BILL ANALYSIS �
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THIRD READING
Bill No: AB 786
Author: Dickinson (D)
Amended: 8/26/13 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INST. COMMITTEE : 6-0, 7/3/13
AYES: Correa, Berryhill, Beall, Hill, Hueso, Roth
NO VOTE RECORDED: Calderon, Torres, Walters
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 72-1, 5/23/13 - See last page for vote
SUBJECT : Money transmissions
SOURCE : Author
DIGEST : This bill makes numerous changes to the Money
Transmission Act (MTA), including, among others, granting a
limited exemption for payroll processing firms, reducing minimum
net worth requirements, authorizing the Commissioner of the
Department of Financial Institutions (DFI) to grant partial
exemptions from the MTA, revising what constitutes an eligible
security for purposes of the MTA, and requiring the issuance of
specified regulations by the Commissioner.
Senate Floor Amendments of 8/26/13 make minor and technical
changes.
ANALYSIS :
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Existing law:
1. Provides for the MTA, pursuant to AB 2789 (Assembly Banking
and Finance Committee, Chapter 612, Statutes of 2010;
effective July 1, 2011). The bill consolidated the
Transmission of Money Abroad Law, Travelers Checks Act, and
the Payment Instruments Law into a single MTA, administered
by DFI.
2. Under the MTA:
A. Provides that no person may engage in the business of
money transmission in this state, or advertise, solicit,
or hold itself out as providing money transmission in this
state, unless the person is licensed or exempt from
licensure under the MTA or is an agent of a person
licensed or exempt from licensure under the MTA.
B. Requires every licensee to maintain cash or securities
on deposit, or a surety bond, as follows:
(1) Licensees that sell or issue payment instruments
or stored value must maintain securities on deposit or
a surety bond of at least $500,000 or 50% of their
average daily outstanding payment instrument and stored
value obligations in California, whichever is greater,
capped at $2,000,000.
(2) Licensees that receive money for transmission
must maintain securities on deposit or a surety bond in
an amount greater than the average daily outstanding
obligations for money received for transmission in
California. The required amount may be no less than
$250,000 and no greater than $7,000,000.
C. Additionally requires licensees to maintain tangible
shareholders' equity in an amount determined to be
adequate by the Commissioner, but in no event less than
$500,000.
D. Additionally requires licensees to, at all times, own
eligible securities having an aggregate market value at
least equal to the aggregate amount of all of their
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outstanding payment instruments and stored value
obligations issued or sold in the United States, and all
outstanding money received for transmission in the U.S.
Provides that a variety of different monetary instruments
meet the definition of eligible security in the MTA,
including, among others, cash, bonds, money market
deposits, and commercial paper.
This bill:
1. Revises the definition of "agent" under the MTA to clarify
that an agent is a person that is not itself licensed as a
money transmitter in California.
2. Exempts from the MTA a person or entity that delivers wages
on behalf of employers to employees or facilitates the
payment of payroll taxes to state and federal agencies, makes
payments relating to employee benefit plans, makes
distributions of other authorized deductions from employees'
wages or salary, or transmits other funds on behalf of an
employer in connection with transactions related to
employees. Clarifies that, notwithstanding the foregoing, a
person or entity described immediately above, which offers
money transmission services directly to individual consumers
or stored value cards directly to individual consumers must
comply with the MTA to the extent of such activity.
3. Authorizes the Commissioner to exempt from all or part of the
MTA any person or transaction or class of persons or
transactions, if the commissioner finds such action to be in
the public interest and finds that the regulation of such
persons or transactions is not necessary for the purposes of
the MTA. Requires the Commissioner to post on his/her
Internet Web site a list of all persons, transactions, or
classes of persons or transactions exempted by the
Commissioner, and the part or parts of the MTA from which
they are exempt.
4. Requires an applicant for an MTA license to possess and
maintain at all times tangible shareholder's equity of
between $250,000 and $500,000 (down from "no less than
$500,000," under existing law), depending on estimated or
actual transaction volume, as determined by the Commissioner.
