented population is coming to be seen as an untapped engine of growth. In the past several years, big U.S. consumer companies — banks, insurers, mortgage lenders, credit-card outfits, phone carriers, and others — have decided that a market of 11 million or so potential customers is simply too big to ignore. It may be against the law for the Valenzuelas to be in the U.S. or for an employer to hire them, but there’s nothing illegal about selling to them.

So with a wary eye on the heated political debate, business is targeting the Valenzuelas and millions of others who have entered the country illegally. Many companies do so more or less openly. Wells Fargo has half a million matrícula accounts, a majority of them, they acknowledge, opened by unauthorized aliens who lack regular residency or citizenship papers. At the Valenzuelas’ branch, fully 80% of accounts are opened by matrícula holders. Blue Cross of California, whose parent, WellPoint Inc. (WLP ), is the nation’s largest health insurer, sells health insurance to matrícula holders from company-staffed desks set up inside Mexican and Guatemalan consular offices in the U.S. Sprint Corp. (FON ) accepts such an I.D. for cell-phone contracts.

Other companies, such as Kraft Foods Inc. (KFT ), won’t discuss the status of their customers but explicitly target Hispanic newcomers — more than half of whom are estimated to enter the U.S. illegally, according to a new study by Pew. The consumer-products giant provides workbooks at local English-as-a-second-language classes that include instructions for using coupons for products such as Kraft’s Capri Sun drinks in U.S. grocery stores. It also hosts bilingual sweepstake events in Hispanic neighborhoods. “We need to fish where the fish are,” says Robert Simpson, Kraft’s director of multicultural marketing. He calls part of the Hispanic audience he’s trying to reach the “unacculturated,” meaning people unfamiliar with American culture and customs.

The corporate Establishment’s new hunger for the undocumenteds’ business could have far-reaching implications for America’s stance on immigration policy, which remains unresolved. Corporations are helping, essentially, to bring a huge chunk of the underground economy into the mainstream. By finding ways to treat illegals like any other consumers, companies are in effect legalizing — and legitimizing — millions of people who technically have no right to be in the U.S. It’s even happening in mirror image, with some Mexican companies setting up programs to follow customers who move to the U.S. All this knits the U.S. and Mexico closer together, further blurring the border and population distinctions.

The economic impact could be significant. While most analysts peg the number of illegal immigrants at 10 million to 11 million, a recent study by Bear Stearns Asset Management (BSC ) concluded that data on housing permits, school enrollment, and foreign remittances suggests there could be as many as 20 million. Either way, experts agree that the undocumented, a majority of whom are Hispanic, are one of the nation’s largest sources of population growth. They add 700,000 new consumers to the economy every year, more even than the 600,000 or so legal immigrants, according to Pew’s new study. What’s more, 84% of illegals are 18-to-44-year-olds, in their prime spending years, vs. 60% of legal residents. Corporate sales and profits will get a shot in the arm if more of them move out of the cash economy, put their money in banks, and take out credit cards, car loans, and home mortgages. U.S. gross national product could get a boost, too, since consumers with credit can spend more than those limited to cash.

More undocumented immigrants paying income and property taxes would help ease the taxpayer strain for the schools, health care, roads, and other services illegals use. Crime could decline, too. Wells Fargo pioneered acceptance of the matrícula in 2001 after police department in Austin, Tex., asked local financial firms for help in preventing holdups of undocumented immigrants who, lacking I.D.s to open bank accounts, tend to carry wads of cash. “The market has found a way to capture those dollars,” says Robert Justich, a senior managing director of Bear Stearns Asset Management and co-author of the recent report The Underground Labor Force Is Rising to the Surface.

The political implications are less clear-cut. Further integration of illegals into the U.S. could help President George W. Bush in his uphill struggle over the past two years to launch a guest worker program. His plan would provide a path to amnesty and full legalization for many unauthorized residents. Companies are taking a position similar to the President’s, in effect saying: There’s no point in pretending that millions of people aren’t here, so let’s find ways to deal with them.

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But corporations’ willingness to overlook the status of this lucrative demographic target could further inflame opposition to illegal immigration. Consider the case of New South Federal Savings Bank. In May, the Birmingham (Ala.) company launched a mortgage product called Casa Mia, aimed principally at local Hispanic immigrants, a disproportionately undocumented group whose ranks quadrupled in the state, to 96,000, between 1990 and 2004. The program offers 20-year fixed-rate mortgages to applicants with two years of residency, stable employment, and an ITIN. But within days of the announcement, New South received hostile phone calls and e-mails, some saying they were from Minutemen, the group patrolling the U.S.-Mexico border in Arizona and Texas. “I can think of no more traitorous act than you offering illegal immigrants, who are overunning this country, Casa Mia loans,” said an e-mail that a bank official showed BusinessWeek.

