Transactions in which recipients are paid before company is reimbursed are not subject to licensing under MTA

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IN REPLY REFER TO: _________

FILE NO: _________

February 11, 2021

SENT VIA EMAIL

 

Dear Ms. ______:

 

Your September 17, 2020 letter to Deputy Commissioner Robert Venchiarutti regarding ________ dba _________ (_____) _____ transactions was referred to me for response. By email dated October 19, 2020, ______________, _____’s Chief Compliance Officer, sent me additional information and documents. _____ is licensed by the Department of Financial Protection and Innovation (Department) under the Money Transmission Act (MTA).[1] You request an interpretive opinion from the Commissioner as to whether _____­_ transactions are subject to the MTA.

FACTS

_____ offers _______ transactions to enable customers to send money from the U.S. to Africa. During _____’s last regulatory examination, the Department determined that _____’s ______ transactions, which constitute a large percentage of _____’s business, were actually paid out to beneficiaries before _____ received any money from the sender. _____ then inquired through its request for an interpretive opinion whether the _____ transactions are subject to the MTA and regulation and supervision by the Department. _____ has other business that requires a MTA license, so _____ would need to keep its MTA license regardless of the Department’s determination as to whether ______ transactions are also subject to the MTA.

In _____ transactions, _____ obtains a payment authorization on the customer’s debit card for the transaction. The debit card authorization puts a hold on the cardholder’s funds for the

purchase and guarantees that _____ will be paid. Once the _____ customer hits the button authorizing _____ to process the transaction, _____ instantly moves the specified amount of funds from _____’s master disbursal account in Africa into the designated recipient’s mobile wallet or bank account. These funds can be used immediately by the recipient.

_____’s process to reimburse itself for the money paid to designated recipients is a two-step process. The hold _____ places on a sender’s debit card does not initiate the transfer of funds to _____. To be reimbursed, _____ must take a second step, which is the actual direction to process payment, converting the hold status to payment/post status. The second step occurs only after _____ has sent the funds to the recipient.

Money collected from _____ customers moves from _____’s collection account in the U.S. to _____’s master disbursal account in Africa. U.S. dollars are converted into the local currency, available to be paid out to mobile wallets and bank accounts of future designated recipients. _____ continually moves funds through this process to maintain funds available to instantly pay recipients.

LAW

The MTA prohibits a person from engaging in the business of money transmission unless the person is licensed or exempt from licensure or is an agent of a person licensed or exempt from licensure.[2]

The Legislature specified reasons for enactment of the MTA, including:

The failure of money transmission businesses to fulfill their obligations would cause loss to consumers, disrupt the payments mechanism in this state, undermine public confidence in financial institutions doing business in this state, and adversely affect the health, safety, and general welfare of persons in this state.[3]

“Money transmission” is defined to include receiving money for transmission.[4] “Receiving money for transmission” is defined to mean receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means.[5]

To “receive money for transmission,” a person must actually or constructively receive, take possession, or hold money or monetary value for transmission; merely receiving instructions, orders, or directions to transmit money or monetary value does not constitute receiving money for transmission.[6]

ANALYSIS

_____ transactions do not constitute money transmission because _____’s first action after receiving instructions from its customers is to instruct _____’s bank to immediately disburse the requested amount to the recipient. _____ places a hold on sender’s debit card; however, this hold does not initiate the transfer of funds to _____. Only after _____ has paid the beneficiary is the hold status converted to a payment/post status, and the reimbursement to _____ finalized. Under this payment reimbursement model, _____ never “receives money for transmission.”  _____ does not actually or constructively receive, take possession of, or hold money or monetary value for transmission. Since funds are not transferred to reimburse _____ until after the designated beneficiary has been paid, _____ incurs no transmission liability and consumer funds are not at risk.

CONCLUSION

For the reasons stated herein, _____ transactions are not subject to the MTA. This opinion is based solely on the facts presented in your correspondence. Any changes in the facts or circumstances, as we understand them, could lead to a different conclusion.

 

Sincerely,

 

Manuel P. Alvarez

Commissioner

Department of Financial Protection and Innovation

 

By

Senior Counsel

 

cc: Robert Venchiarutti, Department of Financial Protection and Innovation, San Francisco

Oscar Lumen, Department of Financial Protection and Innovation, San Francisco


[1] Fin. Code, § 2000, et seq.

[2] Fin. Code, § 2030

[3] Fin. Code, § 2001, subd. (c)

[4] Fin. Code, § 2003, subd. (q)(3)

[5] Fin. Code, § 2003, subd. (u)

[6] Cal. Code Regs., tit. 10, § 80.129

Last updated: Feb 26, 2021 @ 12:14 pm