BILL ANALYSIS �
AB 786
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CONCURRENCE IN SENATE AMENDMENTS
AB 786 (Dickinson)
As Amended August 26, 2013
Majority vote
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|ASSEMBLY: |72-1 |(May 23, 2013) |SENATE: |37-0 |(September 3, |
| | | | | |2013) |
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Original Committee Reference: B. & F.
SUMMARY : Makes various changes to the Money Transmission Act
(MTA). Specifically, this bill :
1)Exempts from the MTA payroll processors unless they offer money
transmission or stored value cards directly to customers.
2)Revises the minimum net worth requirements so that an applicant
or licensee must maintain minimum net worth ranging from
$250,000 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
if the commissioner determines that the higher net worth is
necessary based upon several factors.
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
based on:
a) The mount, nature, quality, and liquidity of the
licensee's assets;
b) The amount and nature of the licensee's liabilities; and,
c) The history of the licensee's compliance with applicable
state and federal law.
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6)Provides that the commissioner may exempt persons or
transactions from all, or part of the MTA and that exemptions
granted by the commissioner must be posted on the commissioner's
Internet Web site.
7)Clarifies that an "agent" is an entity that is not itself
licensed under the MTA.
8)Provides that a receipt for money transmission that requires
disclosure of specific information relating to the transaction
may not be required when the transmission was for the payment of
goods and services.
9)Provides that the commissioner may prepare written decisions,
opinion letters, and other formal written guidance to persons
seeking clarification on the requirements of the MTA.
10)Requires the commissioner to make public on the commissioner's
Internet Web site all written decisions, opinion letters, and
other formal written guidance.
11)Allows the commissioner to offer guidance to any prospective
applicant for a license the conditions of licensure that may
apply to that person.
12)Requires the commissioner to inform any applicant that request
guidance of the minimum net worth that will be required of that
applicant and the factors used to make that determination.
The Senate amendments :
1)Provide that the commissioner may exempt persons or transactions
from all, or part of the MTA and that exemptions granted by the
commissioner must be posted on the commissioner's Internet Web
site.
2)Clarify that an "agent" is an entity that is not itself licensed
under the MTA.
3)Provide that a receipt for money transmission that requires
disclosure of specific information relating to the transaction
may not be required when the transmission was for the payment of
goods and services.
4)Provide that the commissioner may prepare written decisions,
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opinion letters, and other formal written guidance to persons
seeking clarification on the requirements of the MTA.
5)Require the commissioner to make public on the commissioner's
Internet Web site all written decisions, opinion letters, and
other formal written guidance.
6)Allow the commissioner to offer guidance to any prospective
applicant for a license the conditions of licensure that may
apply to that person.
7)Require the commissioner to inform any applicant that request
guidance of the minimum net worth that will be required of that
applicant and the factors used to make that determination.
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.
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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 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)Provides that a licensee must maintain specified eligible
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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
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
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Corporation or its successor, or any foreign (other nation)
bank.
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
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applicant are of good character and sound financial 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 Senate Appropriations Committee,
pursuant to Senate Rule 28.8, negligible state costs.
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 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:
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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 the
way in which net worth will be determined and gives the
commissioner a range of factors to consider when making a net
worth requirement determination.
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. Assembly Banking and Finance Committee staff
believe 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)Clarifying that an agent is an entity that is not itself
licensed under the MTA. This provision is intended to ensure
that a retailer that uses the services of a licensee under the
MTA would not also be required to be licensed if they offered
customers the use of a payment terminal provided by the
licensees.
5)Transparency. This bill requires the commissioner to publically
disclose when entities have been exempt from the MTA and publish
formal opinions and guidance on the commissioner's Web site.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN:
0002289
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