California Department of Financial Institutions Money Transmitter Division

Transcription

1 California Department of Financial Institutions Money Transmitter Division Developments and Issues in MSB Supervision 2011 CSBS Legal Seminar Raleigh, North Carolina August 23 26, 2011

2 StateRegulatory Update CSBS, MTRA, California Legal Issues what is a money transmitter in the age of technological innovation back to basics Follow the money Who is liable to the sender/buyer/consumer Examiners need legal help 8/25/2011 CSBS Legal Seminar, Raleigh, NC 2

3 CSBS More active in non depository industries (mortgage arena and NMLS) MSB Protocol coordinated and joint exams MSB Cooperative and Information Sharing Agreement Committees MSB Examination Processes Working Group Comment Letters 8/25/2011 CSBS Legal Seminar, Raleigh, NC 3

4 MTRA Money Transmitter Regulators Association ACCOMPLISHMENTS State Joint examination manual & procedures, including Lead State criteria Cooperative Agreement and Protocol (multi state examinations) Examiner training 166 examiners from 36 states at various MTRA schools Developed criteria for examiner certification with CSBS Coreexam exam report andratings system in development 44 state members Federal Agencies Partnered in development of BSA Exam (with CSBS) and Manual with IRS and FinCEN Joint training on BSA manual with IRS & FinCEN Joint examination field tests t with IRS 8/25/2011 CSBS Legal Seminar, Raleigh, NC 4

5 MTRA Money Transmitter Regulators Association MTRA Joint Exams /25/2011 CSBS Legal Seminar, Raleigh, NC 5

6 California New modernized Money Transmission Act effective 1/1/11 Covered domestic money transmission Non depository stored value Covers any company anywhere that does business with a person in CA Electronic Call Report and Database 8/25/2011 CSBS Legal Seminar, Raleigh, NC 6

7 WHAT IS A MONEY TRANSMITTER IN THE AGE OF TECHNOLOGICAL INNOVATION? Emerging Payment Technologies Internet Mobile phones/smart phones and texts (SMS/MMS) Stored value, gift cards and prepaid cards (open, semiopen, closed), chits POS (manned and unmanned), ATMs, Kiosks Bar codes, RFID (radio frequency ID) and NFC (near field communications) CITBN (chip in the back of the neck) 8/25/2011 CSBS Legal Seminar, Raleigh, NC 7

8 Emerging Payment Applications P to P, B to B, etc. International remittance Employee payroll, benefits and incentives (miles) Buying goods ( merchant processing ) Bill Pay E wallet Prepaid, stored value, gift cards Prisoners College/school/student l/ Social network (Facebook Credits, Twitter) Virtual world, gamers (Zynga offer prepaid cards) 8/25/2011 CSBS Legal Seminar, Raleigh, NC 8

9 How can a regulator make sense of this? What activity ii do we need to regulate? What entities in the payments system need a license? 8/25/2011 CSBS Legal Seminar, Raleigh, NC 9

10 Back to basics: What is a money transmitter? Do you take funds/value from A and agree to pay them to B; and/or Do you take funds/value from A, and store it so that A can make purchases from third parties or take cash out at a later date. What doesn t matter? The purpose of the transactions (P to P, bill pay, to pay a merchant) How the transmission was funded (credit card, debit, cash, check) 8/25/2011 CSBS Legal Seminar, Raleigh, NC 10

11 Three dimensions to consider: Settlement follow the money Does the sender/buyer/holder of value have credit risk if the company holding the money fails or skips town? Legal obligations who has privity of contract with the sender/buyer/holder /h of value Who can the sender/buyer/holder of value sue? Do they know who that person is? Communication how is information delivered and stored? This is where the innovation is taking place. 8/25/2011 CSBS Legal Seminar, Raleigh, NC 11

12 Facts needed to answer these questions: Flow chart showing how money goes from the sender/buyer/holder of value (point A) to the entity you re analyzing to the receiver/merchant/beneficiary (point B) Ask for the exact names that appear on the banks accounts in the flow chart Balance sheet oftheentity entity doesit recognize e anassetasset anda a liability on it balance sheet FBO accounts All contracts andreceipts thatthesender/buyer/holderthe ofvalue gets when it enters the transaction Cardholder agreement, terms and conditions All contracts with intermediary entities in the flow chart 8/25/2011 CSBS Legal Seminar, Raleigh, NC 12

13 Standard OTC Transaction

14 Standard OTC Transaction Easy to see where the money goes that is the asset on the balance sheet. Where does the liability start? Where does the liability end? Who is legally liable to the sender to deliver funds? That person needs to be licensed or exempt. Who is a credit risk to the sender? 8/25/2011 CSBS Legal Seminar, Raleigh, NC 14

15 Online/Mobile Transaction Can t fund with cash (typically ) 3 sources of funding: Credit card Debit card ACH to from linked bank account Credit cards, debit cards and ACH transactions all involve third party processors, ISOs and IPSPs that are part of the payment processing system. Also, regulations E and Z, Card Association Regulations, NACHA regulations FDIC manual sion/ch19.pdf 8/25/2011 CSBS Legal Seminar, Raleigh, NC 15

