11-1
11-1
February 17, 2011
Re: Opinion Request
Dear Mr. __________:
This responds to your letter dated October 19, 2010, in which you requested a
determination as to whether the __________, a nonprofit credit counseling agency
(CCA) that offers and provides debt management plans (DMP) to California consumers,
would be considered engaged in “money transmission” and therefore would be required
to be licensed under the recently enacted California Money Transmission Act. In the
alternative, you request a determination that CCAs qualify for a public interest
exemption from licensing.
FACTUAL BACKGROUND.
You describe the facts as follows. __________ is comprised of __________ nonprofit
CCAs and a housing counseling agency that are recognized as exempt from federal
income taxation under § 501(c)(3) of the Internal Revenue Code. Nonprofit CCAs
provide debtors with access to educational resources to assist in budget planning, such
as newsletters, online educational content, and financial counseling support. In
addition, to those that are eligible, CCAs generally offer the opportunity to enter into a
DMP for the repayment of a consumer’s unsecured debt. Through these plans, a
debtor agrees to make regular deposits with the CCA, which in turn distributes the
money to the consumer’s unsecured creditors to pay the consumer’s credit card bills,
student loans, medical bills, or other unsecured debts according to a payment schedule
that has been worked out with the consumer and his or her creditors. Typically, debtors’
funds are transmitted to the nonprofit CCA either via ACH debits to debtors’ checking
accounts by the nonprofit CCA’s financial institution or via money order. The nonprofit
CCA deposits the funds into one or more trust accounts established by the CCA at a
national or state chartered bank. The nonprofit distributes the funds to creditors either
via a payment service or by paper check drawn on the CCA’s account in accordance
with the terms of the repayment plan.
__________
February 17, 2011
Page 2
CALIFORNIA MONEY TRANSMISSION ACT.
California Financial Code (FC) § 1810(a) states: “A person shall not engage in the
business of money transmission in this state, or advertise, solicit, or hold itself out as
providing money transmission in this state, unless the person is licensed or exempt from
licensure under this chapter . . . .”
FC § 1803(o), in relevant part, defines “money transmission” as “receiving money for
transmission.” FC § 1803(s), in relevant part, defines “receiving money for
transmission” as “receiving money or monetary value in the United States for
transmission within or outside the United States by electronic or other means.”
FC § 1806 provides for a public interest exemption to the licensing requirement of
§ 1810. Section 1806 states:
The commissioner may, by regulation or order, either unconditionally or upon
specified terms and conditions or for specified periods, exempt from this chapter
any person or transaction or class of persons or transactions, if the commissioner
finds such action to be in the public interest and that the regulation of such
persons or transactions is not necessary for the purposes of this chapter.
APPLICATION OF MONEY TRANSMISSION ACT TO CCA ACTIVITIES.
A. Engaging in the Business of Money Transmission.
Based on your representation of the facts, through a DMP, a nonprofit
CCA receives debtors’ funds and thereafter distributes, or transmits, those
funds to the debtors’ creditors in accordance with the terms of the
repayment plan. Thus, CCAs receive money for transmission within or
outside the United States. Pursuant to FC § 1810, CCAs would need to
obtain a license unless exempt.
B. Exemption.
As you note, CCAs meet the definition of “prorater” as defined in FC
§ 12002.1 of the California Proraters Law. As such, CCAs are already
licensed and regulated by the California Department of Corporations. It
would therefore be duplicative to require licensing of CCAs under the
Money Transmission Act. Moreover, such licensing would result in CCAs
being subject to two regulatory schemes and would confuse jurisdiction.
Finally, CCAs’ business of money transmission is incidental to its credit
counseling activities.
__________
February 17, 2011
Page 3
For these reasons, there are hereby exempted from the provisions of
Chapter 14, Division 1 of the FC, as being in the public interest and the
regulation of which is not necessary, the offering and providing of DMPs to
California consumers by CCAs.
