BILL ANALYSIS Ó
AB 2209
Page 1
Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 2209 (Dickinson) - As Introduced: February 20, 2014
SUBJECT : Money Transmission Act.
SUMMARY : Makes various changes to the Money Transmission Act
(MTA) Specifically, this bill :
1)Provides for a revised definition of "money transmission" by
adding that it is:
a) A third party's acceptance of currency, funds, or other
value from a payor and delivery of the currency, funds, or
other value to the payee. "Money transmission" does not
include a transaction in which the recipient of the
currency, funds, or other value is an agent of the payee,
and delivery of the funds to the agent satisfies the
payor's obligation to the payee.
2)Specifies that the commissioner of the Department of Business
Oversight (commissioner) may impose certain conditions on a
license, approval, or order if it is necessary for the safety
and soundness of the licensee, or necessary to maintain or
enhance consumer protection.
3)Provides that in relation to reports that must be filed with
the commissioner, that in addition to transaction volume, a
licensee must report whether such money transmission activity
occurred via mobile or other electronic application.
4)Extends the existing exemption from training agents for signs
of elder abuse for licensees that offer services via the
internet to those that offer services by mobile electronic
application.
5)Specifies that the statutorily required "right to refund
statement" is not required in cases where the customer sends
the payment for goods or services in an e-commerce
transaction.
6)Allows the statutorily required transmission receipt to be
provided electronically for transactions that were initiated
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electronically and states that except for receipts provided
electronically the receipt shall be in a minimum eight-point
font.
7)Provides that in cases in which a licensee does not operate
out of a branch office and instead uses the internet or a
mobile application then the commissioner may authorize
alternative disclosures concerning rates, fees and other
details about the licensee.
8)Specifies that currently required complaint notice posting
within a branch office location may be substituted with an
alternative notice authorized by the commissioner in the event
the licensee or agent conducts money transmission activity via
an Internet Web site or mobile application.
9)Requires licensees to maintain any other records, not already
required by statute, if required by the commissioner.
10)Clarifies that the guidance offered to prospective applicants
by the commissioner is informal guidance and that such
guidance will be based on information supplied by the
applicant.
11)Provides that at any time, if the commissioner deems it
necessary for the general welfare of the public, he or she may
exercise any power set forth in this division with respect to
a money transmission business, regardless of whether an
application for a license has been filed with the
commissioner, a license has been issued, or, if issued, the
license has been surrendered, suspended, or revoked.
12)Makes the following technical corrections to the MTA:
a) Makes changes to the Legislative findings and
declarations;
b) Moves the definition of "material litigation" to the
definition section of the statute;
c) Clarifies that credit unions that are exempted from
licensing are those with an office in California;
d) Provides for revisions to mandatory receipt requirements
and contents.
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e) Corrects several outdated cross-references; and,
f) Changes the term "securities rating service" to "credit
rating agency."
EXISTING STATE LAW provides for the MTA, Financial Code
Sections 2000-2172 and 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.
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 issue
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 $2,000,000.
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 an applicant shall possess, and a licensee
shall maintain at all times, tangible shareholder's equity of
two hundred fifty thousand dollars ($250,000) to five hundred
thousand dollars ($500,000), depending on estimated or actual
transaction volume, as determined by the commissioner based on
the factors listed below in a through k. The commissioner may
increase the amount of net worth required of an applicant or
licensee if the commissioner determines, with respect to the
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applicant or licensee, that a higher net worth is necessary to
achieve the purposes of this division based on the factors
described in subdivision (c). When making a determination),
the commissioner shall consider the following factors:
a) The nature and volume of the projected or established
business;
b) The number of locations at or through which money
transmission is or will be conducted;
c) The amount, nature, quality, and liquidity of its
assets;
d) The amount and nature of its liabilities;
e) The history of its operations and prospects for earning
and retaining income;
f) The quality of its operations;
g) The quality of its management;
h) The nature and quality of its principals;
i) The nature and quality of the persons in control;
j) The history of its compliance with applicable state and
federal law; and,
aa) Any other factor the commissioner considers relevant.
12)Gives the commissioner authority to require a licensee to
write down any asset held by the licensee to a valuation that
will represent its then fair market value. Any receivable or
debt due to a licensee that is past due and unpaid for the
period of one year shall be charged off, unless it is well
secured or is in process of collection.
13)Specifies that the aggregate value of a licensee's accounts
receivable, excluding money transmission receivables, loans or
extensions of credit to any one person, or that person's
affiliates, cannot exceed 50% of the licensee's tangible
shareholders' equity without the advanced written approval of
the commissioner. Whenever such amount equals or exceeds 20%
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of the licensee's tangible shareholders' equity, the licensee
shall maintain records evidencing such amount and any security
or other source of payment for the amount owed, and such other
records as the commissioner may require by order or
regulation.
