Money transmitter application in mobile phone application; loan payments via check image and ACH transfer

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February 24, 2015

Re:       Request for an Opinion under the Money Transmission Act

Dear __________:

 

This responds to your letters, dated, respectively, November 25, 2014 and January 13,

2015, in which you seek an opinion under the Money Transmission Act (commencing with Financial Code section 2000)(MTA) on behalf of __________.  __________ or an affiliate proposes to engage in business as a licensee under the California Finance Lenders Law (commencing with Financial Code section 22000)(CFLL).  

It is the Department’s understanding based on your letters, including the screenshot provided through your January 13, 2015 letter, and our telephone conversation on  January 21, 2015 that __________ proposes to conduct its CFLL business on mobile phones through its mobile phone application.  The mobile phone application will include an application program interface (API) provided by __________, now known as __________, a current licensee under the MTA.  __________ borrowers will be required to provide their name and bank account or debit card information through the API.  The information will allow __________ to use __________ to transmit to __________ borrowers the proceeds of loans made by __________to the borrowers.  __________ will be __________ money transmission customer in all of the transactions involving the use of the API in __________ mobile phone application.  __________ will pay __________ money transmission fees and will not share in any money transmission fees received by __________.  __________ mobile phone application, any website it may establish and any other communications it may distribute to the public or its borrowers will not advertise or hold out __________ as a provider of money transmission, or solicit money transmission business for __________.

__________ borrowers will be allowed to make payments on their loans by scanning or photographing their checks, electronically transmitting the images of the checks to __________ and authorizing __________ to use the information from the checks to make onetime electronic fund transfers from the respective borrowers’ bank accounts to __________ bank account in the amount of the checks.  It is the Department’s understanding that the loan payments are for amounts owed exclusively to __________ and do not include fees or other amounts that are owed to persons and entities other than __________.  You are not able at this time to provide a form of the authorization that must be provided by __________   borrowers in order for them to make payments by electronically transmitting images of their checks. 

__________ borrowers can also make payments on their loans by authorizing __________ to make electronic transfers through __________ debits from the respective borrowers’ bank accounts.  __________ will use a borrower’s authorization to have the borrower’s bank transfer amounts from the borrower’s account to __________ bank account.  No third-party __________ processors will be used by __________ to affect the transfers of borrowers’ funds to __________.  The borrowers may cancel their authorizations in accordance with the Electronic Funds Transfer Act.  It is the Department’s understanding that the loan payments are for amounts owed exclusively to __________ and do not include fees or other amounts that are owed to persons and entities other than __________.  You are not able at this time to provide a form of the authorization that must be provided by __________ borrowers in order for them to make payments by __________ transfer. 

You have asked whether __________ must be licensed under the MTA in order to: (i) include the API in its mobile phone application; (ii) allow its borrowers to make loan payments by electronically transmitting an image of their payment check to __________ as described in your letters; and (iii) allow its borrowers to make loan payments by authorizing __________ to debit the respective borrowers’ bank accounts by __________ fund transfers as described in your letters.    

Financial Code section 2030(a) provides that:

A person shall not engage in the business of money transmission in this state, or advertise, solicit, or hold itself out as providing money transmission in this state, unless the person is licensed or exempt from licensure under this division or is an agent of a person licensed or exempt from licensure under this division.

Financial Code section 2003(q) defines “money transmission” to mean any of the following:

(1)  Selling or issuing payment instruments.

(2)  Selling or issuing stored value.

(3)  Receiving money for transmission.

Based on the representations in your letters and the Department’s understanding as described herein, it is the Department’s opinion that __________ is not required to be licensed under the MTA in order for __________ to: (i) include the API in its mobile phone application for the purposes and under the conditions described in your letters, including, without limitation, the conditions that __________ is the money transmission customer of __________ for each transaction involving the API, and __________ mobile phone application, any website it may establish and any other communications to the public or to its borrowers do not advertise or hold out __________ as a provider of money transmission, or solicit money February 24, 2015

transmission business for __________; (ii) allow its borrowers to pay amounts owed exclusively to __________ by scanning or photographing checks made out to __________ in the amounts owed to __________, electronically transmitting the images of the checks to __________, authorizing __________ to send the information from the checks to the respective borrowers’ banks, and __________ sending the information to the borrowers’ banks, which then execute one-time electronic fund transfers from the borrowers’ bank accounts to __________ bank account for the amounts of the checks; and (iii) allow its borrowers to pay amounts owed exclusively to __________ by providing __________ with authorizations for __________ transfers of funds from the respective borrowers’ bank accounts in payment of amounts owed exclusively to __________ by the borrowers, and __________ providing the authorizations directly, not through a third-party __________ payment processor, to the borrowers’ banks, which then execute fund transfers from the borrowers’ bank accounts to __________ bank account.

This opinion is based on the representations made to the Department in your letters and in the screenshot provided through your January 13, 2015 letter, and the Department’s understanding set forth in this letter.  Any different or additional facts or conditions, including any terms or conditions in the authorizations that __________ borrowers must provide in order to make payments by check or by __________ transfer, might require the Department to reach a different conclusion. 

This opinion is not an opinion that: (i) __________ activities described herein are in compliance with the MTA; (ii) the proposed activities of either __________ or __________ are in compliance with the CFLL, the Bank Secrecy Act or the applicable regulations of the Financial Crimes Enforcement Network; or (iii) that __________ or any affiliate will be licensed under the CFLL. 

Please contact the undersigned at 213.897.2172 if you have any questions.

 

Sincerely, 

 

JAN LYNN OWEN

Commissioner of Business Oversight

 

                            By

                                        WALLACE M. WONG 

                                        Senior Counsel 

WMW:jg

cc:        Kathleen Partin, Department of Business Oversight, Los Angeles   Robert Venchiarutti, Department of Business Oversight, San Francisco