BILL ANALYSIS �
AB 786
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ASSEMBLY THIRD READING
AB 786 (Dickinson)
As Introduced February 21, 2013
Majority vote
BANKING & FINANCE 12-0 APPROPRIATIONS 16-0
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|Ayes:|Dickinson, Morrell, |Ayes:|Gatto, Harkey, Bigelow, |
| |Achadjian, Blumenfield, | |Bocanegra, Bradford, Ian |
| |Bonta, Chau, Gatto, | |Calderon, Campos, Eggman, |
| |Hagman, Linder, Perea, | |Gomez, Hall, Rendon, |
| |Torres, Weber | |Linder, Pan, Quirk, |
| | | |Wagner, Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Makes various changes to the Money Transmission Act
(MTA). Specifically, this bill :
1)Exempts from the MTA a person that delivers payroll money on
behalf of an employer to employees.
2)Revises the minimum net worth requirements so that an
applicant or licensee must maintain minimum net worth ranging
from $100,000 to $500,000 depending on the estimated or actual
transaction volume, as determined by the commissioner of the
Department of Business Oversight (commissioner).
3)Provides the commissioner with authority to increase net worth
up to $2 million if the commissioner determines that the
higher net worth is necessary to achieve specified purposes.
4)Provides that a licensee may use funds held in a custodial
capacity as an agent of its customers to fulfill the eligible
securities requirement when those eligible securities that are
held in a custodial capacity as an agent of the customer.
5)Requires the commissioner to make a determination on the use
of custodial accounts to fulfill eligible security
requirements on a case-by-case basis.
6)Enhances enforcement of the MTA by providing the commissioner
the authority to bring an action to enjoin a person from
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violating the MTA. Additionally, allows the commissioner to
seek ancillary relief, including, but not limited to, a claim
for restitution, disgorgement, or damages on behalf of the
persons injured by the act or practice.
EXISTING LAW establishes the MTA which provides for the
following:
1)Defines "payment instrument" as a check, draft, money order,
traveler's check, or other instrument for the transmission or
payment of money or monetary value, whether or not negotiable.
The term does not include a credit card voucher, letter of
credit, or any instrument that is redeemable by the issuer for
goods or services provided by the issuer or its affiliates.
2)Defines "receiving money for transmission" or "money received
for transmission" as receiving money or monetary value in the
United States for transmission within or outside the United
States by electronic or other means. The term does not include
sale or issuance of payment instruments and stored value.
3)Defines "stored value" as monetary value representing a claim
against the issuer that is stored on an electronic or digital
medium and evidenced by an electronic or digital record, and
that is intended and accepted for use as a means of redemption
for money or monetary value or payment for goods or services.
The term does not include a credit card voucher, letter of
credit, or any stored value that is only redeemable by the
issuer for goods or services provided by the issuer or its
affiliates, except to the extent required by applicable law to
be redeemable in cash for its cash value.
4)Requires licensing for domestic money transmittal services.
5)Provides for regulation of non-bank issued stored value cards
that may be offered by licensees.
6)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.
7)Requires specified information to be included in an
application for a license which shall be in the form
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proscribed by the commissioner of the Department of Financial
Institutions.
8)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
issues 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 California. A
licensee engaged in money transmission must either maintain
securities or a surety bond not less than $250,000 and no more
than $2 million.
9)Requires licensees to file audit reports with the commissioner
within 90 days after the end of each fiscal year.
10)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.
11)A licensee must maintain specified eligible securities
including a surety bond and maintain $500,000 in net-worth.
12)Requires a licensee to provide specified notices and
disclosures to customers, including a notice relative to a
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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.
13)Requires licensees to maintain financial records for a
three-year period.
14)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.
15)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 MTA or
engaged in fraud or unsound practices and would authorize the
commissioner to assess specified civil penalties against a
person that violates these provisions.
16)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.
17)Exempts from licensing:
a) The United States or a department, agency, or
instrumentality thereof, including any federal reserve bank
and any federal home loan bank.
b) Money transmission by the United States Postal Service
or by a contractor on behalf of the United States Postal
Service.
c) A state, county, city, or any other governmental agency
or governmental subdivision of a state.
d) A commercial bank or industrial bank, the deposits of
which are insured by the Federal Deposit Insurance
Corporation or its successor, or any foreign (other nation)
bank.
