BILL ANALYSIS                                                                                                                                                                                                    Ó






                  SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
                             Senator Noreen Evans, Chair
                              2013-2014 Regular Session

          AB 2209 (Dickinson)                Hearing Date:  June 18, 2014   


          As Amended: June 9, 2014
          Fiscal:             Yes
          Urgency:       No
          

           SUMMARY    Would update the Money Transmission Act (MTA) to  
          ensure that electronic commerce (e-commerce) transactions are  
          not inadvertently regulated as money transmission and make other  
          changes intended to reflect the increasing use of the Internet  
          as a platform for the exchange of goods and services.
          
           DESCRIPTION
           
            1.  Would amend the MTA to add a definition of "e-commerce,"  
              which would be defined as the transaction of goods or  
              services initiated via the Internet or mobile application.

           2.  Would provide that the MTA does not apply to a transaction  
              in which the recipient of the money or other monetary value  
              is an agent of a payee, and delivery of the money or other  
              monetary value to the agent satisfies the payor's obligation  
              to the payee.  Would define agent by reference to Section  
              2295 of the Civil Code, and would define payor and payee by  
              reference to one another (e.g., payee would mean the  
              provider of goods or services, who is owed payment from the  
              payor, and payor would mean the recipient of goods or  
              services, who owes payment to the payee).  

           3.  Would amend the provision of the MTA giving the  
              Commissioner of Business Oversight (commissioner) authority  
              to impose any conditions on any authorization, approval,  
              license, or order issued pursuant to the MTA as follows:   
              The commissioner may impose on any authorization, approval,  
              license, or order issued pursuant to this division any  
              conditions that  he or she deems   are necessary for the safety  
              and soundness of the licensee, or  reasonable or necessary to  
               the public interest   maintain or enhance consumer protection  .  
               





                                            AB 2209 (Dickinson), Page 2




           4.  Would require MTA licensees to include in their quarterly  
              reports to the commissioner the extent to which the money  
              transmission volume included in those reports reflects  
              transactions conducted via mobile application or Internet  
              website, if such reporting is feasible.  

           5.  Would amend the provision of the MTA that exempts certain  
              licensees from the requirement to provide their agents with  
              training materials on how to recognize and appropriately  
              respond to elder or dependent adult financial abuse, by  
              adding two additional exempt groups:  licensees who  
              exclusively offer their services via a mobile application,  
              and licensees who exclusively offer their services via both  
              the Internet and a mobile application.

           6.  Would add to the definition of an eligible security any  
              receivable owed by a bank and resulting from a debit-funded  
              transmission.

           7.  Would authorize the commissioner to declare a credit rating  
              agency to be an eligible securities rating service, as  
              specified.

           8.  Would provide that if a customer's instructions to forward  
              or transmit money are not complied with by a licensee, and  
              the money has not yet been forwarded or transmitted by the  
              licensee, a customer has a right to a refund of his or her  
              money.  

           9.  Would specify the information that MTA licensees must  
              include on the receipts they are required to provide to  
              customers.  Would clarify that receipts may be provided  
              electronically for transactions that are initiated  
              electronically, or when a customer agrees to receive an  
              electronic receipt.  

           10. Would exempt MTA licensees from providing receipts  
              informing customers of their right to a refund when the  
              sender is a commercial entity or the transaction involves  
              any of the following:  the United States or a department,  
              agency, or instrumentality thereof, including any Federal  
              Reserve Bank or any Federal Home Loan Bank, or the United  
              States Postal Service; or a state, county, city, or any  
              other governmental agency or governmental subdivision of a  
              state.  





                                            AB 2209 (Dickinson), Page 3




           11. Would authorize the commissioner to approve disclosures  
              tailored to licensees or agents that conduct money  
              transmission via an Internet web site or a mobile  
              application.  

           12. Would require any Internet web site through which a  
              licensee conducts money transmission to clearly identify the  
              name of the licensee and any trade names used by the  
              licensee.  

