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CFPB releases Remittance Rule assessment report
On October 26, the CFPB released an assessment report of its Remittance Rule, in accordance with the Dodd-Frank Act’s requirements that the Bureau conduct an assessment of each significant rule within five years of the rule’s effective date. The Bureau’s 2013 Remittance Rule (Rule), including its subsequent amendments, requires providers to (i) give consumers disclosures showing costs, fees and other information before they pay for a remittance transfer; (ii) provide cancellation and refund rights; and (iii) investigate disputes and remedy certain errors. The assessment was conducted using the Bureau’s own research and external sources. Key findings of the assessment include:
- Money services businesses (MSBs) conduct 95.6 percent of all remittance transfers and the volume of transfers from these businesses was increasing before the effective date of the Rule and continued to increase afterwards at the same or higher rate.
- The average price of remittances was declining before the Rule took effect and has continued to do so.
- Initial compliance costs for the Rule were between $86 million, based on analysis at the time of the rulemaking, and $92 million, based on estimates from a survey of industry conducted by the Bureau.
- Ongoing compliance costs are estimated between $19 million per year and $102 million per year.
- Consumers cancel between 0.3 percent and 4.5 percent of remittance transfers, according to available data sources, and there is evidence of some banks initiating a delay in the transfer to make it easier to provide a refund if a consumer cancels within the 30-minute cancellation window permitted under the Rule.
- Approximately 80 percent of banks and 75 percent of credit unions that offer remittance transfers are below the 100-transfer threshold in a given year and are therefore, not subject to the Rule’s requirements.
Colorado regulator exempts certain cryptocurrency exchanges from money transmitter licensing requirements
On September 20, the Colorado Department of Regulatory Agencies Division of Banking (Division) issued interim guidance exempting certain types of cryptocurrency exchanges from the state’s money transmitter licensing requirements. Under the interim guidance—which outlines the Division’s interpretation of Colorado’s existing Money Transmitters Act (the Act)— the Division determined that the Act regulates the transmission of money, meaning legal tender, and that cryptocurrencies are not legal tender under the Act. As a result, virtual currency exchanges operating in Colorado do not require a license if transmitting only cryptocurrencies without any legal tender issued and backed by a government (fiat currency) involved in the transaction. However, if fiat currency is present in a transaction, then a virtual currency exchange may require a license. Additionally, a virtual currency exchange must obtain a license when it performs all of the following: (i) it engages in the business of selling and buying cryptocurrencies for fiat currency; (ii) it allows a Colorado customer to transfer cryptocurrency to another customer within the exchange; and (iii) it allows the transfer of fiat currency through the medium of cryptocurrency within the exchange. If a virtual currency exchange offers the ability to transfer fiat currency through the medium of cryptocurrency, the Division encourages the exchange to contact the Division to determine whether it must obtain a license.
Seven state regulators agree to streamline money service licensing process for fintech companies
On February 6, the Conference of State Bank Supervisors (CSBS) announced that financial regulators from seven states have agreed to a multi-state compact that will offer a streamlined licensing process for money services businesses (MSB), including fintech firms. The seven states initially participating in the MSB licensing agreement are Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington. The CSBS expects other states to join the compact. According to the CSBS, “[i]f one state reviews key elements of state licensing for a money transmitter—IT, cybersecurity, business plan, background check, and compliance with the federal Bank Secrecy Act—then other participating states agree to accept the findings.” CSBS noted that the agreement is the first step in efforts undertaken by state regulators to create an integrated system for licensing and supervising fintech companies across all 50 states.
The announcement of the MSB licensing agreement follows a May 2017 CSBS policy statement, which established the 50-state goal, and—as previously covered by InfoBytes—is a part of previously announced “Vision 2020” initiatives designed to modernize and streamline the state regulatory system to be capable of supporting business innovation while still protecting the rights of consumers.
Money Transmitter Licensing Changes in New Hampshire and Washington for Virtual Currencies
On August 1, New Hampshire HB 436 went into effect, “exempting persons using virtual currency from registering as money transmitters” under the state’s money transmitter licensing laws. The new exemption applies to persons who “engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency” or “receive convertible virtual currency for transmission to another location.” However, the exemption provides that such persons are “subject to” certain state consumer protection laws.
Separately, Washington SB 5031 took effect on July 23, amending the state’s Uniform Money Services Act as it relates to money transmitters and currency exchanges. With respect to virtual currencies, the amendments, among other things: (i) define “virtual currency”; (ii) subject virtual currencies to the state’s money transmitter licensing laws (the definition of “money transmission” now includes virtual currency transmissions); (iii) require businesses that “store virtual currency on behalf of others” to provide the state with “a third-party security audit of all electronic information and data systems” when applying for a money transmitter license; (iv) require virtual currency licensees to “hold like-kind virtual currencies of the same volume . . . obligated to consumers”; and (v) require virtual currency licensees to provide certain disclosures “to any person seeking to use the licensee’s products or services,” including a schedule of fees and charges, and whether the product or services are insured.
Illinois Finalizes Digital Currency Regulatory Guidance
On June 13, the Illinois Department of Financial and Professional Regulation (IDFPR) issued final guidance on the regulatory treatment of digital currencies with an emphasis on decentralized digital currencies. (See IDFPR news release here). As previously covered in InfoBytes, the IDFPR requested comments on its proposed guidance in December of last year in order to devise the proper regulatory approach to digital currency in compliance with money transmission definitions in the Illinois Transmitters of Money Act, 205 Ill. Comp. Stat. 657/1, et seq. (TOMA).
