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Financial Services Law Insights and Observations

DFPI addresses MTA licensure requirements in new letters

Licensing State Issues DFPI State Regulators California Money Transmission Act Virtual Currency Money Service / Money Transmitters Digital Assets

Recently, the California Department of Financial Protection and Innovation (DFPI) released two new opinion letters covering aspects of the California Money Transmission Act (MTA) related to bitcoin automated teller machines (ATMs) and kiosks and the Agent of Payee exemption.

  • Bitcoin ATM Kiosk. The redacted opinion letter explains that the sale and purchase of bitcoin through ATMs/kiosks described by the inquiring company is not activity that is subject to licensure under the MTA. DFPI states that the customer’s purchase of bitcoin directly from the company “does not involve the sale or issuance of a payment instrument, the sale or issuance of stored value, or receiving money for transmission.” In each instance, the transaction would only be between the customer using the ATM/kiosk and the company, the bitcoin would be sent directly to the customer’s virtual currency wallet, no third parties are involved in the transmission, and the company does not hold digital wallets on behalf of customers. DFPI reminds the company that its determination is limited to the presented facts and circumstances and that any change could lead to a different conclusion. Moreover, the letter does not relieve the company from any FinCEN or federal regulatory obligations.
  • Agent of Payee Exemption. The redacted opinion letter analyzes a proposed future service to be provided by the inquiring company and determines whether the service meets the agent of payee exemption from the MTA. The company and its global affiliates “provide a global, fully integrated suite of back-end service, including sales compliance management, fraud prevention, risk management, tax and regulatory fee calculation, billing optimization, and remittance services to manufacturers, merchants, and retailers” (collectively, “brands”) that want to sell or license products and services to shoppers. The company proposes a future service, which will allow brands to sell products directly to shoppers and transfer the products to the shoppers. The company will not take title to or purchase the products and will continue to provide its suite of back-end services including payment processing, tax and regulatory fees calculations, and refund processing. The company’s contracts with the brands appoint the company as the agent of the brands for facilitating product sales and receiving payments and funds from shoppers. Agreements will also be entered between the company and the shoppers with terms that state a shopper’s payment to the company is considered payment to the brand, which extinguishes the shopper’s payment liability. The company will accept funds for the sale of products on behalf of the brands, and at the conclusion of the sale, will settle the funds paid by the shoppers and remit sales taxes to the appropriate authorities. The company will be the entity responsible for paying and reporting taxes accrued by the sales to shoppers.

DFPI states that the company will “receive[] money for transmission,” thus triggering the license requirement in the MTA, by receiving funds from the shoppers in the sales transactions. However, the company qualifies for the Agent of Payee exemption because the company will be the recipient of money from the shoppers as an agent of the brands pursuant to a written contract, and payments from the shoppers to the company as the agent will satisfy the shoppers’ payment obligation to the brands. DFPI further notes that refunds facilitated by the company on behalf of the brands will be a reversal of the original transactions with the shoppers, and therefore will not require licensure. Finally, DFPI notes that by contract, the company will be legally responsible for paying local sales taxes on transactions. According to the agreement, because the company will pay taxes on its own behalf, and will not be paying taxes owed by the shoppers, its tax payments will not constitute money transmission. DFPI reminds the company that its determination is limited to the presented facts and circumstances and that any change could lead to a different conclusion.

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