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e) Electronic funds transfer of governmental benefits for a
federal, state, county, or local governmental agency.
f) A board of trade designated as a contract market under
the federal Commodity Exchange Act (7 United States Code
(U.S.C.) Sections 1-25, inclusive) or a person that, in the
ordinary course of business, provides clearance and
settlement services for a board of trade to the extent of
its operation as or for such a board.
g) A person that provides clearance or settlement services
pursuant to a registration as a clearing agency or an
exemption from registration granted under the federal
securities laws to the extent of its operation as such a
provider.
h) An operator of a payment system to the extent that it
provides processing, clearing, or settlement services,
between or among persons excluded by this section, in
connection with wire transfers, credit card transactions,
debit card transactions, stored value transactions,
automated clearing house transfers, or similar funds
transfers, to the extent of its operation as such a
provider.
i) A person registered as a securities broker-dealer under
federal or state securities laws to the extent of its
operation as a broker-dealer.
18)Provides, if the commissioner finds all of the following with
respect to an application for a license, the commissioner
shall approve the application:
a) The applicant has adequate tangible shareholders'
equity, as specified in Financial Code Section 2040 to
engage in the business of money transmission and the
financial condition of the applicant is otherwise such that
it will be safe and sound for the applicant to engage in
the business of money transmission.
b) The applicant, the directors and officers of the
applicant, any person that controls the applicant, and the
directors and officers of any person that controls the
applicant are of good character and sound financial
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standing.
c) The applicant is competent to engage in the business of
money transmission.
d) The applicant's plan for engaging in the business of
money transmission affords reasonable promise of successful
operation.
e) It is reasonable to believe that the applicant, if
licensed, will engage in the business of money transmission
and will comply with all applicable provisions of this
chapter and of any regulation or order issued under this
chapter.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, minor and absorbable costs to the Department of
Business Oversight.
COMMENTS : This bill represents efforts to revise and update
provisions of the MTA to address emerging technologies that are
changing money transmission and to provide clarity for existing
and future licensees. On March 11, 2013, the Assembly Banking
and Finance Committee convened an oversight hearing to review
the MTA. Almost one year prior to the convening of the hearing,
committee staff had been contacted by numerous parties raising
concerns about the MTA and potential unintended consequences of
its application. In the brief time since the MTA became law,
technological innovation in the payments industry has exploded
as money transmission has transcended into mobile applications
and new point of sale (POS) devices. Whereas, five years ago
the bulk of money transmission activity involved international
remittances where the customer would go to a brick and mortar
location to send money to friends or family in other countries,
now mobile phone users can use apps to pay for goods and
services where the customers payment method (credit card or bank
account) sends money to the third party provider and then that
provider sends payment to the provider of goods and services.
The definition of "money transmission" does not provide the
answer to these issues, as it is defined, as the transmission of
money from one party to another. This could include a host of
various activities, though it is relevant to ask if the original
intent of the MTA was to cover any and all instances when money
is sent from one party to another via a third party?
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This bill is drafted to address various issues in the MTA that
require clarification, due to application of the MTA in cases
where it may not fit. While stakeholders continue to meet to
seek consensus on various issues, this bill does the following:
1)Clarification of net worth requirements. Ensuring that
entities that engage in money transmission have adequate net
worth can be a vital measure of safety and soundness for the
long-term future of the entity. This bill provides greater
clarification on net worth will be determined and gives the
commissioner a range of factors to consider.
2)Payroll processing. This bill provides that an entity that
engages in the processing of payroll on behalf of employers to
employees is not a money transmitter. Modern payroll
processing can involve numerous activities, such as payment of
taxes and benefits, the management of employee withholdings
and authorized deductions and the garnishment of wages based
on court orders. The activities typically fall under the
umbrella of payroll processing. Staff believes that naming
payroll processing as an exempted activity includes the subset
of activities that a payroll processor might engage in.
3)For the benefit of accounts. Provides that a licensee may use
funds held in a custodial capacity as an agent of its
customers to fulfill the eligible securities requirement when
those eligible securities that are held in a custodial
capacity as an agent of the customer. The commissioner has
authority to make a case-by-case determination.
4)Enhanced enforcement. Provides the commissioner the authority
to bring an action to enjoin a person from violating the MTA.
Additionally, allows the commissioner to seek ancillary
relief, including, but not limited to, a claim for
restitution, disgorgement, or damages on behalf of the persons
injured by the act or practice.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0000582
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