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
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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