Sincerely,
JENNIFER L.W. RUMBERGER
Senior Counsel
JLWR:lca
cc: Robert Venchiarutti, Department of Financial Institutions, San Francisco
October 19, 2010
Via Overnight Mail and Email
Mr. William S. Haraf
Commissioner of Financial Institutions
California Department of Financial Institutions
45 Fremont Street, Suite 1700
San Francisco, CA 94105
wharaf(@dfi.ca.gov
RE: Request for Interpretive Ruling on the California Money Transmission Act and Debt
Management Plan Services.
Dear Commissioner Haraf:
On behalf of our client, the ________________________ (the
“____________________”)2 we request an interpretive ruling and no-action position from the
California Department of Financial Institutions (the “Department”) confirming the foregoing
analysis and conclusion that a nonprofit credit counseling agency (“CCA”) will not be considered
engaged in “money transmission,” and therefore not required to be licensed under the recentlyenacted
California Money Transmission Act (the “Act”),3 by virtue of offering and providing a
debt management plan (“DMP”) to consumers in your state. In the alternative, if you believe that
nonprofit CCAs engage in “money transmission” by virtue of offering and providing a DMP, we
respectfully request that you use your authority under the public interest exemption contained in
____________________________________
2_____________________ members are nonprofit, tax-exempt 501(c)(3) organizations focused on
consumer credit counseling, housing counseling, financial education and budget and debt management.
3California Money Transmission Act, CA A.B. 2789 (2010) (enacted Sept. 30, 2010).
Mr. William S. Haraf
October 19, 2010
Page 2
Article 2, Section 1806 of the Act (the “Public Interest Exemption”) to exempt nonprofit CCAs
from the licensure requirements.
I. Factual Background.
A. Description of the ____________________
The ____________________ is comprised of __________ of the leading nonprofit
CCAs and a housing counseling agency that are recognized as exempt from federal income
taxation under Section 501(c)(3) of the Internal Revenue Code (the “Code”). Each member
provides financial educational and counseling services to the public. Each agency’s services are
heavily and effectively regulated under federal and state law, as well as standards and guidelines
established by industry trade associations and independent accrediting bodies devoted to
consumer protection.
B. Credit Counseling and Debt Management Plans.
Nonprofit CCAs provide debtors with access to educational resources to assist in budget
planning, such as newsletters, online educational content, and financial counseling support. In
addition, to those that are eligible, CCAs generally offer the opportunity to enter into a DMP for
the repayment of a consumer’s unsecured debt. Through these plans, a debtor agrees to make
regular deposits with the CCA, which in turn distributes the money to the consumer’s unsecured
creditors to pay the consumer’s credit card bills, student loans, medical bills, or other unsecured
debts according to a payment schedule that has been worked out with the consumer and his or her
creditors. Typically, debtors’ funds are transmitted to the nonprofit CCA either via ACH debits to
debtors’ checking accounts by the nonprofit CCA’s financial institution or via money order. The
nonprofit CCA deposits the funds into one or more trust accounts established by the CCA at a
national or state charted bank.)3 The nonprofit CCA distributes the funds to creditors either via a
payment service or by paper check drawn on the CCA’s account in accordance with the terms of
the repayment plan.
____________________________________
3Many CCAs use electronic payment systems such as MasterCard RPPS,
https://www.mastercardintl.com/rpps/lv12.cgi/cc_2, which provides electronic and bill payment
presentment services. Note that California Financial Code section 12014(3) requires nonprofit community
service organizations that provide DMPs to “transmit funds utilizing electronic payment processing when
available.” Cal Fin. Code § 12104(n)(3).
Mr. William S. Haraf
October 19, 2010
Page 3
C. State Regulation of DMPs.
DMPs are heavily regulated under various statutes among the states, including the
California Check Sellers, Bill Payers and Proraters Law, Cal Fin. Code § 12000 et seq. (the
“Proraters Law”). In this regard, nonprofit CCAs may rely on the licensing exemption under
Financial Code section 12104 if the organization is in compliance with the requirements of that
section, and the organization files the document required under that section with the California
Department of Corporations.4
Compliance with the Proraters Law:
1. Requires the organization to have as its principal functions consumer credit education,
counseling on consumer credit problems and family budgets, and arranging or
administering debt management or settlement plans;
2. Requires the organization to limit fees received from a debtor to no more than the
following:
a. For education and counseling combined, $50;
b. For debt management plans, a sum not to exceed 8 percent of the money disbursed
monthly, or thirty-five dollars ($35) per month (whichever is less); and
c. For debt settlement plans, a sum not to exceed 15 percent of the amount of the debt
forgiven.