14)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.
15)Requires licensees to maintain financial records for a 3-year
period.
16)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.
17)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.
18)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.
19)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
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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;
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 U.S.C. Secs. 1-25,
incl.) 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; and,
j) A person that delivers wages or salaries 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 distribution of
other authorized deductions from employees' wages or
salaries, or transmits other funds on behalf of an employer
in connection with transactions related to employees.
Notwithstanding this exemption, a person described herein
that offers money transmission services or provides stored
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value cards directly to individual customers shall comply
with this division to the extent of such activity.
20)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 Section 2040 of the Financial Code
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
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; and,
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.
EXISTING FEDERAL LAW
Federal Regulation E, the Electronic Funds Transfer Act (EFTA)
was amended via the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank) to include regulation of
international remittances and money transfer. Section 1073 of
Dodd-Frank expanded the scope of EFTA to include requirements
concerning remittance disclosures to consumers. The Consumer
Financial Protection Bureau (CFPB) released draft rules that
went into effect October 1, 2013. A brief description of the
new requirements:
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1)Money transmitters are required to provide customers with
written pre-payment disclosures containing information about
the specific transfer, such as the exchange rate, applicable
fees and taxes, and the amount to be received by the
designated recipient.
2)Money transmitters are required to provide a written receipt
when payment is made. The receipt must include the information
provided on the pre-payment disclosure, as well as additional
information, such as the date of availability, the recipient's
contact information, and information regarding the customer's
error resolution and cancellation rights. As an alternative,
the new money transmitter regulation allows money transmitters
to give customers a single written disclosure prior to payment
containing all of the information required on the receipt, so
long as the money transmitter also provides proof of payment
such as a stamp on the earlier document.
3)The pre-payment disclosures and receipts must be provided in
English and in each of the foreign languages principally used
by the money transmitter to advertise, solicit, or market
money transfer services at a particular office. If you offer
customers the ability to make money transfers using text
message or a mobile application, the new money transmitter
regulation provides additional guidance on how to provide the
required disclosures.
4)If, (i) due to the laws of a recipient country or (ii) the
method by which transactions are made in the recipient
country, a money transmitter cannot determine certain amounts
that are required to be disclosed, exceptions permit the money
transmitter to disclose an estimate of the amount of currency
to be received, rather than the actual amount.
5)Money transmitters are required to provide customers with a
30-minute cancellation period that allows a customer the
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opportunity to review both the prepayment disclosure and the
receipt to ensure that the transfer was sent as the customer
intended. If a customer requests, a money transmitter must
promptly provide the customer a notice describing the
customer's "error resolution" and cancellation rights, using
specified language or substantially similar language. Even
after the cancellation period has passed, customers will have
a right to a refund or other remedy if an error occurs in a
transaction.
6)In the event a customer timely requests the cancellation of a
money transfer, the new money transmitter regulation requires
money transmitters to provide customers with a refund, at no
additional cost to the customer, the total amount of funds
provided by the customer, including any fees and, to the
extent not prohibited by law, taxes imposed in connection with
the money transfer, within three business days of receiving
the request to cancel the money transfer.
FISCAL EFFECT : Unknown
COMMENTS :
AB 2209 is a follow up to AB 786 (Dickinson), Chapter 533,
Statutes of 2013. Last year, the Assembly Banking and Finance
committee passed AB 786 with a vote of 12-0. AB 786 originated
out of an Assembly Banking and Finance oversight hearing on
March 11, 2013, titled, Emerging Technology and the Money
Transmission Act, as well as, subsequent research on growing
technological changes in the payments and money transmission
industries. AB 786 made numerous changes to the MTA to update
its application in a changing marketplace, but also ensure that
it does not create unnecessary barriers to entry for new
entities wishing to enter the payments space. The rise of
mobile applications to transmit money and to purchase goods or
services gave rise to several grey areas in the application of
the MTA as the definition of "money transmission" is circular
and open to very broad interpretation where any movement of
money from one party to another party while using a third party
intermediary could be interpreted as money transmission.
According to the author:
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The rise of the mobile smart phone and tablet has helped
drive and popularize the expanded use of mobile payment
applications. Additionally, consumers are expanding their
use of apps and online platforms that collect and hold
their financial data for purpose of making retail purchases
more convenient, or even to send money to family and
friends. This expansion has raised numerous questions
about the progress of payments technology and the role of
our existing state and federal laws to keep up with these
technologies.
The lessons learned from AB 786 of 2013 and two oversight
hearings on this issue brought about the changes proposed
in AB 2209. AB 2209 provides for further clarification to
the money transmission act through updating and revising
its application as it relates to various payment platforms.