Authorizes the Commissioner to increase the amount of net
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worth required of an applicant or licensee, if the
Commissioner determines that a higher net worth is necessary
to achieve the purposes of the MTA, based on a variety of
factors specific to each licensee, which this bill specifies
in statute, and which the Commissioner will be required to
clarify through regulations.
5. Authorizes the Commissioner to offer guidance to any
prospective applicant for an MTA license regarding the
conditions of licensure that may be applied to that person.
Requires the Commissioner to inform any applicant that
requests such guidance of the minimum net worth that will be
required of that applicant and the factors used to make that
determination.
6. Authorizes the Commissioner to prepare written decisions,
opinion letters, and other formal written guidance to persons
seeking clarification regarding the requirements of the MTA,
and requires the Commissioner to make public on his/her
Internet Web site all written decisions, opinion letters, and
other formal written guidance issued to persons seeking
clarification regarding the requirements of the MTA.
Authorizes the Commissioner, at his/her discretion or upon
request by an applicant or licensee, to redact proprietary or
other confidential information regarding an applicant or
licensee from any decision, letter, or other guidance made
public.
7. Adds to the definition of an eligible security any receivable
owed by a bank and resulting from an automated clearinghouse
or credit-funded transmission.
8. States that when a licensee holds funds in a custodial
capacity as an agent of its customers, in a pooled account
titled in the name of the licensee for the benefit of its
customers, such a circumstance does not automatically
invalidate those funds as being owned by an MTA licensee for
purposes of the eligible security requirements of the MTA;
instead, this bill gives the Commissioner authority to rule
on whether such funds meet the definition of an eligible
security, and prescribes the factors to be considered by the
Commissioner, when making this determination.
9. Provides that money transmission which involves payment for
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goods or services is exempt from the following requirements:
A. The requirement that every licensee or its agent
forward all money received for transmission or give
instructions committing equivalent money to the person
designated by the customer within 10 days after receiving
that money.
B. The requirement that the receipt provided to a customer
inform them of their right to a refund.
10.Makes minor and technical changes.
Background
The MTA has been operative in California since July 2011. In
2010, California combined three separate, related laws into a
single MTA, and provided for a delayed operative date of July
2011, to allow persons not previously subject to licensure, but
required to be licensed by AB 2789, additional time to apply for
and obtain licenses. The MTA enacted by AB 2789 preserved all
of the substantive provisions of each of the three, previously
separate laws, and added a handful of new, substantive
provisions. The most important of those new, substantive
provisions:
1. Regulated the issuance of open loop, stored value cards by
nondepository institutions . 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 gift card).
2. Regulated domestic (intra-U.S.) money transmission . Prior to
enactment of AB 2789, international money transmission by
nondepository institutions was regulated under California's
Transmission of Money Abroad Law, but domestic money
transmission by nondepository institutions was not. AB 2789
required nondepository institutions that transmit money
domestically, or abroad, or both, to obtain an MTA license.
3. Brought some previously unlicensed money transmitters into
California's regulatory scheme . Prior to enactment of AB
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2789, California's Transmission of Money Abroad Law did not
have a physical presence requirement (thus, certain
Internet-based money transmitters could 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.
Many of the changes proposed in this bill are intended to
ameliorate unintended consequences resulting from inclusion of
the three provisions listed immediately above into AB 2789.
Penalties for unlicensed MTA activity . Some of the companies
seeking to operate in accordance with the MTA are encountering
significant licensing costs and compliance hurdles, while some
of their peers, who are opting to avoid licensure in California,
do so without fear of civil prosecution by DFI or the Attorney
General.
DFI does issue cease and desist warning letters to companies
believed to be operating in an unlicensed manner. At present,
DFI licenses 73 companies under the MTA. From January 2010
through mid-June 2013, DFI issued 50 cease and desist warning
letters to 36 companies, informing those companies that they may
be engaged in the business of money transmission without having
obtained the license required to legally do so. All of the
letters included warnings, ordering the companies to cease and
desist from conducting the business of money transmission in
California, and providing the companies up to 20 days in which
to respond to DFI with information establishing that they do not
require a license.
