Payment processing service not exempt as agent of payee

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IN REPLY REFER TO: _________

FILE NO: _________

August 5, 2020

VIA EMAIL

 

Re: Request for Interpretive Opinion – ____________.

 

Dear Mr. ­­­________:
 
Thank you for your letter dated February 25, 2020, as supplemented by your correspondence on May 12, 2020, June 18, 2020, and July 1, 2020.  You request an interpretive opinion from the Department of Business Oversight (“Department”) as to whether ____________ (“_________”) is required to obtain a license under the Money Transmission Act[1] (“MTA”).

Background

_________ provides payment processing services to online gaming operators (“Merchants”) in the United States, allowing their customers (“Customers”) to submit payments to engage in online gaming and gambling activity, including sports betting and daily fantasy sports betting.

Each pay-in transaction is initiated by the Customer on the Merchant’s website.  The Merchant collects the Customer’s name and address and sends this information, along with the transaction data (payment amount in U.S. dollars), to _________.  Customers enter their banking credentials into _________’s inline frame on the Merchant’s transaction webpage.  Once this information is captured and the Customer authorizes payment, _________ uses the information to process the payment by pulling funds from the Customer’s bank account via ACH or the bill pay function.  The funds are sent from the Customer’s bank account to a bank account held by _________ for the benefit of the Merchant.  _________ then transmits these funds directly from its bank account to the Merchant’s corporate bank account on a periodic basis.

In providing these services, _________, as the Merchant’s agent, receives money from the Customer’s bank account pursuant to a preexisting written contract between _________ and the Merchant (“Merchant Agreement”).  The Merchant Agreement appoints _________ as the Merchant’s agent for collecting payment from Customers and provides that delivery of the money to _________ satisfies the Customer’s payment obligation to Merchant.  The Merchant Agreement states:

PARTIES ACKNOWLEDGE AND AGREE THAT FOR THE TERM OF THIS AGREEMENT __________ SHALL BE AUTHORIZED TO ACT AS AN AGENT OF MERCHANT FOR THE PURPOSE OF COLLECTING FUNDS FROM MERCHANT’S CUSTOMERS FOR GOODS AND/OR SERVICES PROVIDED BY MERCHANT TO CUSTOMERS.  THE PARTIES FURTHER AGREE THAT THE DELIVERY OF FUNDS FROM CUSTOMERS TO __________ FULLY SATISFIES THE CONSUMERS’ OBLIGATION TO MERCHANT WITH RESPECT TO GOODS AND/OR SERVICES PROVIDED BY MERCHANT TO CONSUMERS.

_________ also processes pay-outs of winnings in the reverse direction from the Merchant to the Customer.  To fund the pay-out, _________ uses pay-in deposits held in the Merchant account at _________’s bank.  If pay-out volumes are higher than pay-in volumes, the Merchant must wire funds from the Merchant’s corporate bank account to _________’s bank account before _________ can make ACH transfers of the pay-out from _________’s bank account to the Customer’s bank account.

The ACH Authorization and Agreement between _________ and the Customer (“Customer Agreement”) authorizes _________ to initiate electronic transfers via ACH from the Customer’s bank but does not appoint _________ as Customer’s agent for the purpose of collecting funds owed by the Merchant or state that delivery of pay-out funds from the Merchant to _________ satisfies the Merchant’s payment obligation to the Customer.

Money Transmission Act

The MTA prohibits a person from engaging in the business of money transmission in California, unless the person is licensed or exempt from licensure or an agent of a person licensed or exempt from licensure.[2]  “Money transmission” includes receiving money for transmission.[3]  “Receiving money for transmission” means receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means.[4]

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 the goods or services provided.  An “agent” is one who represent another, called the principal, in dealings with third persons.[5]  A “payee” is the provider of goods or services, who is owed payment of money from the payor for the goods or services.[6]  A “payor” is the recipient of goods or services, who owes payment of money to the payee for the goods or services.[7]

Analysis

For the pay-in, _________’s services constitute “receiving money for transmission” because _________ receives money from the Customers for transfer to the Merchants.  The agent-of-payee exemption does not apply to these services because the money received by _________ is not owed by the Customer to the Merchant; the Customer does not have any obligation to prefund the Merchant’s account to participate in online gaming activity.

For the pay-out, _________’s services constitute “receiving money for transmission” because _________ receives money from the Merchants for transfer to the Customers.  The agent-of-payee exemption does not apply for the pay-out transaction because the Customer does not provide any goods or services to the Merchant for which payment is owed.

Conclusion

Neither the pay-in services nor the pay-out services are exempt from the MTA.

Please note some of the proposed payments described in your request may involve illegal activities in California, such as sports betting.[8]  This opinion applies only to activities that are currently legal in California and does not relieve _________a from its obligation to comply with other applicable state and federal laws. By issuing this opinion, the Department is not taking a position on the legality of Merchants’ activities.  Also, the Department cannot issue an MTA license to _________ to engage in the transmission of money to facilitate unlawful activity.

This opinion is limited to the facts and circumstances described above.  Should any of the facts or circumstances change, the Department’s opinion may also change.

 

Sincerely,

 

Manuel P. Alvarez

Commissioner

Department of Business Oversight

 

By

________/s/___________

Senior Counsel

 

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


[1] Fin. Code, § 2000 et seq.  All references in this letter to “Section” are to the Financial Code.

[2] Fin. Code, § 2030, subd. (a).

[3] Fin. Code, § 2030, subd. (q)(3).

[4] Fin. Code, § 2003, subd. (u).

[5] Fin. Code, § 2010, subd. (l)(1); Civ. Code, § 2295.

[6] Fin. Code, § 2010, subd. (l)(2).

[7] Fin. Code, § 2010, subd. (l)(3).

[8] See Sen. Const. Amend. No. 6 (2019-2020 Reg. Sess.)

Last updated: Aug 6, 2020 @ 3:11 pm