3. Prohibits the organization from requiring up-front payments or deposits;
4. Prohibits the organization from requiring the payment of fees until the debt is
successfully settled;
5. Requires the organization to maintain and keep current and accurate books, records,
and accounts;
____________________________________
4
See http://www.leginfo.ca.gov/cgi-bin/displaycode?section=fin&group=12001 – 13000&file=12100-
12108. A complete set of forms that are filed with the California Department of Corporations, including
“Financial Institution” information, are available at http://www.corp.ca.gov/forms/financial.asp. A list of
nonprofit CCAs that have filed the documents required by Financial Code section 12104 in order to rely on
the exemption is available at http://www.corp.ca.gov/FSD/pdf/ncso.pdf.
Mr. William S. Haraf
October 19, 2010
Page 4
6. Requires the organization to provide to the Commissioner, prior to engaging in
business, information on where the trust account holding debtors’ funds is maintained,
and consent for the Commissioner to take possession of the account, if necessary for
the protection of debtors;
7. Requires the organization to maintain a $25,000 surety bond;
8. Requires the organization to report account information to a debtor at least once every
three months, or upon the debtor’s request;
9. Requires the organization to submit to the Commissioner an audit report containing
audited financial statements;
10. Requires the organization to maintain accreditation by an independent accrediting
organization, including either the Council on Accreditation or the International
Standards Organization;
11. Prohibits the organization from engaging in any unfair or deceptive acts or practices;
12. Requires the organization to adopt and implement best practices designed to prevent
improper debt management or settlement practices and prevent theft and
misappropriation of funds, including disbursement of funds no later than 15 days after
receipt of funds, or by scheduled disbursement date, which is greater, and that a
consumer’s first disbursement be received (by creditor(s) within 90 days of agreeing to
the DMP;
13. Requires the organization to adopt policies that specifically prohibit credit counselors
from receiving financial incentives or additional compensation based on the outcome
of the counseling process;
14. Requires the organization to resolve complaints from debtors in a prompt and
reasonable manner; and
15. Requires the organization to provide written notice to the Commissioner of the
Department of Corporations for the State of California within 30 days of dissolution or
termination of engaging in the activities of a prorater.
Mr. William S. Haraf
October 19, 2010
Page 5
The Proraters Law vests enforcement authority for these requirements with the California
Department of Corporations.5
III. Request for Interpretive Ruling or No-Action Position.
A. DMPs Do Not Meet the Definition of Money Transmission.
CCAs engaged in DMP activity are not engaged in “money transmission” as defined in the
Act inasmuch as such CCAs are not: “(1) selling or issuing payment instruments; (2) selling or
issuing stored value; [or] (3) receiving money for transmission.”6 CCAs that provide DMPs do
not engage in the transmission of funds solely for the purpose of transmitting funds from one
party to another, as is commonly done by traditional money transmitters. CCAs only provide
DMPs in connection with education and counseling services. The plain language of the statute
does not evidence intent to sweep CCAs that provide DMPs into the purview of the Act’s
enforcement. In addition, the discussion in legislative committee reports focuses on the Act’s
regulation of travelers’ checks, payment instruments, stored value cards, securities and money
transmission entities with no physical presence in California, all of which are integrally related,
not incidental, to money transmission.7 By contrast, a DMP is only used to make payments to
creditors on behalf of debtors in conjunction with a pre-determined schedule and counseling that
has been provided to the consumer. Accordingly, DMP activities do not constitute “money
transmission.”
Further, it is important to highlight that the Financial Crimes Enforcement Network
(“FinCEN”) of the U.S. Department of Treasury has held that DMPs do not constitute money
transmission as defined in the Department of Treasury regulations found at 31 C.F.R. §
103.11(uu). The FinCEN position is relevant as it provides insight into activities that do not meet
the regulatory definition of a money transmitter, even though such activities may involve
accepting and transmitting funds on an incidental basis.
