Money Transmitter Model Law Poised to Change Regulatory Landscape

Wilson Sonsini Goodrich & Rosati
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Wilson Sonsini Goodrich & Rosati

The Conference of State Bank Supervisors (CSBS) released its Money Transmission Modernization Act (Money Transmitter Model Law) (Model Law) to create a single money transmitter regulatory regime across the country and “streamline regulation for an evolving payments space.” As it currently stands, 49 states and Washington, D.C. regulate money transmitters and have their own sets of laws with their own differences and nuances. If adopted by the states, the Model Law should ease regulatory compliance burdens for money transmitters and those in the payments industry. Developing a consistent application process, legal framework, and supervisory approach would go a long way towards making the state regime an attractive alternative to a federal regime.

Among other things, the Model Law standardizes definitions, exemptions, the licensing process, and safety and soundness requirements. Importantly, the Model Law exempts agents of a payee from money transmission licensure. Agents of a payee are persons who collect and process payments from a payor to a payee on behalf of the payee. Currently, only a little more than half of the states recognize the “agent of a payee” exemption. The Model Law also exempts payment processors from licensure. Payment processors are “person[s] that act as an intermediary by processing payments between an entity that has directly incurred an outstanding money transmission obligation to a sender, and the sender’s designated recipient.” The Model Law also enables multistate licensing and supervision. For companies that are seeking licensure across multiple states, this could ease the burden of complying with different state licensure regimes.

This is not the first time a uniform money transmitter law was drafted for states to adopt. In 2004 the National Conference of Commissioners on Uniform State Laws drafted the Uniform Money Services Act, but only a handful of states adopted it. While not every state may adopt the Model Law, there may be parts of the Model Law that states adopt, such as the exemptions, that may be beneficial to money transmitters and the payments industry.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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