BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2789| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 AB 2789 Page 2 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 AB 2789 Page 3 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 AB 2789 Page 4 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 AB 2789 Page 5 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 **** END ****