BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 2789 (Committee on Banking & Finance) Hearing Date: June
30, 2010
As Amended: June 10, 2010
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor.(05/06/10)68-05/Pass
Asm. Appr.
(04/28/10)14-01/Pass
Asm. B. & F.
(04/19/10)11-01/Pass
SUMMARY Would consolidate the Transmission of Money Abroad
Law, Travelers Checks Act, and the Payment Instruments Law into
a single Money Transmission Act, administered by the Department
of Financial Institutions.
DIGEST
Existing law
1. Gives the Department of Financial Institutions (DFI) authority
to regulate the transmission of money abroad (pursuant to the
Transmission of Money Abroad Law, Financial Section 1800 et
seq.), the issuance of travelers checks (pursuant to the
Travelers Checks Act, Financial Section 1851 et seq.), and the
issuance of payment instruments, such as money orders (pursuant
to the Payment Instruments Law, Financial Code Section 33000 et
seq.).
This bill
1. Would consolidate the three laws referenced above into a
single, uniform Money Transmission Act, which would be
administered by DFI, as specified, and as described in more
detail below.
COMMENTS
1. Purpose of the bill To consolidate three licensing laws
AB
2789 (Committee on B. & F.), Page 2
into a single, unified law, close loopholes in existing law,
and improve consumer protections.
2. Background California is unique among states in our
regulation of money transmission, the issuance and sale of
travelers checks, and the issuance and sale of money orders
and other payment instruments. Forty-seven other states and
the District of Columbia regulate these activities under a
single law, while California requires three separate laws,
all administered by DFI, for this purpose. AB 2789 would
combine these three laws into a single Money Transmission
Act, administered by DFI. This new law would preserve all
of the substantive provisions in each of the three existing
laws, and additionally add the following substantive new
provisions, which would do the following:
a. Regulate the issuance of open loop, stored
value cards by non-bank entities: Stored value cards
may be either closed loop (redeemable by the issuer
for goods or services provided by the issuer or its
affiliate; e.g., a Starbucks card) or open loop
(redeemable for goods or services at multiple vendors;
e.g., a Visa check card). Although the sponsor and
DFI are currently unaware of many non-bank issuers of
open loop stored value cards, both believe that more
firms will enter this marketplace in the near-term
future. AB 2789 is intended to ensure that the
issuers of these cards are regulated.
b. Consolidate and modernize the money
transmission, payment instruments, and travelers check
issuance laws.
c. Regulate domestic (intra-U.S.) money
transmission: At present, international money
transmission is regulated in California, but domestic
money transmission, when made by an entity that is not
a depository institution, is not. AB 2789 would close
that loophole, and, in doing so, help protect certain
unbanked and underbanked individuals who use money
transmitters to send money domestically.
d. Bring some previously unlicensed money
transmitters into our regulatory scheme: California's
money transmission law currently requires those who
accept money in California for transmission abroad to
AB
2789 (Committee on B. & F.), Page 3
be licensed, but does not have a physical presence
requirement (thus, certain Internet-based money
transmitters may legally operate in California without
a license). Under AB 2789, any money transmitter that
does business with a person located in California
requires a license.
e. Require those who wish to acquire control of
an issuer of travelers checks or payment instruments
to receive prior permission from DFI for the
acquisition: An application for acquisition of
control is currently required under the money
transmitters law, but not under the travelers checks
or payment instruments laws. AB 2789 would require
any entity that wishes to acquire control of a Money
Transmission Act licensee to apply to, and receive
permission from DFI for that acquisition.
f. Give DFI more authority over the composition
and valuation of so-called "eligible securities,"
which are used to satisfy existing law liquidity
requirements: Existing law requires money
transmission and payment instruments licensees to own
eligible securities having an aggregate market value
that is equal to or greater than the aggregate amount
of all of their outstanding payment instruments and
outstanding money received for transmission
(essentially, a 1:1 liquidity ratio). AB 2789 will
extend these liquidity requirements to companies that
issue open loop, stored value cards. The bill will
also give DFI greater authority to specify the types
of investments and the concentration per type of
investment that are allowable for eligible securities,
and will give DFI the ability to order changes in a
licensee's eligible securities, as DFI deems necessary
to ensure the safety and soundness of the licensee.
