BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2209| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 CONTINUED AB 2209 Page 2 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 CONTINUED AB 2209 Page 3 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, CONTINUED AB 2209 Page 4 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 CONTINUED AB 2209 Page 5 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 CONTINUED AB 2209 Page 6 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 **** END **** CONTINUED