BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 2789|
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                                 THIRD READING


          Bill No:  AB 2789
          Author:   Assembly Banking and Finance Committee
          Amended:  7/15/10 in Senate
          Vote:     21

           
           SENATE BANKING, FINANCE, AND INS. COMM.  :  10-0, 6/30/10
          AYES:  Calderon, Cogdill, Correa, Florez, Kehoe, Liu,  
            Lowenthal, Padilla, Price, Runner
          NO VOTE RECORDED:  Cox

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8 

           ASSEMBLY FLOOR  :  68-5, 5/6/10 - See last page for vote


           SUBJECT  :    Money transmissions

           SOURCE  :     The Money Services Round Table


           DIGEST  :    This bill consolidates 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.

           ANALYSIS  :    Existing law 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  
                                                           CONTINUED





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          Payment Instruments Law, Financial Code Section 33000 et  
          seq.). 

          This bill consolidates 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.  

           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.  This bill  
          combines 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:  

          1. 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.  This bill is intended to  
             ensure that the issuers of these cards are regulated.

          2. Consolidate and modernize the money transmission,  
             payment instruments, and travelers check issuance laws.

          3. 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.  This bill closes that loophole, and, in doing  
             so, help protect certain unbanked and underbanked  







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             individuals who use money transmitters to send money  
             domestically.

          4. 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 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 this  
             bill, any money transmitter that does business with a  
             person located in California requires a license.

          5. 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.  This  
             bill requires any entity that wishes to acquire control  
             of a Money Transmission Act licensee to apply to, and  
             receive permission from DFI for that acquisition.

          6. 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).  This  
             bill extends 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. 

          7. 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  







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             percent of the average daily outstanding payment  
             instrument and stored value obligations in California,  
             whichever is greater.  

          8. Require licensees and agents of licensees to prominently  
             post a notice at each branch office, 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.  

          FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

           SUPPORT  :   (Verified  8/3/10)

          The Money Services Round Table (source) 
          Consumers Union


           ARGUMENTS IN SUPPORT  :    The Money Services Round Table  
          (MSRT), a trade association of money transmitters and  
          stored value card issuers, is sponsoring this bill 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, this bill 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  







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          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 also closes 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.


           ASSEMBLY FLOOR  :  
          AYES: Adams, Ammiano, Arambula, Beall, Bill Berryhill, Tom  
            Berryhill, Blakeslee, Blumenfield, Bradford, Brownley,  
            Buchanan, Caballero, Charles Calderon, Carter, Chesbro,  
            Conway, Cook, Coto, Davis, De La Torre, De Leon,  
            Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,  
            Fuller, Furutani, Galgiani, Hagman, Hall, Harkey,  
            Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries,  
            Jones, Lieu, Logue, Bonnie Lowenthal, Ma, Miller,  
            Monning, Nava, Nestande, Niello, Nielsen, V. Manuel  
            Perez, Portantino, Ruskin, Salas, Saldana, Skinner,  
            Smyth, Solorio, Audra Strickland, Swanson, Torlakson,  
            Torres, Torrico, Tran, Villines, Yamada, John A. Perez
          NOES: Anderson, Gaines, Garrick, Knight, Silva
          NO VOTE RECORDED: Bass, Block, DeVore, Gilmore, Mendoza,  
            Norby


          JA:nl  8/3/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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