BILL ANALYSIS
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THIRD READING
Bill No: AB 2789
Author: Assembly Banking and Finance Committee
Amended: 7/15/10 in Senate
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMM. : 10-0, 6/30/10
AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Liu,
Lowenthal, Padilla, Price, Runner
NO VOTE RECORDED: Cox
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 68-5, 5/6/10 - See last page for vote
SUBJECT : Money transmissions
SOURCE : The Money Services Round Table
DIGEST : This bill consolidates 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 Financial Institutions.
ANALYSIS : Existing law gives the Department of Financial
Institutions (DFI) authority to regulate the transmission
of money abroad (pursuant to the Transmission of Money
Abroad Law, Financial Section 1800 et seq.), the issuance
of travelers checks (pursuant to the Travelers Checks Act,
Financial Section 1851 et seq.), and the issuance of
payment instruments, such as money orders (pursuant to the
CONTINUED
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Payment Instruments Law, Financial Code Section 33000 et
seq.).
This bill consolidates the three laws referenced above into
a single, uniform Money Transmission Act, which would be
administered by DFI, as specified, and as described in more
detail below.
Background
California is unique among states in our regulation of
money transmission, the issuance and sale of travelers
checks, and the issuance and sale of money orders and other
payment instruments. Forty-seven other states and the
District of Columbia regulate these activities under a
single law, while California requires three separate laws,
all administered by DFI, for this purpose. This bill
combines these three laws into a single Money Transmission
Act, administered by DFI. This new law would preserve all
of the substantive provisions in each of the three existing
laws, and additionally add the following substantive new
provisions, which would do the following:
1. Regulate the issuance of open loop, stored value cards
by non-bank entities: 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 check card).
Although the sponsor and DFI are currently unaware of
many non-bank issuers of open loop stored value cards,
both believe that more firms will enter this marketplace
in the near-term future. This bill is intended to
ensure that the issuers of these cards are regulated.
2. Consolidate and modernize the money transmission,
payment instruments, and travelers check issuance laws.
3. Regulate domestic (intra-U.S.) money transmission: At
present, international money transmission is regulated
in California, but domestic money transmission, when
made by an entity that is not a depository institution,
is not. This bill closes that loophole, and, in doing
so, help protect certain unbanked and underbanked
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individuals who use money transmitters to send money
domestically.
4. Bring some previously unlicensed money transmitters into
our regulatory scheme: California's money transmission
law currently requires those who accept money in
California for transmission abroad to be licensed, but
does not have a physical presence requirement (thus,
certain Internet-based money transmitters may legally
operate in California without a license). Under this
bill, any money transmitter that does business with a
person located in California requires a license.
5. Require those who wish to acquire control of an issuer
of travelers checks or payment instruments to receive
prior permission from DFI for the acquisition: An
application for acquisition of control is currently
required under the money transmitters law, but not under
the travelers checks or payment instruments laws. This
bill requires any entity that wishes to acquire control
of a Money Transmission Act licensee to apply to, and
receive permission from DFI for that acquisition.
6. Give DFI more authority over the composition and
valuation of so-called "eligible securities," which are
used to satisfy existing law liquidity requirements:
Existing law requires money transmission and payment
instruments licensees to own eligible securities having
an aggregate market value that is equal to or greater
than the aggregate amount of all of their outstanding
payment instruments and outstanding money received for
transmission (essentially, a 1:1 liquidity ratio). This
bill extends these liquidity requirements to companies
that issue open loop, stored value cards. The bill will
also give DFI greater authority to specify the types of
investments and the concentration per type of investment
that are allowable for eligible securities, and will
give DFI the ability to order changes in a licensee's
eligible securities, as DFI deems necessary to ensure
the safety and soundness of the licensee.
7. Create a new requirement that issuers of payment
instruments and stored value cards maintain securities
on deposit or a surety bond of at least $500,000 or 50
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percent of the average daily outstanding payment
instrument and stored value obligations in California,
whichever is greater.
8. Require licensees and agents of licensees to prominently
post a notice at each branch office, informing customers
that they may direct complaints about any aspect of the
money transmission activities conducted at that location
to DFI via a specific toll-free phone number, e-mail
address, or via regular mail to a specific mailing
address.
The provisions of this bill have been negotiated by
affected industry groups, DFI, and consumer groups, and are
believed to reflect a consensus.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/3/10)
The Money Services Round Table (source)
Consumers Union
ARGUMENTS IN SUPPORT : The Money Services Round Table
(MSRT), a trade association of money transmitters and
stored value card issuers, is sponsoring this bill to bring
California into line with the vast majority of states, with
respect to our regulation of money transmission, issuance
of travelers checks, and issuance of payment instruments.
As noted above, California is the only state with three
licensing laws governing these activities. All other
states have moved to a unitary licensing regime, which MSRT
asserts is efficient for both the regulated industry and
the regulator.
According to MSRT, this bill preserves all of the existing
safety and soundness and consumer protection provisions of
existing law, as well as existing licensing exemptions for
entities such as depository institutions. Licensing fees
would remain at current levels. However, the bill would
increase consumer protection by requiring licensees and
their sales outlets to post information informing customers
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that complaints may be filed with DFI, and by requiring all
entities that wish to acquire control of a licensee to
receive prior approval for that acquisition from DFI. The
bill also closes two existing California loopholes, by
licensing domestic money transfers and the issuance of open
loop stored value cards by non-bank institutions. MSRT
believes that the bill will provide DFI with needed
flexibility to respond to the regulatory challenges posed
by fast-emerging funds transmission technologies.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Arambula, Beall, Bill Berryhill, Tom
Berryhill, Blakeslee, Blumenfield, Bradford, Brownley,
Buchanan, Caballero, Charles Calderon, Carter, Chesbro,
Conway, Cook, Coto, Davis, De La Torre, De Leon,
Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,
Fuller, Furutani, Galgiani, Hagman, Hall, Harkey,
Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries,
Jones, Lieu, Logue, Bonnie Lowenthal, Ma, Miller,
Monning, Nava, Nestande, Niello, Nielsen, V. Manuel
Perez, Portantino, Ruskin, Salas, Saldana, Skinner,
Smyth, Solorio, Audra Strickland, Swanson, Torlakson,
Torres, Torrico, Tran, Villines, Yamada, John A. Perez
NOES: Anderson, Gaines, Garrick, Knight, Silva
NO VOTE RECORDED: Bass, Block, DeVore, Gilmore, Mendoza,
Norby
JA:nl 8/3/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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