The “Digital Currency Regulatory Guidance” clarifies that digital currencies are not money under TOMA, and therefore, those engaged in the transmission of digital currencies are not generally required to obtain a TOMA license. The IDFPR noted, however, that “should transmission of digital currencies involve money in a transaction, that transaction may be considered money transmission” and suggested persons engaging in such transactions request a determination regarding whether or not the activity will require a TOMA license.
To provide additional clarity, the guidance includes examples of common types of digital currency transactions that qualify as money transmissions, as well as examples of activities that do not qualify as money transmission.
New Hampshire Legislation Adds Money Transmitter Licensing Exemptions
On June 7, New Hampshire Governor Chris Sununu signed into law H.B. 436, which exempts persons using virtual currency from registering as money transmitters. The law states that “persons who engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency or who receive convertible virtual currency for transmission to another location” are now exempt but are subject to the provisions of the state’s statute regulating business practices for consumer protection. The law takes effect August 1.
PA Amends Money Transmission Business Licensing Law
Pennsylvania’s Secretary of Banking and Securities, Robin L. Wiessmann, issued guidance to businesses engaged in money transmission to inform them of significant changes that will be required for their businesses as a result of amendments to the Money Transmission Business Licensing Law. Governor Tom Wolf signed the changes into law on November 3, 2016 (Act 129 of 2016) and the new law became effective on January 2, 2017.
Florida Judge: "Bitcoin Has a Long Way to Go Before it is the Equivalent of Money"
On July 25, a Florida judge for the Eleventh Judicial Circuit dismissed criminal charges against an individual engaged in the business of selling bitcoin. Florida v. Espinoza, No. F14-2923 (Fl. Cir. Ct. July 26, 2016). The defendant conducted various bitcoin transactions with an undercover detective. The State of Florida had charged the individual with one count of unlawfully engaging in business as a money services business in violation of § 560.125(5)(a), Fla. Stat. and two counts of money laundering, in violation of § 896.101(5)(a) and (5)(b), Fla. Stat. The State later amended its filing to include charges of unlawfully operating as a “payment instrument seller” in violation of § 560.103(29), Fla. Stat. The judge dismissed the money-transmission-related charges, reasoning that (i) under the plain meaning of § 560.125(5)(a), a “money transmitter” would operate in a similar manner as a middleman in a financial transaction; and (ii) case law “requires that a fee must be charged to meet all the elements of being a money transmitter business.” The defendant, according to the judge, was not a middleman, but rather a seller. The judge further noted that the “difference in the price he purchased the Bitcoin for and what he sold it for is the difference between cost and expenses, the widely accepted definition of profit.” The judge also found that the defendant was not a “payment instrument seller” because bitcoin is not a payment instrument. The judge stated that “[b]itcoin has a long way to go before it is the equivalent of money,” and that “attempting to fit the sale of Bitcoin into a statutory scheme regulating money services businesses is like fitting a square peg in a round hole.” The judge further dismissed the counts of money laundering, ultimately concluding that “[w]ithout legislative action geared towards a much needed updated to the particular language within [the relevant statutes], this Court finds that there is insufficient evidence as a matter of law that this Defendant committed any of the crimes as charged, and is, therefore, compelled to grant Defendant’s Motion to Dismiss as to Counts II and III.”
North Carolina Passes House Bill 289, Enacts the Money Transmitters Act
On June 30, North Carolina Governor Pat McCrory signed into law House Bill 289, submitted at the request of the Office of the North Carolina Commissioner of Banks (Commissioner).The Act, which enacts the newly revised North Carolina Money Transmitters Act, subjects certain virtual currency activities to licensure, as well as clarifies that the Act applies to activities that are for personal, family, or household purposes. Applicants seeking licensure must do so via the Nationwide Multistate Licensing System (NMLS) and in accordance with requirements set forth by the Commissioner. Regarding licensure, the “Commissioner has the discretion to require the applicant obtain additional insurance coverage to address related cybersecurity risks inherent in the applicant’s business model as it relates to virtual currency transmission and to the extent such risks are not within the scope of the required surety bond.” The Act purports to be effective as of October 1, 2015.
South Carolina Passes AML Act to Regulate Money Transmitters
On June 2, the South Carolina Legislature unanimously passed House Bill 4554, the South Carolina Anti-Money Laundering Act. The Act is intended to “provide regulation and oversight of the money transmission services business most commonly used by organized criminal enterprise to launder the monetary proceeds of illegal activities, and to provide definitions, exclusions, procedures, and penalties.” Among other things, the Act outlines licensure requirements for persons engaging in the business of money transmission and/or currency exchange. Pursuant to the Act, the South Carolina AG (or Commissioner) “may conduct an annual examination of a licensee or of any of the licensee’s authorized delegates [(as defined by the Act)] on a forty-five day notice in a record to the licensee.” In addition, the Act delegates to the Commissioner the authority to suspend or review a license or order a licensee to revoke the designation of an authorized delegate. The Act will take effect either one year after it is signed by the Governor or upon publication in the State Register of final regulations implementing the Act, whichever occurs later.