           13. Would add a requirement that licensees maintain any records  
              required by the commissioner.  

           14. Would amend the provision of the MTA authorizing the  
              commissioner to offer guidance to prospective applicants, as  
              follows:  The commissioner may offer  informal  guidance to  
              any prospective applicant for a license under this division,  
              regarding the conditions of licensure that may be applied to  
              that person.  The commissioner shall inform any applicant  
              that requests that guidance of the minimum net worth,  and  
              other licensing requirements  , that may be required of that  
              applicant,  based on the information provided by the  
              applicant concerning its plan to conduct business under this  
              division  , and the factors used to make that determination as  
              described in Section 2040.  

           15. Would add a provision to the MTA providing that if, at any  
              time, the commissioner deems it necessary for the general  
              welfare of the public, he or she may exercise any power set  
              forth in the MTA 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, a license has been surrendered,  
              suspended, or revoked.

           EXISTING LAW
           
           16. Pursuant to AB 2789 (Committee on Banking & Finance),  
              Chapter 612, Statutes of 2010; effective July 1, 2011),  
              provides for the MTA (Financial Code Section 2000 et seq.).   
              That measure consolidated 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 Business Oversight (DBO).  

           17. Pursuant to the MTA, money transmission includes selling or  




                                            AB 2209 (Dickinson), Page 4




              issuing payment instruments, selling or issuing stored  
              value, and receiving money for transmission (Section 2003). 

           COMMENTS

          1.  Purpose:   This bill is intended to update the MTA to ensure  
              that e-commerce transactions are not inadvertently regulated  
              as money transmission and make other changes intended to  
              reflect the increasing use of the Internet as a platform for  
              the exchange of goods and services. 

           2.  Background:   The MTA that is the subject of this bill has  
              been operative in California since July, 2011, pursuant to  
              AB 2789 (Committee on Banking & Finance), Chapter 612,  
              Statutes of 2010.  AB 2789 combined three separate, related  
              laws into a single MTA, which 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: 

                 a.       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).  

                 b.       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.  

                 c.       Brought some previously unlicensed money  
                   transmitters into California's regulatory scheme:   
                   Prior to enactment of AB 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  




                                            AB 2209 (Dickinson), Page 5




                   money transmitter that does business with a person  
                   located in California requires a license.

              Last year, Assemblyman Dickinson carried AB 786 (Chapter  
              533, Statutes of 2013) to ameliorate some unintended  
              consequences resulting from inclusion of the three  
              provisions listed immediately above into AB 2789, and to  
              begin updating California's MTA to reflect electronic  
              commerce transactions.

              AB 2209 is a follow-up to AB 786; it continues the process  
              of updating and clarifying the MTA, particularly as the law  
              applies to transactions initiated over the Internet and via  
              mobile applications.

           3.  Discussion:   Each of the substantive provisions of AB 2209  
              is summarized below.  Changes made by the bill, which are  
              not discussed below, are self-explanatory.  

               a.     Excluding third party agents from the MTA:  Many  
                 goods and services are exchanged with the assistance of  
                 third parties, particularly over the Internet.  For  
                 example, if a consumer visits an online marketplace such  
                 as Amazon.com, iTunes, or eBay to purchase an item, he or  
                 she is often purchasing from the merchant or artist  
                 listing their good or service on the marketplace, not  
                 from the operator of the marketplace.  In this scenario,  
                 the consumer's payment obligation is to the ultimate  
                 recipient of the payment, and not to the third party  
                 intermediary.  AB 2209 would amend the MTA to provide  
                 that the third party in these examples is not required to  
                 be licensed as a money transmitter, as long as the third  
                 party has an agency relationship with the seller, and as  
                 long as the money sent to the third party by the buyer  
                 satisfies the buyer's obligation to the seller.   
                 According to the author's office, four other states,  
                 including New York, Nevada, Ohio, and Texas, have added a  
                 similar "third party agent" exemption to their money  
                 transmission laws.

               b.     Elder or dependent adult financial abuse:  Under the  
                 existing MTA, licensees that exclusively offer their  
                 services over the Internet are exempt from the  
                 requirement to provide their agents with training  
                 materials on how to recognize and appropriately respond  
                 to elder or dependent adult financial abuse.  This bill  




                                            AB 2209 (Dickinson), Page 6




                 adds two groups to this exemption:  licensees who  
                 exclusively offer their services via a mobile  
                 application, and licensees who exclusively offer their  
                 services via both the Internet and a mobile application.

