InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Virginia enacts new prohibitions against certain electronic fund transfer fees
On April 17, the Virginia legislature enrolled HB 1519 into law, which amended provisions of the Virginia Code related to fees for electronic fund transfers. The legislation amended the Residential Landlord and Tenant Act to prohibit landlords from charging a tenant a processing fee for using an electronic fund transfer for the payment of either a security deposit, rent, or “any other amounts payable.” The legislation also amended the Virginia Consumer Protection Act to prohibit a supplier from charging a fee to a consumer for using an electronic fund transfer to purchase a good or service. However, this prohibition explicitly does not apply to ATM withdrawals or expedited service on an electronic fund transfer. The Act went into effect immediately upon enactment.
Iowa enacts new money transmission provisions
On April 10, Iowa’s governor signed into law HF 2262 (the “Act”) relating to money transmission services. The Act will exempt a person appointed as an agent of a payor for purposes of providing payroll processing services from licensure, provided that their agreement and services meet certain conditions. The Act will also allow the superintendent to suspend or revoke a licensee’s license, should they, among other things: (i) violate the Act; (ii) fail to cooperate with an examination or investigation conducted by the superintendent; (iii) engage in willful misconduct or blindness and, which leads to a conviction of an authorized delegate for violating a state or federal anti-money laundering statute, or violates the Act, a rule adopted under the Act, or an order issued under the Act; or (iv) engage in an unsafe or unsound practice. Further, the Act will detail different scenarios in which the superintendent may pursue an enforcement action. For instance, if the superintendent determined any violations were “likely to cause immediate and irreparable harm to the licensee, the licensee’s customers, or the public, or cause insolvency” the superintendent may issue a cease and desist order. Finally, the Act will provide guidelines for investigations, civil penalties, criminal penalties, and administrative proceedings. The Act became effective upon enactment and will apply retroactively to July 1, 2023.
Wisconsin updates licensing and regulation of financial services providers
On April 4, Wisconsin enacted SB 668 (the “Act”) which will amend many provisions to the Wisconsin Department of Financial Institution’s (DFI) regulation of non-banks. According to an analysis by the state’s Legislative Reference Bureau, the Act will change how multiple financial practices are regulated and rely on the Nationwide Multistate Licensing System and Registry (NMLS). The Act will allow Wisconsin to use NMLS to administer licensing needs concerning consumer lenders, payday lenders, collection agencies, sales finance companies, money transmitters, mortgage bankers and brokers, adjustment service companies, community currency exchanges, and insurance premium finance companies. The amendments were modeled after the Model Money Transmission Modernization Act approved by the CSBS.
The Act will require licensees to provide information directly to NMLS. For collection agencies, the Act will eliminate the requirement that a collector hold a separate license from the one held by his employer, update the definition of collection agency to add the exception for mortgage bankers, and require separate collection agency licenses for each place of business, among others – including repeals. As to consumer lenders, the Act will better define consumer loans, specify provisions governing licensed lenders, and specify which activities require licensure. With respect to sellers of checks and money transmitters, the Reference Bureau noted three provisions governing licensing and regulation of money transmitters will be replaced by the MTMA. This will include registering a license through the NMLS; granting the power to suspend, revoke, or refuse renewal of a license to the DFI; and allowing a licensed money transmitter to conduct business through an authorized delegate; among others. The Act also updated NMLSR requirements and DFI powers concerning payday lenders, sales finance companies, adjustment service companies, community currency exchanges, and insurance premium finance companies.
South Dakota enacts new money transmission law, aligning the law to the Money Transmission Modernization Act
Recently, the Governor of South Dakota, Kristi Noem, signed into law SB 58, which amended and repealed many parts of the state’s money transmission law enacted in 2023 to bring the law more into alignment with a model Money Transmitter Model Law. South Dakota was one of several states that have enacted the model law since 2022 (covered by InfoBytes here, here, here, and here), to harmonize the licensing and regulation of money transmitters between states.
Among many other new provisions, the Act defined “money” to mean a “medium of exchange that is authorized or adopted by the United States or a foreign government” but excluded any central bank digital currency. Additionally, the Act provided for several exemptions, such as the “agent of a payee” exemption, which exempted an agent who collects and processes payment from a payor to a payee for goods and services other than money transmission itself from the Act’s coverage, under certain specified circumstances.
