Washington State’s Disappearing New Money Transmitter Rules

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On Monday (Dec. 14), the Washington state Department of Financial Institutions said that it was about to change the ways payment processors can get waivers from money transmission licensing requirements. The changes were to kick in Jan. 1. But by Wednesday (Dec. 16), the page with the announcement had vanished, instead displaying a “page not found” error. A search on the state DFI site still returns the page during a search. (Guys, if you’re going to hide a page, don’t forget to clear cache and remove it from site search results. Geez, do we have to tell you everything about hiding stuff from the public?) Fortunately, we copied the text of the page before it disappeared.

Giving processors a mechanism to not being considered a money transmitter is ostensibly a good thing. But like everything else that touches state and federal regulatory efforts, few good things ship without booby-traps.

Deana Rich, president of Rich Consulting and also Partner/Director of Strategy for PaymentFacilitator.com, said the risk is not mostly with the state issuing the rules—Washington state in this case—but with other states and how they may choose to interpret that waiver request.

“If you say to one state ‘I want to be exempt from your rules,’ other states might say, ‘Hmmmm. Why did you say this to Washington? I’m going to look at you much more carefully now,'” Rich said.

The reason that should be a particularly worrisome situation is that, although these rules are mostly settled at the federal, they are most certainly not settled with many states. Payment facilitators “because of where they sit in the value chain, they are extremely vulnerable,” Rich said.

As these rules evolve, the states that make the earliest moves are often copied by other states, magnifying the impact of their rulings. But in this case, the much greater fear is that other states may not mimic what Washington state is doing as much as tweaking it. And those small differences in state rules—those seemingly minor tweaks to wording—could have dire results for a PF that is trying to play by the rules.

Will this set a standard where states will be forced to say “Prove to us that you’re not a money transmitter.”

Mary Albert, the director of regulatory affairs for the Electronic Transactions Association (ETA), was the first to notice the new rules and issued an advisory to her members. (Full disclosure: That’s how we picked up on it.)

“We have some concerns,” Albert said, adding that her organization sees “a lot of differences that are interpreted differently by state regulators” when it comes to money transmitters.

It’s certainly the case that state money transmitter rules are in flux. But that’s only one consonant away from may will happen to PFs who volunteer too quickly for a waiver.

The full text of the original Washington State post:

To: Licensees operating in Washington State as a “Payment Processor”

The Department will soon issue an Interpretive Statement on payment processing under the Uniform Money Services Act, chapter 19.230 RCW (the Act). The Interpretive Statement creates a potential eligibility for a license waiver for companies not licensed or for a waiver from reporting certain activity for licensed companies.   The Interpretive Statement is effective January 1, 2016. The details are:

Background:

While payment processing is money transmission as defined in the Act[1], the Department may issue a license waiver for that activity if certain requirements are met. License waiver eligibility will begin January 1, 2016.

Specifics of the waiver:

In order to be eligible for the license waiver, the following criteria must be met:

  1. the company facilitates payment for good or services or provides bill payment services by receiving money from a consumer/debtor/payor and delivering it to the merchant/creditor/payee;
  2. the company operates through a settlement system that admits only BSA-regulated financial institutions;
  3. the company operates pursuant to a formal agreement with the merchant/creditor/payee; and
  4. the formal agreement creates an agency relationship between the merchant/creditor/ payee and the company whereby payment from the consumer/payor to the company satisfies the consumer/payor’s obligation to the merchant/creditor/payee.

The license waiver may also be available to a company that provides payment processing in a transaction where the consumer receives the goods or services instantaneously after the purchase. This includes, for example, digital goods available for immediate download.

The following types of services are not eligible for the license waiver:

  1. a payment processor providing virtual currency services
  2. a payment processor providing services to the marijuana industry
  3. a payment processor holding value beyond the time period necessary to complete the purchase of the good or service

Please note that this license waiver is for the licensing provisions of the Act only and the department retains its jurisdiction over the money transmission activities of the company. License waivers are subject to withdrawal if violations are discovered. If a company conducts other types of money services regulated under the Act, a license is required for those services.