The Money Transmission Act is California's legal framework
for the growing payments world and potentially developments
in crypto-currency.
AB 2209 continues the work of updating the MTA through several
technical changes, as well as, a small number of substantive
changes. The following are descriptions of the major policy
changes within AB 2209:
Definition of "Money Transmission"
Current law provides that money transmission includes 1) selling
or issuing payment instruments; 2) Selling or issuing stored
value; or 3) receiving money for transmission. The third
aspect of the definition is cause for confusion. At best the
current definition is a circular explanation. At worst, it is a
complicated and overly broad definition that fails to address
the nuances of the modern payments economy.
AB 2209 clarifies that money transmission does not include a
transaction in which the recipient of the payment (currency or
other value) is an agent of the payee and delivery of payment
satisfies the payor's obligation to the payee. What does this
mean in less complex terms? Many entities may use third
parties, or due to their relationship with vendors may
themselves be third parties that provide payment facilities for
the purchase of goods or services. For example, a consumer goes
to an online marketplace to purchase an item. To the consumer,
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it may appear from all visible evidence that the online
marketplace is both providing the item and accepting the payment
for the item. On the contrary, the item is provided by a third
party merchant, potentially unseen by the consumer. In this
scenario, the consumer's payment obligation and potential future
warranty, return, or exchange issues are the responsibility of
the online merchant, not the third party merchant. In this
example, under a broad interpretation of the literal meaning of
the statute the transaction could be considered money
transmission activity. AB 2209 clarifies, through the use of
the "payee" and "agent" language that online marketplace
transactions are not money transmission.
At least four states have formally recognized the payee-agent
exception to the definition of money transmitter. In New York,
Nevada and Ohio, the exception has been codified. See N.Y.
Banking Law § 641.1; Nev. Rev. Stat. Ann. § 671.040; Ohio Rev.
Code Ann. § 1315.01(G). In Texas, the exception is reflected in
published regulation. See 7 Tex. Admin. Code § 33.3.
In explaining the exception, New York has drawn precisely the
distinction drawn above. In staff guidance, New York's
regulator of money transmitters has explained that a firm can
only qualify for the exception if it has a contractual
relationship with the funds recipient in which the recipient
explicitly authorizes the intermediary as its agent for payment.
See, e.g., New York State Bank Department, Staff
Interpretation, "NYSBL 640 & 641" (April 24, 2007), available at
http://www.dfs.ny.gov/legal/interpret_opinion/banking/lo070424.ht
m . As explained above, a written or oral understanding among
the sender of funds and the intermediary about the
intermediary's status as an agent of the payee does not
determine the scope of the relationship between the intermediary
and the receiver of funds. Only a pre-existing contractual
relationship between the intermediary and the funds recipient
will permit recognition of the intermediary as an agent of the
payee.
Use of mobile applications
As money transmission activity has increased via mobile
applications or Internet based sites, it is necessary to change
various requirements concerning notices and receipts that
originally were only contemplated in a face-to-face transaction.
First, it provides that licensees that exclusively offer their
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services via mobile electronic applications are exempted from
the requirement to train agents for monitoring for signs of
elder abuse. Under current law those licensees that offer
services via an Internet Web site are already exempt.
Existing law requires that each branch office location of a
licensee must disclose the exchange rates, fees and commissions,
post a sign with the name of the licensee and provide a posting
concerning where consumers may direct complaints. AB 2209
clarifies that in cases in which the licensee uses an Internet
website or mobile application, the commissioner may authorize an
alternative disclosure.
Receipt requirements
Existing law requires that a consumer receive a receipt that
states they have a right to a refund if the licensee does not
forward the money received within 10 days. This receipt makes
sense in a traditional money transmission transaction, but does
not make sense if the transmission was made for an e-commerce
transaction. AB 2209 would provide that the receipt is not
required in an e-commerce transaction and that it may be
provided electronically if the consumer opts for an electronic
receipt.
Guidance
AB 786 authorized the commissioner to offer guidance to
prospective applicants regarding licensing requirements,
including the potential net worth that may be required of an
applicant. This change was intended to allow applicants to
received informal guidance that could be helpful during the
official application process. The changes proposed in AB 2209
would clarify that the guidance is informal and only based on
the information actually provided by the applicant concerning
its plan to do business.
Technical amendments :
Section 2105 of the Financial Code requires that licensees
prominently post on their premises a notice of where consumers
with complaints should be directed. This section currently
references the Department of Financial Institutions, which no
longer exists. Amendments would strike this reference and
replace with "Department of Business Oversight."
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REGISTERED SUPPORT / OPPOSITION :
Support
California Chamber of Commerce
California Retailers Association
TechAmerica
TechNet
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081