Bank officials were even more troubled by a letter from a Washington group called Friends of Immigration Law Enforcement (FILE), which opposes illegal immigration. It threatened to sue the bank under a federal law that prohibits the harboring of illegal aliens and racketeering. By providing mortgage loans that help illegals buy houses, says FILE Executive Director Craig Nelsen, New South is aiding their ability to remain illegally. In June, the bank delayed a broad rollout of Casa Mia pending a legal opinion on potential liability.

Still, such confrontations are relatively rare. Mostly, U.S. companies are finding rapid growth among an underserved population hungry to taste more of America’s rich consumer life. Among the first to embrace illegals have been financial companies, eager to tap into the billions in so-called mattress money — the cash kept at home by illegals and others without bank accounts. When Wells and a half-dozen other banks got the green light from the U.S. Treasury in 2001 to accept the matrícula, the magnitude of the market opportunity wasn’t yet recognized, says Shelley Freeman, Wells Fargo’s regional president for Los Angeles, who helped develop the program.

It quickly became apparent. Largely via word of mouth in Hispanic neighborhoods, Wells Fargo has opened 525,000 matrícula accounts, which now represent 6% of the bank’s total. It opens 800 new accounts a day across the 23 states in which it does business. Wells expanded the program to a Guatemalan matrícula in 2002 and an Argentinian version in 2003. Last October, Colombia launched a pilot matrícula program; El Salvador plans to offer a similar I.D. this fall. Since few immigrants apply for the matrícula if they can legally obtain U.S. identity documents, immigration experts say, it’s clear whom companies are going after when they accept it. Overall, 404 banks, thrifts, and credit unions, including Bank of America Corp. (BAC ) and Citigroup (C ), now accept the I.D., according to the Mexican Foreign Ministry. So do 391 city governments and 1,203 police and sheriff departments. Banks will be big winners: Fully 32% of all Hispanics lack bank accounts — and even more among the illegal population. As much as half of all U.S. retail banking growth is expected to come from new immigrants over the next decade, according to the Federal Deposit Insurance Corp.


Big U.S. companies’ embrace of undocumenteds as consumers has intensified as it has become clear in recent years that — no matter how loudly the anti-immigration lobby complains — the U.S. isn’t about to deport illegals en masse. The 1986 law forbidding their employment may still be on the books, but the feds have almost completely given up enforcing it. Instead, since September 11 they have focused on nabbing potential terrorists who might slip into the country illegally, according to a June report by the Government Accountability Office (GAO). Last year, the U.S. Immigration & Customs Enforcement agency brought just three actions against companies for employing illegals, down from 417 in 1999, according to the GAO. And only 2,300 of the country’s 5.6 million employers used a computer system in 2004 to check employee Social Security numbers.

Unafraid of penalties, some U.S. industries have become so dependent on illegal labor that a wholesale expulsion would be crippling. Illegal immigrants now comprise fully half of all farm laborers, up from 12% in 1990, according to a recent Labor Dept. survey. They’re a quarter of workers in the meat and poultry industry, 24% of dishwashers, and 27% of drywall and ceiling tile installers, according to Pew senior research associate Jeffrey S. Passel. Last year, more than 1 million of the nation’s 2.5 million new jobs went to Hispanics, mostly recent immigrants, according to a separate study by Pew. With millions of illegals here to stay, “companies will definitely adapt to working with [them] because they’re the fastest-growing marketplace,” says Bear Stearns’ Justich.

Illegals’ importance to the U.S. economy is key to the country’s often schizophrenic views toward them. Chronic complaints from taxpayers and workers aside, companies that hire or sell to the undocumented simply have too much at stake to allow a backlash to get out of hand. Even politicians who thunder about illegals have trouble sticking to their convictions.

Such was the case with Republican Congressman Tom Tancredo of Colorado, who says he may run for President in 2008 on a largely anti-immigration platform. One suggestion he made last year: a tax on the remittances foreigners send home as a way to recoup the education and health-care costs Tancredo chalks up to freeloading. But he quickly dropped the idea after an outcry from Denver-based First Data, whose Western Union unit took in $1.1 billion last year from such money transfers. First Data Corp.’s political action committee and its chief executive, Charles T. Fote, each wrote $2,000 checks in support of Tancredo’s opponent. Tancredo won reelection but has revised his plan: Rather than tax the individual transaction, he proposes reducing foreign aid by the amount of remittances that countries like Mexico receive from their citizens in the U.S.

The problem for critics of illegal immigration is that corporate efforts to sell to the undocumented weaves them ever more tightly into the fabric of American life. This pragmatic relationship may be anathema to immigration critics. But day by day, the undocumented in the U.S. are finding it ever easier to save and invest their hard-earned dollars.