In FinCEN Ruling 2004-4 – Definition of Money Services Business (Debt Management
Company), dated November 24, 2004, FinCEN determined, under virtually identical facts and
circumstances as represented herein, that a debt management company, with respect to its
____________________________________
5 CA Fin. Code § 12105.
6 California Money Transmission Act, A.B. 2789. Art. I § 1803(o) (2010).
7 CA Assembly Banking and Finance Committee, California Money Transmission Act, A.B. 2789, Comm.
Report (Aug. 18, 20I0); CA Senate Banking and Finance Committee. A.B. 2789, Comm. Report (June 28,
2010).
Mr. William S. Haraf
October 19, 2010
Page 6
submission of payments to creditors in conjunction with a DMP, was “not an MSB as defined in
31 C.F.R. § 103.11 (uu).8″ In so holding, FinCEN stated the following:
Whether a person is a money transmitter for BSA [Bank Secrecy Act] purposes is a matter
of facts and circumstances. Based on the information contained in your letters, we
conclude that [the business]’s debt management service does not constitute money
transmission. As set forth in 103.11(uu)(5)(ii), FinCEN will generally not treat as a
money transmitter a person engaged in the acceptance and transmission of funds “as an
integral part of the execution and settlement of a transaction other than the funds
transmission itself…” The general service that [the business] provides is to help debtors
create a plan for payment and/or adjustment of their debts, and to obtain the agreement of
creditors to accept payment under that plan. FinCEN views the money transmission that
[the business] conducts as ancillary to the debt management service that [the business]
provides, and incidental to a debtor’s primary purpose in using the services of [the
business]. To the extent that the money transmission conducted by [the business] is
limited to submitting payments to creditors on behalf of debtors in conjunction with a debt
management plan, FinCEN would not deem [the business] a money transmitter for
purposes of 31 CFR 103.11(uu)(5).9
Also instructive is FinCEN Ruling 2003-8 – Definition of Money Transmitter (Merchant Payment
Processor), November 19, 2003, in which FinCEN held that:
The nature of the transactions you describe is the transfer of funds through the ACH
system from a customer to a merchant as payment for goods and services. [ ]’s role in the
transactions is to provide merchants with a portal to a financial institution that has access
to the ACH system. [ ] acts on behalf of merchants receiving payments rather than on
behalf of customers making payments. For these reasons, the service that [ ] provides
through [ ] more closely resembles payment processing/settlement than money
transmission. Therefore, to the extent that the role of [ ] in such transactions is limited to
submitting payment instructions obtained from a merchant to a bank for ACH processing,
and
____________________________________
8 FinCEN Ruling 2004-4 (Definition of Money Services Business (Debt Management Company)) (Nov.
24, 2004). See also Notice of Proposed Rulemaking, Financial Crimes Enforcement Network;
Amendment to the Bank Secrecy Act Regulations – Definitions and Other Regulations Relating to Money
Services Businesses, 74 Fed. Reg. 22129-22142 (May 12, 2009) (Proposed incorporation of the exclusion
for debt management plans into proposed regulatory revisions of the definition of “money services
business.”).
9Id.
Mr. William S. Haraf
October 19, 2010
Page 7
remitting the funds received through the ACH process to the merchant (or in some cases,
refunding money to the merchant’s customer through an ACH transaction), FinCEN would
not deem [ ] a money transmitter for purposes of 31 CFR 103.11(uu)(5).10
For your convenience, we have attached the above-referenced FinCEN administrative rulings.
Together, Ruling 2004-4 and Ruling 2003-8 provide strong support that DMPs, when
provided by nonprofit CCAs that primarily engage in budget and debt education and counseling,
are not money transmitters. DMP providers do not transmit money as a business transaction
itself, but only to the extent necessary to effectuate a client’s DMP. It is a logical and reasonable
extension of Ruling 2004-4 to conclude that a nonprofit CCA’s DMP services would not
constitute money transmission under the facts and circumstances presented. Like the facts
analyzed by FinCEN, the general service provided by a nonprofit CCA is to provide counseling
and creation of a repayment plan. The payment portion of a DMP is ancillary to the consumer’s
main purpose in enrolling in the program. Thus, the services provided by a nonprofit CCA are
not the practice of money transmission as contemplated by the Act.