16 Online/Mobile Transaction

17 What happens when you have multiple ways to fund the transmission? OTC cash, credit, debit, ATMs and kiosks through agents and branches linked bank accounts (ACH) Credit and debit cards Need to understand each funding channel and the intermediaries involved 8/25/2011 CSBS Legal Seminar, Raleigh, NC 17

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19 Merchant Processing Nearly all companies that facilitate online payments from customers to merchants take the view that tthis activity it is not subject to money transmission statutes (and also not subject to BSA) Reliance on FINCEN payments processing letters FinCEN Ruling (Definition of Money Transmitter/Stored Value (Gift Certificates/Gift Cards) FinCEN Ruling (Definition of Money Transmitter (Merchant Payment Processor) FIN 2008 R005 (Whether Certain Reloadable Card Operations are Money Services Businesses) FIN 2008 R006 (Whetheran AuthorizedAgent Agent for the Receipt of Utility Payments is a Money Transmitter) FIN 2009 R001 (Whether Certain Operations of a Service Provider to Prepaid Stored Value Program Participants is a Money Services Business). Problem: some states license payment processors Other states have exemptions for payment processors should ask states directly if fall within an exemption Exemption comes when stand between or behindlicensed or exempt entities 8/25/2011 CSBS Legal Seminar, Raleigh, NC 19

20 Merchant Processing Claim that they do not havea a contract with customers; they are only agents of the merchants (but see sample user agreement) Claim that they don t take possession of funds (but have asset/liability on balance sheet and their names on the bank accounts) Claim they are ISO/IPSP, so must be exempt (but then they need agreements with another payment processor gain access to payments system) 8/25/2011 CSBS Legal Seminar, Raleigh, NC 20

21 Merchant Processing Claim that no credit risk to buyer once py payment authorized (but customer agreements and receipts do not make that clear possible impact of network regulations and Regs. E and Z?) Claim they are virtual POS machine the Black Box metaphor (but we know who they are, receipts identify them; they stand between the buyer and merchant, not behind the merchant) Claim they are e wallet and only hold information, not cash (but it sure looks like they do more than that) 8/25/2011 CSBS Legal Seminar, Raleigh, NC 21

22 Sample User Agreement This Terms of Service is a legal agreement between you and ABC Corp. (ABC), that governs your access to and use of ABC Service as a purchaser of merchandise, goods, or services. Please review this entire Terms of Service before you decide whether to accept it and continue with the registration process. BY CLICKING ON THE "AGREE AND CONTINUE" BUTTON ON THE REGISTRATION PAGE, YOU AGREE TO BE BOUND BY THIS TERMS OF SERVICE. 1. Certain Defined Terms The following defined terms appear in this Terms of Service. "You", you or "Buyer": A Customer that applies to, or registers to use, or uses, the Service to make Payment Transactions. Customer: A person that registers with the Service as a Buyer or a Seller. Seller: A Customer that uses the Service to process Payment Transactions from Buyers. Payment Instrument: The credit card or debit card that is registered by a Customer with the Service to facilitate the processing of Payment Transactions. A Payment Instrument must be associated with a billing address in a country where the Service is made available. Payment Transaction: The processing of a payment through the Service that results in the debiting or charging of the Purchase uc Amount to a Buyer s Payment Instrument t and dthe ecedt crediting gof funds dsto a Seller. e Product: Any merchandise, good or service that is listed for sale that a Buyer may pay for using the Service. Purchase Amount: The dollar amount of a Payment Transaction to pay for a Product, and any related fees, taxes or shipping charges, as applicable. Service: The ABC Checkout service, described in this Terms of Service, that facilitates the processing of Payment Transactions on behalf of a Seller. ABC, we, or us : ABC Corp.. 8/25/2011 CSBS Legal Seminar, Raleigh, NC 22

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24 State Legal Opinions Similar concepts for bill payers and payment processors Is the company acting as the agent for the sender/buyer making payment or agent of the merchant/biller receiving the money; what if they are agents for both? Does the company ever take possession, custody, control of the funds (flow charts/balance sheets) Witt Written agreements do they explicitly itl state tt that t payment to the company is the same as payment to the merchant/biller, and the company is an agent of the merchants/billers Do receipts also serve as conclusive evidence thatpayment made to merchant/biller Does the sender/buyer ever have credit risk if the company skips town or fails to pay the merchant/biller 8/25/2011 CSBS Legal Seminar, Raleigh, NC 24

25 Coordination happening on exam and supervisory side. Do we need similar coordination on the legal side? Role for CSBS regular calls among attorneys to discuss MSB specific issues Examiners need legal support 8/25/2011 CSBS Legal Seminar, Raleigh, NC 25

26 Questions? Robert Venchiarutti Deputy Commissioner California Department of Financial Institutions 45 Fremont Street, 17 th Floor San Francisco, CA (415) /25/2011 CSBS Legal Seminar, Raleigh, NC 26