A proposed 3.5% tax on remittance transfers should be killed because it invades consumer privacy and would encourage the use of unregulated money-movement services, payments-industry trade groups told US lawmakers.

Even after a cut from an initial 5% proposal, the levy will still hit migrants sending money back to relatives on top of posing a greater money-laundering risk as they seek underground channels, according to a letter Wednesday to US Senators from the Electronic Transactions Association, Financial Technology Association, Innovative Payments Association and several other lobbying groups. The ETA represents the interests of large payments companies including Western Union Co. and Visa Inc. as well as newer financial-technology firms.

“This provision would create a dangerous new precedent with respect to government overreach by invading the privacy of Americans, harming American businesses, and — for the first time — intruding on payment transactions between private individuals,” according to the letter to Senate Finance Committee leaders Mike Crapo, a Republican from Idaho, and Ron Wyden, an Oregon Democrat. “Everyday Americans would be asked to turn over sensitive identification information in order to use a regulated and licensed financial services provider to conduct ordinary, everyday financial transactions.”

The groups have been urging lawmakers to rethink the proposal that targets the money sent internationally by non-citizens as part of President Donald Trump’s crackdown on illegal immigration. The proposed levy is part of Trump’s “big, beautiful bill” of spending and tax cuts that was passed by the House of Representatives last week and is now before the Senate.

The proposal has sparked concerns around the world, from Latin America’s poorest countries to India, that the tax could crimp the amount of funds that make it back to migrants’ relatives, fueling consumption and homebuilding. Remittances make up a fifth of the economies in El Salvador and Honduras, where the transfers serve as lifelines to relatives.

Transfers to El Salvador, Honduras and Guatemala have spiked to records since Trump’s election as he threatened mass deportations.

“This remittance tax provision in particular mandates a massive invasion of privacy by private businesses and the federal government on American citizens, creates undue tax burden for law-abiding Americans, reduces business revenue, complicates regulatory efforts and hinders law enforcement,” the groups wrote in the letter.

Payments companies are battling over their share of the more than $800 billion in annual flows of transfers around the world, much of which is sent out of the US.

–By Paige Smith and Michael O’Boyle (Bloomberg)