What to do if you believe you are eligible for this license waiver:

You may contact the Department to discuss your activity and your eligibility for the waiver. If the license waiver is granted, you may choose to not report the eligible activity during the annual assessment period. All other activity by the company that requires licensure must be reported. As this waiver is effective on January 1, 2016, you must still report your payment processing activity for 2015 during the annual assessment period in July 2016. Licensed companies may choose to not report this eligible activity in subsequent annual assessment periods (beginning July 2017).

Questions?

Please contact Cindy Fazio at 360-902-8800 or lfazio@dfi.wa.gov with any questions.

****

And courtesy of the ETA, some of the definitions at issue:

Here is the definition of money transmission set forth in the Uniform Money Services Act:

 

(18) “Money transmission” means receiving money or its equivalent value to transmit, deliver, or instruct to be delivered the money or its equivalent value to another location, inside or outside the United States, by any means including but not limited to by wire, facsimile, or electronic transfer. “Money transmission” does not include the provision solely of connection services to the internet, telecommunications services, or network access. “Money transmission” includes selling, issuing, or acting as an intermediary for open loop stored value and payment instruments, but not closed loop stored value.

 

And here is the provision relating to delivery and receipt of funds in merchant transactions.

 

Money transmitter delivery, receipts, and refunds.

(1)(a) Every money transmitter licensee and its authorized delegates shall transmit the monetary equivalent of all money or equivalent value received from a customer for transmission, net of any fees, or issue instructions committing the money or its monetary equivalent, to the person designated by the customer within ten business days after receiving the money or equivalent value, unless otherwise ordered by the customer or when the transmission is for the payment of goods or services or unless the licensee or its authorized delegate has reason to believe that a crime has occurred, is occurring, or may occur as a result of transmitting the money. For purposes of this subsection, money is considered to have been transmitted when it is available to the person designated by the customer and a reasonable effort has been made to inform this designated person that the money is available, whether or not the designated person has taken possession of the money. As used in this subsection, “monetary equivalent,” when used in connection with a money transmission in which the customer provides the licensee or its authorized delegate with the money of one government, and the designated recipient is to receive the money of another government, means the amount of money, in the currency of the government that the designated recipient is to receive, as converted at the retail exchange rate offered by the licensee or its authorized delegate to the customer in connection with the transaction.

(b) A money transmitter licensee that accepts money or its equivalent from consumers purchasing goods or services from third-party merchants and transmits the money or its equivalent to those merchants selling the goods or services to the consumer must:

(i) Transmit the money or its equivalent to the merchant within the time frame agreed upon in the merchant’s agreement with the money transmitter licensee; and

(ii) Conspicuously disclose to the merchant in the agreement the money transmitter licensee’s authority to place a hold or delay in transmittal of consumer money or its equivalent for more than ten business days and the general circumstances under which the merchant may be subject to a hold or delay.

(2) Every money transmitter licensee and its authorized delegates shall provide a receipt to the customer that clearly states the amount of money presented for transmission and the total of any fees charged by the licensee. If the rate of exchange for a money transmission to be paid in the currency of another country is fixed by the licensee for that transaction at the time the money transmission is initiated, then the receipt provided to the customer shall disclose the rate of exchange for that transaction, and the duration, if any, for the payment to be made at the fixed rate of exchange so specified. If the rate of exchange for a money transmission to be paid in the currency of another country is not fixed at the time the money transmission is sent, the receipt provided to the customer shall disclose that the rate of exchange for that transaction will be set at the time the recipient of the money transmission picks up the funds in the foreign country. The receipt shall also contain the licensee name, address, and phone number. As used in this section, “fees” does not include revenue that a licensee or its authorized delegate generates, in connection with a money transmission, in the conversion of the money of one government into the money of another government.

(3) Every money transmitter licensee and its authorized delegates shall refund to the customer all moneys received for transmittal within ten days of receipt of a written request for a refund unless any of the following occurs:

(a) The moneys have been transmitted and delivered to the person designated by the customer prior to receipt of the written request for a refund;

(b) Instructions have been given committing an equivalent amount of money to the person designated by the customer prior to receipt of a written request for a refund;

(c) The licensee or its authorized delegate has reason to believe that a crime has occurred, is occurring, or may potentially occur as a result of transmitting the money as requested by the customer or refunding the money as requested by the customer; or

(d) The licensee is otherwise barred by law from making a refund.

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