Moreover, money transmission conventionally is regulated by the government in order to
protect consumers with regard to payment instruments, stored value, and other money
transmission activities as well as to address concerns about potential money laundering. Some
examples of industries covered by money transmission regulation include providers of wire
transfer services and stored value cards. In these industries, regulation under money transmission
statutes is routine, and companies that violate the statutes are subject to fines and penalties.
Conversely, regulation of DMPs provided by nonprofit CCAs under the California
Department of Corporations is directed at ensuring fees are fair and meet the standards set by the
legislature as well as enforcing consumer protections tailored specifically to DMPs, which have
evolved over half a century.11 As referenced above, this regulation and oversight is accomplished
by the requirement that nonprofit CCAs file documents with the California Department of
Corporations and satisfy a long laundry-list of requirements in order to rely upon an exemption
from the Proraters Law. Effectively, however, the exemption requirements are essentially a form
of licensing and, to be clear, the California Department of Corporations has
____________________________________
10 FinCEN Ruling 2003-8 (Definition of Money Transmitter (Merchant Payment Processor)) (Nov. 19,
2003).
II The Prorater’s Law was originally named the Check Sellers and Cashers Law and was enacted in 1947.
See http://www.corp.ca.gov/FSD/check.asp.
Mr. William S. Haraf
October 19, 2010
Page 8
proactively used its enforcement power under the Proraters Law in cases of alleged
unlicensed prorater activity by organizations that had operated in reliance upon the exemption.
Because providing a DMP will not fall within the definition of money transmission under
Section 1802(o) of the Act, a CCA should not need to obtain licensure as a money transmitter in
California or avail itself of an exemption from the licensing requirement. Given that the
regulation of DMPs by the California Department of Financial Institutions would differ from the
conventional notion of regulation of money transmitters, we request that your office issue an
interpretative ruling to the effect that CCAs may rely upon the fact that their DMP activities fall
outside of the scope of the Act. Alternatively, we request your assurance that your office would
not take enforcement action against a CCA if it were to offer and provide DMPs in your state in
reliance on the Public Interest Exemption.
B. Adequate Regulation under the California Proraters Law.
In the event that the Department finds that nonprofit CCAs engage in money transmission,
nonprofit CCAs should be exempt from licensure as money transmitters under the Act’s Public
Interest Exemption because an exemption in the instant case would be consistent with the public
interest, and licensure is not necessary in order to achieve the purpose of the Act. Under the Act’s
Public Interest Exemption, the Commissioner may grant an exemption from the Act as follows:
The commissioner may, by regulation or order, either unconditionally or upon specified
terms and conditions or for specified periods, exempt from this chapter any person or
transaction or class of persons or transactions, if the commissioner finds such action to be
in the public interest and that the regulation of such persons or transactions is not
necessary for the purposes of this chapter. 12
As noted above, a DMP, when provided by a nonprofit CCA, is already heavily regulated by
various broad and highly-detailed federal and state regulatory schemes, including in California.
In this regard, we believe that the offer and provision of DMPs to consumers should fall within
the Public Interest Exemption when the provider is already regulated by the state with respect to
its fees, how it holds funds, and other key characteristics when it relies upon an exemption from
the Proraters Law under Financial Code section 12104.