The Act also imposed a licensing regime on persons engaged in the business of money transmission and authorizes and encourages the South Dakota Director of the Division of Banking (Director) to coordinate the licensing provisions with other states and utilize the Nationwide Multistate Licensing System for the license applications, maintenance, and renewals. SB 58 amended the required surety bond amount from $100,000 to $500,000, to the greater of $100,000 or an amount equal to the licensee’s average daily money transmission liability in South Dakota for the most recent three-month period, up to a maximum of $500,000, or if the licensee’s tangible net worth exceeds 10% of total assets, $100,000.
Once a license application is completed, the Director will have 120 days to approve or deny the application. In addition to the license application process, the Act also outlined the criteria for renewing, maintaining, and changing control of the license, as well as the licensee’s responsibility to keep records and maintain permissible investments. Notably, if a licensee is transmitting virtual currencies, then the licensee must “hold like-kind virtual currencies of the same volume as that held by the licensee but that is obligated to consumers” instead of the permissible investments otherwise listed under the Act. The Act will go into effect on July 1.
Maryland finalizes money transmitter regulation; adds agent of the payee exemption
On November 17, the Maryland Commissioner of Financial Regulation recently adopted edits to proposed regulations, Code Md. Code Regs. 09.03.14.01, .03-.18, bringing Maryland generally in alignment with the CSBS Money Transmitter Model Law which has been recently adopted by several other states (covered by InfoBytes here, here, and here). Some provisions in the new regulation conform with the model law, while a few stand out as unique additions in Maryland.
For example, among the newly adopted regulations, amended Regulation .03 provides an exemption for persons appointed as an agent of the payee if (i) there is a written agreement between the payee and agent for payment processing, aligning with Maryland law; (ii) there is public recognition of the agent collecting payments on behalf of the payee; (iii) upon the agent’s receipt of payment, the payor’s obligation ends without risk; (iv) the agent is not serving in an escrow capacity; (v) the agent is not acting as an agent to more than one party; and (vi) the agent mandates prompt, unconditional payment without tying it to future events or performances. This agent of the payee exemption deviates from the model law’s version of the same exemption.
Additionally, amended Regulation .08 establishes corporate governance standards that require money transmitter licensees to maintain a framework that is commensurate with the size, operational complexity, and overall risk profile of the licensee. This standard also sets expectations around internal audit, external audit, and risk management functions of a license. While this concept is not provided for in the model money transmission law, it aligns with the CSBS model state regulatory prudential standards for nonbank mortgage servicers (covered by InfoBytes here).
The final regulation will be effective December 11, 2023.
Fed governor speaks on responsible innovation in money and payments
On October 17, Federal Reserve Board Governor Michelle Bowman provided remarks on innovation in money and payments, including crypto assets, central bank digital currency (CBDC), and the development of instant payments, in which she laid out her vision for “responsible innovation,” which recognizes the important role of private-sector innovation and leverages the U.S. banking system supported by clear prudential supervision and regulation. With respect to CBDC, Bowman said that she has yet to see a compelling argument that CBDC could address frictions within the payment system, promote financial inclusion, or provide the public with access to safe central bank money any more effectively or efficiently than alternatives. She explained that, given that the U.S. has a safe and well-functioning banking system, the potential uses of a U.S. CBDC remain unclear and, at the same time, could introduce significant risks and tradeoffs. Bowman also expressed skepticism over stablecoins, stating that in practice they have been less secure, less stable, and less regulated than traditional forms of money. Finally, Bowman discussed technological innovations in wholesale payments, which are large-value, interbank transactions. Bowman said that the Fed is researching emerging technologies that could enable or be supported by future Fed-operated payment infrastructures, including depository institutions transacting with “tokenized” forms of digital central bank money. Bowman noted that banks and other eligible institutions already hold central bank money as digital balances at the Fed. She also stressed that wholesale payment infrastructures operated by the Fed “underpin domestic and international financial activities” by serving as a “foundation” for payments and the broader financial system. Because these wholesale systems function “safely and efficiently” today, it is necessary to investigate and understand the potential opportunities, risks, and tradeoffs for wholesale payment innovation to support a safe and efficient U.S. payment system.
Find continuing InfoBytes coverage on CBDCs here.
Hawaii amends money transmitter provisions
On July 3, the Hawaii governor signed HB 1027 (the “Act”) into law, amending several provisions relating to the Money Transmitters Modernization Act. The Act adds and amends several definitions. Changes include defining “money,” “receiving money or monetary value for transmission,” and “tangible net worth.” The definition of “money transmission” has also been amended to clarify its connection to business done in Hawaii, and “stored value” has been amended to mean monetary value “that represents a claim against the issuer evidenced by an electronic or digital record and that is intended and accepted for use as a means of redemption for money or monetary value, or payment for goods or services.” Stored value does not include “a payment instrument or closed loop stored value, or stored value not sold to the public but issued and distributed as part of a loyalty, rewards, or promotional program.”
