Perhaps the biggest recent news in the ever-changing money transmission regulatory landscape is the draft model language for standardized regulation of multistate money services businesses that was proposed by the Conference of State Bank Supervisors (“CSBS”). However, while the CSBS efforts are ongoing, state-by-state changes to the regulation of money transmission is still occurring on parallel tracks.
Two new state-level developments—not well-publicized—are: (1) the consolidation by Rhode Island of its Electronic Money Transferors and Sale of Check licenses into a single new Currency Transmitter license; and (2) procedures for claiming the agent of a payee exemption to Michigan’s Money Transmission Services Act.
Transitions to the new Rhode Island license must be completed through the Nationwide Mortgage Licensing System (“NMLS”) by December 31. And, according to the Michigan Department of Insurance and Financial Services (“DIFS”), “[u]ntil an exemption determination letter has been issued by DIFS, all agent of a payee activity is considered money transmission activity . . . for which a license is required.” What follows is information regarding these new pronouncements.
Rhode Island – New Currency Transmitter License
The revisions to the Rhode Island NMLS application are the result of legislation (H.B. 5847) that takes effect on January 1, 2020. H.B. 5847 combines the existing separate laws regulating electronic money transmission and the sale of checks in Rhode Island into a single regulatory regime for money transmission activity. It appears that the Rhode Island Division of Banking (the “Division”) is implementing these statutory changes through a new unified money transmission license called the Currency Transmitter license. Existing Rhode Island licensees (under either, or both, of the current licensing frameworks) are required to transition to the new license in NMLS by December 31, 2019, which is less than two months away.
The approach to the new unified licensing regime means that Rhode Island licensees will need to go through the transition process instead of the Division automatically converting existing licensees over to the new regime. Typically, a current licensee is only required to go through the NMLS “transition” process if the state banking department does not presently regulate money transmission through NMLS. For example, in recent years a number of states that regulated money transmission through a different system (e.g., a paper application and renewal process) have decided to implement licensing via the NMLS system and have required licensees to input their application information in NMLS and request the transition of the license from paper to NMLS. In the case of Rhode Island, however, most, if not all, money transmitters under the existing licensing frameworks are already utilizing NMLS. Nevertheless, according to the transition checklist, the Division appears to be approaching this process as a de novo transition, meaning current licensees will have to repackage and resubmit their information, including possibly information about authorized agents in Rhode Island.
Michigan – Agent of a Payee Exemption Procedures
The DIFS has released procedures for claiming the agent of a payee exemption in Michigan (the “Procedures”) under the statutory agent of a payee exemption that took effect earlier this year. As we previously reported, Michigan established the agent of a payee exemption through legislation (SB 729). The amended Michigan Money Transmission Services Act (“MTSA”) provides that a person acting as agent of a payee is exempt if the person can “demonstrate[e]” to the director of the Michigan Department of Insurance and Financial Services (the “Director”) that “all of the following” criteria are met:
- There is a written agreement between the agent and the payee “directing the agent to collect and process payments on the payee’s behalf”;
- “The payee holds the agent out to the public as accepting payments on the payee’s behalf”; and
- When the agent receives the payment it is “treated as received by the payee.”
As we noted when SB 729 was adopted, companies seeking to avail themselves of the payee agency exemption in Michigan may need to affirmatively reach out to the DIFS to confirm the exemption in light of the structure of the statute. Now we have an indication from the DIFS on how such companies can seek this confirmation. Specifically, the request for an exemption, submitted in accordance with the Procedures, must include:
- A “[c]opy of the signed written agreement between the payee and agent directing the agent to collect and process payments on the payee’s behalf,” indicating the section and page number for where this information can be found in the agreement;
- “Evidence to support the payee holds the agent out to the public as accepting payments on the payee’s behalf,” also indicating where this information can be found in the agreement; and
- Evidence to support that the payment is treated as received by the payee at the time it is received by the agent.
The Procedures also state that a person seeking the exemption should “[p]rovide [a] copy of customer receipt, website address, or advertisement as evidence” that payment to the agent is deemed payment to the payee. However, for many companies that rely on the agent of the payee exemption this information may not be readily available. Furthermore, while roughly 21 states have now confirmed—whether through legislation, regulation, guidance, opinion letter, or otherwise—an agent of a payee exemption, Michigan is one of the few states that appears to expressly require confirmation from the banking department prior to relying on the exemption as a basis for not obtaining a money transmission license.
 Mich. Comp. Laws § 487.1004(f).