According to DFI, these cease and desist warning letters
typically lead to further correspondence, meetings, and/or
discussions with the companies or their counsel. Some companies
that have received cease and desist warning letters subsequently
applied for licenses, others ceased engaging in money
transmission in California, some restructured their businesses
in order to receive the benefits of exemptions under the MTA,
some were found not to require an MTA license, and others remain
in discussions with DFI regarding licenses or exemptions. A few
companies could not be located by DFI or failed to respond to
their initial cease and desist warning letters; DFI sent
multiple warning letters to 11 companies over several years.
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A list of the companies to which cease and desist warning
letters have been issued is held confidential by DFI. The
existing law requirement that DFI make public its final, formal
enforcement orders does not apply to these warning letters,
because they are not formal cease and desist orders, but are,
instead, initial correspondence requesting information, and
warning that formal enforcement action may be taken, if a
response is not provided. To date, DFI has not taken any
further action against any of the companies to which it issued
cease and desist warning letters.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/27/13)
eBay, Inc.
National Payroll Reporting Consortium
PayPal
OPPOSITION : (Verified 8/27/13)
Consumers Union
Think Computer
ARGUMENTS IN SUPPORT : According to the author's office, the
purpose of this bill is to reform the MTA, clarify which
activities should be licensed and exempt, and improve the
transparency of the MTA for licensees and applicants, while
maintaining the safety and soundness of licensees.
On behalf of its subsidiary PayPal, eBay, Inc. supports this
bill citing that provisions of this bill that would help PayPal
include the bill's language regarding FBO accounts, the revised
definition of "agent," language authorizing the use of ACH and
credit-funded receivables as eligible securities, and revisions
to the sections of the MTA regarding the provision of receipts
in connection with money transmission for goods and services.
"In the short time since the Money Transmission Act has been
law, numerous technological innovations and advancements
continue to occur throughout the payments industry that have
enhanced the consumer experience along the way...[this has]
unfortunately led to certain unintended consequences of
ambiguity and lack of certainty within the law. We appreciate
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the author's efforts to modernize this important regulatory
framework aimed at enhancing consumer protections while
promoting growth and further innovation within the industry."
The National Payroll Reporting Consortium (NPRC), which
represents the payroll services industry, supports this bill,
because of the provision granting certain payroll providers an
exemption from the MTA, under certain circumstances. The NPRC
observes that payroll providers do not sell anything directly to
employees. The MTA is appropriately focused on consumer
transactions. Broad application of the MTA to human capital
management solution providers (including payroll services
companies) will impose substantial new costs on these service
providers and on California employers, and will significantly
disrupt the smooth functioning of payroll and benefit services
arrangements that have been in place for decades. Moreover, the
broad application of the MTA to payroll providers is
unnecessarily duplicative of other laws that protect workers'
rights to payment of wages and employee benefits in California,
including ERISA and the California Labor Code.
ARGUMENTS IN OPPOSITION : Consumers Union (CU) opposes this
bill, unless it is amended to delete the broad exemption
language for payroll processors. CU is concerned that the
exemption for payroll providers would exempt from the law
entities that actually or constructively receive, take
possession or custody of, or otherwise hold any money or
monetary value for transmission. CU believes that the MTA
should apply to these entities.
ASSEMBLY FLOOR : 72-1, 5/23/13
AYES: Achadjian, Alejo, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Ch�vez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,
Hagman, Hall, Harkey, Roger Hern�ndez, Jones-Sawyer, Levine,
Linder, Logue, Lowenthal, Maienschein, Mansoor, Medina,
Melendez, Mitchell, Morrell, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, V. Manuel P�rez,
Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting,
Wagner, Weber, Wieckowski, Wilk, Williams, Yamada, John A.
P�rez
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NOES: Allen
NO VOTE RECORDED: Donnelly, Grove, Holden, Jones, Waldron,
Vacancy, Vacancy
MW:k 8/27/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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