Among the various exemptions, the Act also provides for an exemption for an agent of the payee to collect and process a payment from a payor to the payee for goods or services, other than money transmission services, provided certain criteria is met. Additional exemptions include certain persons acting as intermediaries, persons expressly appointed as third-party service providers to an exempt entity, and registered futures commission merchants and securities broker-dealers, among others. Anyone claiming to be exempt from licensing may be required to provide information and documentation demonstrating their qualification for the claimed exemption.
The amendments outline numerous licensing application and renewal procedures, including largely adopting the net worth, surety bond, and permissible investment requirements set forth in the Money Transmission Modernization Act. Several other states have also recently enacted provisions relating to the licensing and regulation of money transmitters (see InfoBytes coverage here and here).
The Act took effect July 1.
Maryland says crypto enforcement could affect money transmitter licensure
On June 22, the Maryland Commissioner of Financial Regulation issued an advisory on recent enforcement actions by Maryland and federal securities enforcement agencies against cryptocurrency-related businesses that could potentially impact businesses pursuing money transmitter licensure. The actions allege certain businesses offered products constituting securities while they were only licensed as money transmitters by the Commissioner of Financial Regulation. The state takes “character and fitness” into consideration for licensure and although the Commissioner does not enforce securities laws, he or she must consider violations of law, including violations of Maryland securities law, when determining whether to grant licenses. The advisory reads, “compliance with law, particularly Maryland law, regardless of whether or not the law falls within the Commissioner’s purview, must be considered when determining whether a licensee warrants the belief that business will be conducted lawfully, and thus whether the licensee is, or remains, qualified for licensure.” Moreover, violations of securities laws could form the grounds for action by the Commissioner against a licensee, “including but not limited to, an action seeking to revoke a license.”
Texas has new licensing requirements for digital-asset platforms
In June, the Texas governor signed HB 1666 (the “Act”) to add practice restrictions to digital asset service providers, defined as electronic platforms that facilitate the trading of digital assets on behalf of a digital asset customer and maintain custody of the customer’s digital assets. The Act applies to a digital asset service provider conducting business in Texas that holds a money transmission license and either services more than 500 digital asset customer in the state or has at least $10 million in customer funds. Digital asset service providers are required to comply with certain provisions in order to obtain and maintain a money transmission license including provisions relating to the commingling of funds, customer access to funds, accounting requirements, annual reporting requirements. The Texas Department of Banking has the authority to suspend and revoke a license if these requirements are not met and may impose a penalty for violations of the Act. The commissioner also has examination authority and may promulgate rules to administer and enforce the Act’s provisions. The Act is effective September 1. Certain financial institutions and entities not required to hold a money transmission license are exempt.
Texas enacts Money Services Modernization Act
On May 29, the Texas governor signed SB 895 (the “Act”) to enact the Money Services Modernization Act, the money transmitter model law created by industry and state experts. The goal of the Act is to create a set of consistent and coordinated standards relating to the regulation of money service businesses. Among other things, the Act outlines networked supervision criteria to allow the commissioner to participate in multistate supervisory processes coordinated through the Conference of State Bank Supervisors, the Money Transmitter Regulators Association, and other related affiliates and successors for all money services licenses that hold licenses in Texas and other states. To efficiently minimize regulatory burden, the commissioner may, among other things, coordinate and share information with other state and federal regulators, enter into information-sharing contracts or agreements, conduct joint examinations or investigations, and accept examination or investigation reports made by other states. Texas now joins several other states in adopting common licensing and regulatory standards to add efficiencies to the multi-state process (continuing InfoBytes coverage here).
Additionally, the commissioner has enforcement, examination, and supervision authority, may adopt implementing regulations, and may recover costs and fees associated with applications, examinations, investigations, and other related actions. The Act also includes additional consumer protection provisions. The Act includes in the definition of “money” or “monetary value” a stablecoin that “(i) is pegged to a sovereign currency; (ii) is fully backed by assets held in reserve; and (iii) grants a holder of the stablecoin the right to redeem the stablecoin for sovereign currency from the issuer.” Among the various exemptions, the Act provides for an exemption for an agent of the payee to collect and process a payment from a payor to the payee for goods or services, other than money transmission services. The amendments also outline numerous licensing application and renewal procedures including net worth, surety bond, and permissible investment requirements. The Act is effective September 1.