               c.     Declaring a credit rating agency an eligible  
                 securities rating service:  According to the author's  
                 office, the Dodd-Frank Wall Street Reform and Consumer  
                 Protection Act (Dodd-Frank) uses the term credit rating  
                 agency to describe what existing California law describes  
                 as a securities rating service.  This bill updates the  
                 MTA to reflect the term used in Dodd-Frank.

               d.     Clarification of right to refund when sender's  
                 instructions are not followed and money is not sent:   
                 This right to a refund is required to be listed on the  
                 receipt that licensees must provide to customers, but is  
                 not expressly authorized elsewhere in existing California  
                 statute.  AB 2209 would expressly authorize this right in  
                 statute.  

               e.     Changes to receipt requirements:  Existing law  
                 requires MTA licensees to provide consumers with a  
                 receipt.  This bill changes the wording of the receipt to  
                 reflect recent changes made to the federal Electronic  
                 Funds Transfer Act and its implementing regulation.   
                 Pursuant to these federal rules, money transmission  
                 receipts must include several disclosures relating to  
                 fees and the exchange rate.  AB 2209 requires this  
                 information to be included on MTA receipts.

               AB 2209 also eliminates the requirement for MTA licensees  
                 to include right to refund language on receipts involving  
                 transactions in which the sender is a commercial entity,  
                 and transactions that involve any of the following:  the  
                 United States or a department, agency, or instrumentality  
                 thereof, including any Federal Reserve Bank or any  
                 Federal Home Loan Bank, or the United States Postal  
                 Service; or a state, county, city, or any other  
                 governmental agency or governmental subdivision of a  
                 state.  DBO staff requested these exemptions on grounds  
                 that the senders in these transactions are sophisticated  
                 entities, and therefore do not require right to refund  
                 disclosures on their receipts.  These entities would  
                 still be entitled to refunds, but their receipts would  
                 not advise these entities of that right.  




                                            AB 2209 (Dickinson), Page 7





               Finally, AB 2209 updates MTA receipt requirements to  
                 provide that a receipt may be provided electronically, if  
                 a consumer opts for this method of delivery.  

               f.     Records retention requirement:  Under the existing  
                 MTA, licensees are required to maintain several types of  
                 records for determining their compliance with the MTA,  
                 and to retain these records for at least three years.   
                 The list of records that must be retained includes a  
                 catch-all requirement that reads "any other records the  
                 commissioner reasonably requires by order or regulation."  
                  

               AB 2209 would add an additional recordkeeping requirement  
                 to the MTA stating that "each licensee shall maintain any  
                 other records required by the commissioner."  According  
                 to DBO, the language being added by AB 2209 is not  
                 duplicative of the language in existing law.  Existing  
                 law describes records to be used by a licensee for  
                 determining compliance with the MTA, and requires  
                 licensees to maintain those records for three years.  The  
                 new language that AB 2209 would add authorizes the  
                 commissioner to require licensees to retain any records  
                 for any reason and for any length of time.  

               g.     Informal guidance to prospective applicants:  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.   AB 2209 would clarify that this guidance  
                 is informal and is based only upon information provided  
                 by the applicant regarding its plan to conduct business.

               h.     Authority to enforce the MTA against licensees and  
                 unlicensed money transmitters:  AB 2209 adds a provision  
                 to the MTA clarifying the commissioner's authority to  
                 take action(s) with respect to a money transmission  
                 business that he or she deems necessary for public  
                 protection, whether or not that business holds an MTA  
                 license.  According to the author's office, this  
                 provision restates existing law, to clarify that the  
                 commissioner may take action against unlicensed money  
                 transmitters.  Some entities engaging in the business of  
                 money transmission have claimed that they do not have to  
                 respond to orders issued by DBO, because they are not  




                                            AB 2209 (Dickinson), Page 8




                 licensed by the Department.  

           4.  Summary of Arguments in Support:   The California Retailers  
              Association, California Chamber of Commerce, Tech America,  
              The Internet Association, and TechNet support the bill,  
              based on its provision ensuring that the MTA does not apply  
              to entities which act as merchants' agents in a payor/payee  
              context.  "This change is critical to companies that operate  
              online marketplaces...Requiring the operators of every  
              marketplace to obtain a MTA license is inconsistent with the  
              overall intent of the MTA and would be very costly to the  
              operators of those companies, the small businesses that use  
              those marketplaces, and, ultimately, consumers.  The small  
              businesses that utilize marketplaces to sell their goods  
              would, at a minimum, be forced to pay more to bring their  
              products and services to market, thus harming themselves and  
              consumers.  At worst, the cost of complying with the MTA  
              would cause marketplace operators to shut down, depriving  
              small businesses of the opportunity to use those platforms  
              to reach consumers."  