In California, CCAs meet the definition of “prorater” under the California Proraters Law,
enforced by the California Department of Corporations. Under the Proraters Law:
____________________________________
12 California Money Transmission Act, A.B. 2789, Art. 2 § 1806 (2010).
Mr. William S. Haraf
October 19, 2010
Page 9
a prorater is a person who, for compensation, engages in whole or in part in the business
of receiving money or evidences thereof for the purpose of distributing the money or
evidences thereof among creditors in payment or partial payment of the obligations of the
debtor. 13
The Proraters Law, however, provides a specific exemption for nonprofit CCAs in Financial Code
section 12104 under which the organization is still required to comply with many of the
requirements otherwise necessary for licensure as a prorater, including (among many described
above): prohibitions on unfair and deceptive conduct; filing of paperwork; fee caps; recordkeeping
requirements; maintenance of separate client trust accounts; an irrevocable written
consent that the Commissioner of the Department of Corporations may seize assets of the
organization; maintenance of a bond; reporting obligations including audit reports; consumer
disclosure requirements; policies and procedures specifications; and notice requirements. 14
The Proraters Law and the Department of Corporations closely regulate DMP providers
that are nonprofit organizations. In their totality, the Proraters Law exemption requirements for
nonprofit CCAs are stricter than those found in the Act and are closely tailored to DMPs. The
public interest is more than adequately protected by the Department of Corporation’s enforcement
of the Proraters Law. Duplicative regulation of nonprofit CCAs under the Proraters Law and the
Money Transmission Act would not be in the public interest. Further, unlike other transactions
that involve money transmission for the sake of money transmission, as discussed above, funds
transmission is only ancillary to a DMP when provided by a nonprofit CCA. As a result, to the
extent the transmission of funds takes place at all, it would only be incidental to a consumer’s
primary purpose of utilizing the services of the nonprofit CCA, which are primarily counseling
and education, as well as assistance with obtaining creditor acceptance of a personalized budget
plan created by the organization based on information obtained from the consumer. Therefore, to
the extent that a nonprofit CCA engages in money transmission when providing a DMP, the
Department should not deem the business to be that of a money transmitter for purposes of the
Act.
III. Conclusion.
Accordingly, for the reasons set forth in this letter, we believe it is appropriate for the
Department to issue an interpretive ruling to the effect that nonprofit CCA providers of DMPs are
not required to be licensed as money transmitters because they do not engage in activities that
constitute money transmission within the meaning of the Act. In this regard, we request your
____________________________________
I3 Cal. Fin. Code § 12002.1.
14 Cal. Fin. Code § 12104.
Mr. William S. Haraf
October 19, 2010
Page 10
assurance through an order that your Department would not take enforcement action against
nonprofit CCAs in connection with the offer and provision of DMPs in your state. In the
alternative, if such activity were to be considered money transmission, we respectfully request
that, pursuant to Article 2, Section 1806 of the Act, the Department grant nonprofit CCAs an
exemption from the requirements of the Act and advise us of any filings, additional notices or
conditions required in connection with such an exemption by individual nonprofit CCAs.
As noted above, subject to the requirements of the Pro raters Law, nonprofit CCAs provide
DMPs to consumers in financial distress. Due to the January 1, 2011 effective date of the Act, we
respectfully request that you provide as soon as possible, and in any event before January 1, 2011,
the above-requested confirmation or exemption, or advise us if an application or additional filings
are required, so as to allow time for us to provide you with additional information that you may
need prior to the effective date. We will endeavor to respond as quickly as possible to any
questions or informational requests to facilitate this timing. Further, if the Department determines
that licensure is necessary, we respectfully request a reasonable grace period for obtaining
licensure be allowed in order for organizations to file a formal application.
* * * * * *
Thank you for your attention to this matter. If you require any additional information or
have any questions please feel to contact the undersigned at ____________________.
Respectfully submitted,
Attachments
cc: Robert Venchiarutti, Deputy Commissioner, California Dept. of Financial Institutions
Financial Crimes Enforcement Network
Department of the Treasury
FinCEN Ruling 2004-4 -Definition of Money Services Business
(Debt Management Company)
November 24, 2004
Dear [ ]:
This letter responds to your letter dated June 16, 2004, requesting a
determination as to whether your client, [the business], is a money services business
(“MSB”) for purposes of regulations promulgated by the Financial Crimes Enforcement
Network (“FinCEN”), under the Bank Secrecy Act (“BSA”). In response to our
subsequent request, you provided additional information about [the business] by letter
dated October I2, 2004. Pursuant to 31 CFR § 103.85 governing FinCEN’s authority to
issue administrative rulings, FinCEN has determined, based on the representations in
your letters, that [the business] is not an MSB as defined in 31 C.F.R. § 103.11(uu).
