BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 2209
          Author:   Dickinson (D)
          Amended:  8/4/14 in Senate
          Vote:     21

           
           SENATE BANKING & FINANCIAL INSTITUTIONS COMM.  :  9-0, 6/18/14
          AYES:  Evans, Block, Correa, Hill, Hueso, Morrell, Roth, Torres,  
            Vidak

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

          ASSEMBLY FLOOR  :  73-0, 5/23/14 (Consent) - See last page for  
            vote


           SUBJECT  :    Money Transmission Act

           SOURCE  :     Author


           DIGEST  :    This bill updates the Money Transmission Act (MTA) to  
          ensure that electronic commerce (e-commerce) transactions are  
          not inadvertently regulated as money transmission and makes  
          other changes intended to reflect the increasing use of the  
          Internet as a platform for the exchange of goods and services.

           ANALYSIS  :    

          Existing law:

          1. Provides for the MTA, pursuant to AB 2789 (Assembly Banking  
             and Finance Committee, Chapter 612, Statutes of 2010).  The  
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             bill 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).

          2. Provides that, pursuant to the MTA, money transmission  
             includes selling or issuing payment instruments, selling or  
             issuing stored value, and receiving money for transmission.

          This bill:

          1. Amends the MTA to add a definition of "e-commerce," to mean  
             any transaction where the payment for goods or services is  
             initiated via the Internet or mobile application.

          2. Provides 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 pursuant to a preexisting written  
             contract and delivery of the money or other monetary value to  
             the agent satisfies the payor's obligation to the payee.   
             Defines "agent" by reference to Section 2295 of the Civil  
             Code, and defines "payor" and "payee" by reference to one  
             another (e.g., payee means the provider of goods or services,  
             who is owed payment from the payor, and payor means the  
             recipient of goods or services, who owes payment to the  
             payee).  

          3. Amends the provision of the MTA giving the Commissioner of  
             DBO authority to impose any conditions on any authorization,  
             approval, license, or order issued pursuant to the MTA that  
             are necessary for the safety and soundness of the licensee,  
             or reasonable or necessary maintain or enhance consumer  
             protection.  

          4. Requires 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. Amends 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  

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             additionally exempting licensees who exclusively offer their  
             services via an Internet Web site, a mobile application, or  
             both.

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

          7. Authorizes the Commissioner to declare a credit rating agency  
             to be an eligible securities rating service, as specified.

          8. Provides 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/her  
             money.  

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

          10.Authorizes the Commissioner to approve disclosures tailored  
             to licensees or agents that conduct money transmission via an  
             Internet Web site or a mobile application.  

          11.Requires 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 on the  
             Internet Web site.  

          12.Adds a requirement that licensees maintain any records  
             required by the Commissioner.  

          13.Amends existing provisions of the MTA to authorize the  
             Commissioner to offer informal guidance to any prospective  
             applicant for a license under the MTA, regarding the  
             conditions of licensure that may be applied to that person;  
             and requires the Commissioner to 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,  

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             and the factors used to make that determination as described  
             in Financial Code Section 2040.

          14.Adds a provision to the MTA providing that if, at any time,  
             the Commissioner deems it necessary for the general welfare  
             of the public, he/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.

           Background
           
          The MTA that is the subject of this bill has been operative in  
          California since July 2011, pursuant to AB 2789 (Assembly  
          Banking and Finance Committee, 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: 

          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  
             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  

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             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.

          This bill 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.

           FISCAL EFFECT :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

           SUPPORT  :   (Verified  8/5/14)

          California Chamber of Commerce
          California Retailers Association
          TechAmerica
          TechNet

           OPPOSITION  :    (Verified  8/5/14)

          ITC Financial Licenses

           ARGUMENTS IN SUPPORT  :    Proponents support this bill based on  
          its provision ensuring that the MTA does not apply to entities  
          which act as merchants' agents in a payor/payee context.  They  
          state, "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 will 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 will cause marketplace operators to shut  
          down, depriving small businesses of the opportunity to use those  
          platforms to reach consumers."  

           ARGUMENTS IN OPPOSITION  :    ITC Financial Licenses states, "We  

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          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 this bill  
          allows 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.

           ASSEMBLY FLOOR  :  73-0, 5/23/14
          AYES:  Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,  
            Bocanegra, Bonta, Bradford, Brown, Buchanan, Ian Calderon,  
            Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh,  
            Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier,  
            Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell,  
            Gray, Grove, Hagman, Hall, Holden, Jones, Jones-Sawyer,  
            Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor,  
            Medina, Mullin, Muratsuchi, Nazarian, Olsen, Pan, Patterson,  
            Perea, John A. Pérez, Quirk, Quirk-Silva, Rendon,  
            Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,  
            Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
          NO VOTE RECORDED:  Bonilla, Harkey, Roger Hernández, Melendez,  
            Nestande, V. Manuel Pérez, Vacancy


          MW:d  8/5/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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