Opinion Letter – Agent of payee – subsidiaries

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September 11, 2018

Re:       Opinion Request – _______________________

Dear ____________________:

Thank you for your letter dated June 13, 2018, to Robert Venchiarutti, Deputy

Commissioner, Money Transmitter Division, Department of Business Oversight (“Department”). You have requested a determination that the transaction activity conducted by ____________________ (“____________________”) for its contracted payee

____________________ (“____________________”), a wholly-owned subsidiary of ____________________, meets the requirements of the agent of payee exemption[1] in the Money Transmission Act (“MTA”).


On or about August 21, 2015, ____________________ (now known as ____________________) requested application of the agent of payee exemption for its transaction activity for ____________________. On December 15, 2015, the Department denied the request for the reasons stated in the letter from Wallace Wong to ____________________.

____________________ is now requesting the Department to reconsider its determination of the applicability of the agent of payee exemption to the aforementioned transaction activity on the basis of new facts related to (1) ____________________’s status as a “payee” and (2) which customers are the “payors.” Specifically, in its present request, ____________________ clarifies unequivocally that “____________________ provides the ____________________ brand utility services to the payor and is therefore owed payment for such goods and services.”

____________________ has supported its claim with ____________________’s Form 10-K filed with the Securities and Exchange Commission, which represents that ____________________ is a holding company with operations conducted by its subsidiaries. ____________________ has also now clarified that the payors are ____________________’s customers (not ____________________’s customers) that receive the utility services that ____________________ provides.


Financial Code section 2003, subdivision (q), defines “money transmission” to include receiving money for transmission. Section 2003, subdivision (u), defines “receiving money for transmission” to mean receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means.

Financial Code section 2030 prohibits a person from engaging in the business of money transmission in this state unless the person is licensed or exempt from licensure or is an agent of a person licensed or exempt from licensure.

Financial Code section 2010, subdivision (l), exempts from the MTA transactions in which the recipient of the money is an agent of the payee pursuant to a preexisting written contract, and delivery of the money to the agent satisfies the payor’s obligation to the payee. For purposes of Section 2010, subdivision (l), “agent” has the same meaning as that term is defined in Civil Code section 2295.[2] Agent is defined as one who represents another, called the principal, in dealings with third persons.3 “Payee” means the provider of goods or services, who is owed payment of money from the payor for the goods or services.[3] “Payor” means the recipient of the goods or services, who owes payment of money to the payee for the goods or services.[4]

____________________ asserts that ____________________ is a payee because ____________________’s operations are conducted by its subsidiaries, and ____________________ is a subsidiary. While this operational structure may have always existed (i.e., that ____________________ is only a holding company that does not itself conduct any operations, and ____________________ branded operations are conducted through its subsidiaries), it was not clear until ____________________’s current request that ____________________ is the specific subsidiary that provides the ____________________ branded utility services to payors. This fact is crucial. That is, no other ____________________ subsidiaries would qualify as a “payee” for purposes of the agent of payee exemption unless the subsidiary provided the specific service for which it was owed payment. There must be a direct correlation between the specific service provided and the payment owed. For example, suppose ____________________ had two subsidiaries: Subsidiary A and Subsidiary B. Subsidiary A provides A Services, and

Subsidiary B provides B services. For purposes of the agent of payee exemption, Subsidiary A could not be a payee for B services because Subsidiary A did not provide B services.

Being a subsidiary in and of itself, which conducts operations on behalf of a parent, does not make a subsidiary a payee for all the services of all other subsidiaries.

In its current request, however, ____________________ has now established that

____________________ is the payee for ____________________ branded utility services because ____________________ has expressly represented that ____________________ is the entity that provides the ____________________ branded utility services. ____________________ seeks to be an agent of ____________________ to accept payments for these utility services.

____________________’ current request also clarifies that the payors are the customers who receive the utility services that ____________________ provides. Previously, it was the Department’s understanding that ____________________ was the entity that provided utility services to its customers, and therefore, the payors were _________________________’s customers who received the utility services from and owed payment to _________________________. Consequently, there was an apparent disconnect between the payors (i.e., customers), who owed payment to the payee (i.e., ___________________), and ____________________ who was receiving payments on behalf of ________________________, which we understood at the time to not be the payee.

In the current request, ____________________ has established that it receives, as an agent of the payee (___________________), payment from the appropriate payor (the customer of ____________________).

____________________ has also provided a copy of the Master Services Agreement between

____________________ and ____________________ (now ____________________), which specifies that (1) ____________________ designates ____________________ as its agent, and (2) receipt of funds from a customer by ____________________ is the same as receipt by ____________________ itself, such that customers are given credit by ____________________ for having paid regardless of whether ____________________ ever remits the money to ____________________.


The Department finds that the transaction activity conducted by ____________________ for

____________________ falls within the MTA’s definition of “money transmission;” however, the

MTA does not apply to those transactions conducted on behalf of ____________________ because ____________________ is acting as an agent of payee pursuant to Financial Code section 2010, subdivision (l). The Department’s determination is limited to ____________________’s transactions conducted on behalf of ______________________. It does not extend to ____________________’s other activities.

This opinion is based solely on the facts as represented in your correspondence, and the Department’s understanding of those representations. The Department may reach a different conclusion under other facts and circumstances. If you have any questions, please feel free to contact me at ____________________.


Jan Lynn Owen


Department of Business Oversight


Jennifer L.W. Rumberger

Senior Counsel


cc:        Robert Venchiarutti, Department of Business Oversight, San Francisco


[1] Fin. Code, § 2010, subd. (l).

[2] Fin. Code, § 2010, subd. (l)(1). 3 Civ. Code, § 2295.

[3] Fin. Code, § 2010, subd. (l)(2).

[4] Fin. Code, § 2010, subd. (l)(3).


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