You have represented that [the business] proposes to enter into business as a debt
management company. In general, a debt management company holds itself out as
providing services to debtors in the management of their debts. Debt management
companies contract with a debtor for a fee to (i) effect the adjustment, compromise, or
discharge of debts, and (ii) receive funds from debtors, and to remit such funds to
creditors on a debtor’s behalf. I Creditors that accept payments from debt management
companies grant benefits to their client debtors, such as interest rate reductions, waiver
of late charges, and reduction in monthly payment amounts. [The business] would make
monthly payments to creditors on behalf of its client debtors. [The business] also
provides debtors with access to educational resources to assist in budget planning, such
as newsletters, online educational content, and financial counseling support.
A debtor client of [the business] would make a monthly payment consisting of the
payment to be made to creditors on the debtor’s behalf by [the business], and a fee for
[the business]. Debtors’ funds would be transmitted to [the business] either via ACH
debits to debtors’ checking accounts by [the business]’s financial institution, or money
order made payable to [the business]. [The business] would deposit the funds into one or
more trust accounts established by [the business] at a national banking association. [The
business] would distribute the funds to creditors either via Mastercard’s Remote Payment
and Presentment Service, or by paper check drawn on [the business]’s account. While the
majority of creditors that accept payments by [the business] on behalf of debtors are
____________________________________
I See, e,g., S.D. Codified Laws § 22-47-1 (2004).
credit card companies, a small number of medical services providers and utility
companies also participate. [The business] requests a determination whether FinCEN
would deem it an MSB by virtue of the debt management service it would provide.
Money services businesses, a category of financial institution for purposes of
regulations implementing the BSA, are defined at 31 CFR § 103.11(uu) and include
currency dealers and exchangers, check cashers, issuers, sellers, and redeemers of
traveler’s checks, money orders, or stored value, money transmitters, and the United
States Postal Service. MSBs must comply with various reporting and record-keeping
requirements, and must implement anti-money laundering programs. In addition, certain
MSBs are subject to the requirement to register with FinCEN. The only MSB category
into which [the business]’s business would possibly fall is money transmitter. The
definition of money transmitter for purposes of BSA regulations found at 31 CFR 103.11
(uu)(5) includes:
(A) [a]ny person, whether or not licensed or required to be licensed, who
engages as a business in accepting currency, or funds denominated in
currency, and transmits the currency or funds, or the value of the currency
or funds, by any means through a financial agency or institution, a Federal
Reserve Bank or other facility of one or more Federal Reserve Banks, the
Board of Governors of the Federal Reserve System, or both, or an
electronic funds transfer network; or
(B) [a]ny other person engaged as a business in the transfer of funds.
Whether a person is a money transmitter for BSA purposes is a matter of facts and
circumstances. Based on the information contained in your letters, we conclude that [the
business]’s debt management service does not constitute money transmission. As set
forth in 103.II(uu)(5)(ii), FinCEN will generally not treat as a money transmitter a person
engaged in the acceptance and transmission of funds “as an integral part of the execution
and settlement of a transaction other than the funds transmission itself….” The general
service that [the business] provides is to help debtors create a plan for payment and/or
adjustment of their debts, and to obtain the agreement of creditors to accept payment
under that plan. FinCEN views the money transmission that [the business] conducts as
ancillary to the debt management service that [the business] provides, and incidental to a
debtor’s primary purpose in using the services of [the business]. To the extent that the
money transmission conducted by [the business] is limited to submitting payments to
creditors on behalf of debtors in conjunction with a debt management plan, FinCEN
would not deem [the business] a money transmitter for purposes of 31 CFR
103.11(uu)(5).
In arriving at our decision, FinCEN relied upon the accuracy and completeness of
the representations made in your letters and submissions. Nothing precludes FinCEN
from seeking further action should any of this information prove inaccurate or
incomplete. FinCEN reserves the right to publish this letter as guidance to financial
institutions with information redacted in accordance with your request under 31 CFR §
2
103.81(a)(5), and as indicated in your June 16, 2004 letter. You will have 14 days after
the date of this letter to identify any other information you believe should be redacted and
the legal basis for the redaction. Should you have any questions, please telephone Anna
Fotias, Senior Regulatory Compliance Specialist, at 202-354-6413.
