BILL ANALYSIS
AB 2789
Page 1
Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 2789 (Committee on Banking and Finance) - As Amended: April
12, 2010
SUBJECT : Money transmission.
SUMMARY : Creates the Money Transmission Act. Specifically,
this bill :
1)Repeals the Transmitters of Money Abroad Law, the Issuers of
Payment Instruments Law and the Issuers of Traveler's check
law and creates a new unitary law, the Money Transmission Act.
2)Requires licensing for domestic money transmittal services.
3)Provides for regulation of non-bank issued stored value cards
that may be offered by licensees.
4)Makes legislative declarations and findings on the use of
money transmissions services and consumer protection.
5)Prohibits a person from engaging in the business of money
transmission in California or advertising, soliciting, or
holding itself out as providing money transmission unless
licensed by the commissioner of the Department of Financial
Institutions (DFI).
6)Requires specified information to be included in an
application for a license which shall be in the form
proscribed by the commissioner of DFI.
7)Authorizes the commissioner to conduct an examination of an
applicant, at the applicant's expense, and would require the
commissioner to approve an application for a license if the
commissioner makes specified findings, including that the
applicant has adequate net worth and is competent to engage in
the business of receiving money for transmission. In order to
meet the net worth requirements a licensee that sells or issue
payment instruments or stored value must maintain securities
on deposit on a surety bond of no less than $500,000 or 50% of
the average daily balance of outstanding payment instruments
and stored value in CA. A licensee engaged in money
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transmission must either maintain securities or a surety bond
not less than $250,000 nor more than $2,000,000.
8)Requires licensees to file audit reports with the commissioner
within 90 days after the end of each fiscal year.
9)Imposes various fees and would require the commissioner to
levy assessments on licensees for the purposes of
administering these provisions regulating money transmission
including:
a) A $5,000 application fee;
b) An annual license fee of $2,500;
c) An annual branch office fee of $125 per branch office;
d) An annual $25 fee for each branch employee; and,
e) For licensees that sell or issue payment instruments, an
annual assessment based on the volume and aggregate face
amounts of payment instruments and stored value issued or
sold in California.
10)Establishes requirements in order for a licensee to appoint
an agent to conduct money transmission on behalf of the
licensee require a licensee to maintain specified eligible
securities including:
a) Cash;
b) Any deposit in an insured bank or an insured savings and
loan association or insured credit union;
c) Any bond, note, or other obligation that is issued or is
guaranteed by the United States or any agency of the United
States;
d) Any bond, note, or other obligation that is issued or
guaranteed by any state of the United States or by any
governmental agency of or within any state of the United
States and that is assigned an eligible rating by an
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eligible securities rating service;
e) Any bankers acceptance that is eligible for discount by
a federal reserve bank;
f) Any commercial paper that is assigned an eligible rating
by an eligible rating securities service;
g) Any bond, note, or other obligation or preferred stock
that is assigned an eligible rating by an eligible
securities rating service;
h) Any share of an investment company that is an open-end
management company, that is registered under the Investment
Company Act of 1940 (12 U.S.C. Sec. 80a-1, et seq.), that
holds itself out to investors as money market fund, and
that operates in accordance with all provisions of the
Investment Company Act of 1940, and the regulations of the
Securities and Exchange Commission applicable to money
market funds, including Section 270.2a-7 of the regulations
of the Securities and Exchange Commission (17 C.F.R. Sec.
270.2a-7);
i) Any share of an investment company that is an open-end
management company, that is registered under the Investment
Company Act of 1940 (12 U.S.C. Sec. 80a-1 et seq.), and
that invests exclusively in securities that constitute
eligible securities;
j) Any account due to any licensee from any agent on
account of the receipt of money on behalf of the licensee
for money transmission by the agent, if the account is
current and not past due or otherwise doubtful of
collection; and,
aa) Any other security or class of securities that the
commissioner has by regulation or order declared to be
eligible securities.
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11)Requires a licensee to provide specified notices and
disclosures to customers, including a notice relative to a
customer's right to a refund, disclosures relating to rates of
exchange, a notice indicating that payment instruments are not
insured, and a notice providing information on making
complaints to the commissioner against a licensee.
12)Requires licensees to maintain financial records for a 3-year
period.
13)Mandates each licensee to file with the commissioner a
certified copy of every receipt form used by it or by its
agent for receiving money for transmission prior to its first
use.
14)Authorizes the commissioner to suspend or revoke a license if
the commissioner finds that a licensee or agent of a licensee
has, among other things, violated the provisions of the act or
engaged in fraud or unsound practices and would authorize the
commissioner to assess specified civil penalties against a
person that violates these provisions.
15)Makes it a crime for a person to engage in the business of
money transmission without a license or for a person to
intentionally make a false statement, misrepresentation, or
false certification in a record filed or required to be
maintained under these provisions.
EXISTING LAW : provides for the regulation and licensure of
persons or entities engaged in the issuance of payment
instruments (money orders), transmittal of money abroad, and
issuance of travelers checks. These licensing laws are
regulated and administered by DFI.
FISCAL EFFECT : Unknown
COMMENTS :
California is the last state that still requires three licenses
for non-bank money service activity that are more often than not
offered and conducted from the same location by the same
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licensee. For example, under current law a business that
conducts money transmission services to foreign countries,
issues money orders and sells traveler checks would be required
to be licensed by three different licensing laws even though
these three activities are closely related and at the same
location.
AB 2789 goes one more step further by insuring that non-bank
entities that transmit money domestically must also be licensed
under the new Money Transmission Act. Additionally, with
changes in technology, non-bank stored value cards are becoming
a mainstream option and product for people who utilize money
services transactions. This bill would close any loopholes in
this technology by requiring that licensees have adequate net
worth and reserve requirements when offering stored value and
that DFI can exercise safety and soundness reviews for such
products. The regulation of non-bank stored value goes one step
further in this bill versus what banks currently have to do, and
that is the requirement to have 100% reserve requirements for
outstanding stored value. For the most part, the fee structure,
licensing requirements, enforcement powers and other regulatory
requirements currently exists within the existing licensing
laws, with the exception of those areas where consumer
protection is being enhanced.
As early as August 3, 2000 the National Conference of
Commissioners on Uniform State Laws (NCCUSL) issued its first
draft of a model act to provide uniform regulation for money
services business. One of the main drivers behind the creation
of a uniform model act was to address concerns arising from
potential money laundering activities. A final version of the
act was ratified by NCCUSL on August 6, 2004. Alaska, Arkansas,
Iowa, Vermont, Washington implemented the model act in its
entirety. The majority of states have implemented models very
similar to the one proposed in this legislation, in that its
take certain provisions from the NCCUSL draft but does not
propose to implement the whole document as is. Various market
conditions and differences in regulatory environments make it
necessary to take a more nuanced approach as outlined in AB
2789.
This bill is a product of discussions between the regulated
industry, DFI and consumer groups. Committee staff is aware of
ongoing discussions with all stakeholders to work out any
remaining technical issues that may exist with this regulatory
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consolidation.
Related Legislation .
AB 1508 (Lieu), Chapter 242, Statutes of 2007 streamlined
certain procedural requirements under the Money Transmitters
Law, more closely align that law with laws governing the
issuance of travelers checks and money orders, and give DFI
greater ability to take prompt corrective action against
licensed money transmitters found to be operating improperly.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumers Union - Support if Amended
The Money Services Round Table (TMSRT)
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081