g. Create a new requirement that issuers of
payment instruments and stored value cards maintain
securities on deposit or a surety bond of at least
$500,000 or 50% of the average daily outstanding
payment instrument and stored value obligations in
California, whichever is greater.
h. Require licensees and agents of licensees to
prominently post a notice at each branch office,
AB
2789 (Committee on B. & F.), Page 4
informing customers that they may direct complaints
about any aspect of the money transmission activities
conducted at that location to DFI via a specific
toll-free phone number, e-mail address, or via regular
mail to a specific mailing address.
The provisions of this bill have been negotiated by
affected industry groups, DFI, and consumer groups, and are
believed to reflect a consensus.
3. Support The Money Services Round Table (MSRT), a trade
association of money transmitters and stored value card
issuers, is sponsoring AB 2789, to bring California into
line with the vast majority of states, with respect to our
regulation of money transmission, issuance of travelers
checks, and issuance of payment instruments. As noted
above, California is the only state with three licensing
laws governing these activities. All other states have
moved to a unitary licensing regime, which MSRT asserts is
efficient for both the regulated industry and the regulator.
According to MSRT, AB 2789 preserves all of the existing safety
and soundness and consumer protection provisions of existing
law, as well as existing licensing exemptions for entities
such as depository institutions. Licensing fees would
remain at current levels. However, the bill would increase
consumer protection by requiring licensees and their sales
outlets to post information informing customers that
complaints may be filed with DFI, and by requiring all
entities that wish to acquire control of a licensee to
receive prior approval for that acquisition from DFI. The
bill would also close two existing California loopholes, by
licensing domestic money transfers and the issuance of open
loop stored value cards by non-bank institutions. MSRT
believes that the bill will provide DFI with needed
flexibility to respond to the regulatory challenges posed by
fast-emerging funds transmission technologies.
4. Opposition None received.
5. Suggested Amendments
a. DFI and the sponsor have identified a handful
of technical amendments, which they recommend to
correct minor drafting errors in the June 10th, 2010
AB
2789 (Committee on B. & F.), Page 5
version of the bill. These amendments have been
reviewed by, and are acceptable to the author,
sponsor, DFI, and key interested parties:
Page 10, line 6, after "for" insert: transactions that
involve
Page 10, line 7, strike "transactions"
Page 11, line 13, after "engaging" insert: in
Page 18, lines 26 and 30: after "shareholders'" insert:
or members'
Page 25, lines 14, 24, and 28, strike "12 U.S.C." and
insert: 15 U.S.C.
Page 26, line 26, strike "1830" and insert: 1832
Page 27, line 33, after "insured" insert: credit union.
b. The California Retailers Association requests
an amendment, to more closely conform the definition
of stored value in the bill with the rules for gift
certificates in Civil Code Section 1749.5. That
amendment, which is also acceptable to the author,
sponsor, DFI, and key interested parties, would add
the following clause to the stored value definition:
Page 6, line 30, after "affiliate" insert: , except
to the extent required by applicable law to be
redeemable in cash for its cash value.
6. Prior Legislation
a. AB 1508 (Lieu), Chapter 242, Statutes of 2007:
Streamlined certain procedural requirements under the
Money Transmitters Law, more closely aligned that law
with laws governing the issuance of travelers checks
and money orders, and gave DFI greater ability to take
prompt corrective action against licensed money
transmitters found to be operating improperly.
POSITIONS
Support
AB
2789 (Committee on B. & F.), Page 6
The Money Services Round Table (sponsor)
Consumers Union
Oppose
None received
Consultant: Eileen Newhall (916) 651-4102