August 13, 1999

Dear M __________:

This is in response to your letter of June 23, 1999.

Your letter poses the following question:

“Assuming that a money transmission service receives a more favorable rate of exchange than that which it offers its consumers, would the difference between the rates be considered a ‘fee or commission’ within the meaning of §§ 1800 et seq., of the California Financial Code?”

For convenience, a money transmission service is referred to in this letter as a “licensee.”

As discussed below, it is our view that exchange rate differentials that are favorable to licensees do not ordinarily constitute fees within the meaning of Chapter 14 (commencing with Section 1800) of the Financial Code (the “Transmitters Law”). However, there may be some potential for characterizing as a fee a rate differential of the magnitude postulated in your letter.

Financial Code Section 1815 is the only section of the Transmitters Law that expressly deals with currency exchange rates. That section requires a licensee to disclose to its customers certain terms of a transmission transaction, including fees charged by the licensee and, if the money tendered by the customer for transmission is to be delivered in a currency other than United States dollars, the amount of foreign currency to be delivered to the customer’s beneficiary. Accordingly, at the time of the transaction, the licensee must fix, and under 1815 it must disclose, the exchange rate applicable to the transaction. Specifically, Subdivision (a) of Section 1815 states that the receipt a license is required to present to a customer evidencing a transmission transaction shall clearly state “. . . the rate of exchange for the particular transaction, the amount of commission or fees, and the net exchange after all fees and commissions have been deducted.” In other words, the receipt must state the amount of all fees and commissions, and must separately state the exchange rate and amount to be transmitted expressed in units of the foreign currency to be delivered. In addition, Subdivision (b) provides, among other things, that any interior signs and all advertising, if rates are quoted, shall state both the “. . . rates of exchange for exchanging the currency of the United States for foreign currency and shall state all commissions and fees charged on all transactions.”

These provisions of the statute clearly distinguish rates of exchange, on the one hand, from fees and charges, on the other. Accordingly, we do not ordinarily consider a gain to a licensee on an exchange transaction to constitute a fee or charge.

Nevertheless, there may be some potential for viewing as a fee a disparity in exchange rates of the magnitude postulated in your hypothetical. In your hypothetical, the licensee agrees to give its customer 7 pesos to the dollar but receives 9.5 pesos to the dollar when it converts the customer’s money. In that case, the licensee would realize, solely as a result of exchange differentials, a gain equal to approximately 36% of the amount of money it transmitted. Regularly giving customers rates that much below the rates which the licensee could reasonably anticipate receiving for itself would seem to evidence an intention to realize substantial profits on the exchange aspect of transmission transactions. Under those circumstances, it might be contended that the rate differential was a de facto fee that should be estimated in advance and disclosed, at least within a reasonably foreseeable range. However, we are not in a position to express an opinion on whether such a contention would prevail in the courts.

Thank you for giving us the opportunity to express our views on your question, and if you have any other further questions or comments, please feel free to contact Acting Commissioner Owen at (916) 322-0282 or the undersigned at (415) 263-8512.

Very truly yours,

Acting Commissioner of Financial Institutions


Senior Counsel


cc: J. L. Owen

bcc: D. L. Scott
&nbsp&nbspJ. E. Brodie
&nbsp &nbsp&nbspJ. B. Rutherford
&nbsp &nbsp&nbspJ. F. Carrig
&nbsp &nbsp&nbspW. G. Thompson
&nbsp &nbsp&nbspS. Sakamoto

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