           5.  Summary of Arguments in Opposition:    ITC Financial  
              Licenses, a licensed money transmitter in 46 states,  
              including California, opposes AB 2209 unless it is amended  
              to delete the provision that provides the MTA does not apply  
              to entities which act as merchants' agents in a payor/payee  
              context.  "We believe that codifying the 'agent of the  
              payee' exemption poses significant risks to consumers,  
              because it would permit the transmission of consumer funds  
              to and from third party intermediaries without the need for  
              such third parties to obtain a money transmitter license or  
              be authorized as an 'agent' of a licensed money transmitter  
              under California law.  As a result, none of the consumer  
              protections established under California's MTA - for  
              example, consumer disclosure, receipt, permissible  
              investment, and recordkeeping and reporting obligations -  
              would apply to the benefit of consumers."

          ITC is concerned that the exemption contained in the bill would  
              allow entities to engage in all of the following types of  
              money transmission without any regulatory oversight:  bill  
              payments, payments to merchants for goods and services,  
              online accounts (e.g., PayPal accounts), and payments to  
              virtual currency exchanges or payments made using virtual  
              currency.  According to ITC Financial Licenses, "Seventeen  
              states have expressly confirmed and about twenty states have  




                                            AB 2209 (Dickinson), Page 9




              informally confirmed that they do not recognize the 'agent  
              of the payee' exemption and, instead, require bill payment  
              companies to be licensed money transmitters.  Only five  
              states accept the 'agent of the payee' exemption.  Of those  
              five, three require specific conditions that must be met  
              before exempting third parties from licensure requirements."
           











































                                            AB 2209 (Dickinson), Page 10




          6.  Amendments:  

               a.     The following three clarifying amendments will be  
                 offered by the author in Committee:

                     i.             Page 4, lines 24 and 25, revise as  
                      follows:  "E-commerce means  any   the  transaction  
                       where the payment for   of  goods or services  is   
                      initiated via the Internet or  a  mobile application."  
                       According to persons representing the technology  
                      industry, the revised definition more accurately  
                      describes e-commerce.

                     ii.            Page 17, lines 32 and 33, strike "If a  
                      customer does not receive his or her refund,"   This  
                      amendment makes it clear that customers have a cause  
                      of action for any violation of Section 2102, not  
                      just for violations involving failure of a licensee  
                      to provide a refund.

                     iii.        Page 18, line 8, strike "sender or".   
                      This amendment reflects the manner in which  
                      customers are identified elsewhere in the MTA.  

               b.     If this Committee wishes to ensure that all  
                 customers entitled to a refund receive receipts informing  
                 them of that right, it would ask the author to delete the  
                 exemptions for transactions involving specified federal,  
                 state, or local government entities and transactions in  
                 which the sender is a commercial entity (Page 19, lines  
                 34 through 38).
        
          7.  Prior and Related Legislation:   

               a.     AB 786 (Dickinson), Chapter 533, Statutes of 2013:   
                 Made numerous changes to the MTA, including, among  
                 others, granting a limited exemption for payroll  
                 processing firms, reducing minimum net worth  
                 requirements, authorizing the commissioner 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.

               b.     AB 2789 (Committee on Banking & Finance), Chapter  
                 612, Statutes of 2010.  Consolidated the Transmission of  




                                            AB 2209 (Dickinson), Page 11




                 Money Abroad Law, Travelers Checks Act, and the Payment  
                 Instruments Law into a single Money Transmission Act,  
                 administered by DFI; effective July 1, 2011.

           LIST OF REGISTERED SUPPORT/OPPOSITION
          
          Support
           
          California Retailers Association
          California Chamber of Commerce
          TechAmerica
          TechNet
          The Internet Association
           




































                                            AB 2209 (Dickinson), Page 12




          Opposition
               
          ITC Financial Licenses
                                                            

          Consultant: Eileen Newhall  (916) 651-4102