Sincerely,
//signed//
William D. Langford, Jr.
Associate Director
Regulatory Policy and Programs Division
3
Financial Crimes Enforcement Network
Department of the Treasury
FinCEN Ruling 2003-8 -Definition of Money Transmitter (Merchant
Payment Processor)
November 19, 2003
Dear [ ]:
This letter responds to your letter dated February 5, 2003, requesting an
administrative ruling with respect to whether [ ] is required to register with FinCEN as
a Money Services Business in accordance with 31 CFR 103.41 by virtue of operating
[ ]. Based on the representations contained in your letter, FinCEN has determined that
[ ] is not a Money Services Business as defined in 31 CFR 103.11(uu), by virtue of the
ACH processing services provided by [ ], and is therefore not required to register with
FinCEN.
According to your letter, [ ] operates a service called [ ] that provides thirdparty
origination services for Automated Clearing House (“ACH”) transactions on behalf
of merchants. Through [ ], merchants can accept customer payments for purchases
made through a merchant’s web site, or by telephone, in the form of a checking account
debit. [ ]’s merchant customers obtain payment instructions to debit a customer’s
checking account and submit these payment instructions to [ ] through [ ]. [ ]
batches and submits the debit information to [ ]’s bank for processing through the ACH
system. Once [ ]’s bank initiates the ACH, the depository institution at which the
merchant’s customer maintains a checking account debits the account of the customer,
and sends a credit instruction through ACH to [ ]’s bank, which then credits the amount
to an operating account maintained at the bank by [ ]. After a temporary holding period
to ensure that the transaction initiated by the merchant is not returned, [ ] remits the
funds to the merchant. Through [ ], merchants are also able to initiate credits to provide
refunds to customers. You have asked whether [ ] would be deemed a money
transmitter in accordance with 31 CFR 103.11 (uu)(5) by virtue of providing this service.
The definition of money transmitter for purposes of BSA regulations found at 31
CFR 103.11(uu)(5) includes:
(A) [a]ny person, whether or not licensed or required to be licensed, who
engages as a business in accepting currency, or funds denominated in
currency, and transmits the currency or funds, or the value of the currency
or funds, by any means through a financial agency or institution, a
Federal Reserve Bank or other facility of one or more Federal Reserve
Banks, the
Board of Governors of the Federal Reserve System, or both, or an electronic
funds transfer network; or
(B) [a]ny other person engaged as a business in the transfer of funds.
FinCEN does not currently interpret the definition of money transmitter to include the
third-party origination service that is described in your letter. The nature of the
transactions you describe is the transfer of funds through the ACH system from a
customer to a merchant as payment for goods and services. [ ]’s role in the transactions
is to provide merchants with a portal to a financial institution that has access to the ACH
system. [ ] acts on behalf of merchants receiving payments rather than on behalf of
customers making payments. For these reasons, the service that [ ] provides through [
] more closely resembles payment processing/settlement than money transmission.
Therefore, to the extent that the role of [ ] in such transactions is limited to submitting
payment instructions obtained from a merchant to a bank for ACH processing, and
remitting the funds received through the ACH process to the merchant (or in some cases,
refunding money to the merchant’s customer through an ACH transaction), FinCEN
would not deem [ ] a money transmitter for purposes of 31 CFR 103.11 (uu)(5).
In arriving at our decision in this matter, FinCEN relied upon the accuracy and
completeness of the representations made in your February 5, 2003 letter. Nothing
precludes FinCEN from seeking further action should any of this information prove
inaccurate or incomplete. Finally, we note that you have requested that certain
information contained in your letter be held in confidence and exempt from disclosure
under the Freedom of Information Act, 5 U.S.C. 552. FinCEN reserves the right to
publish this letter as guidance to financial institutions with all identifying information
about you, [ ], [ ], and [ ], redacted. You will have 14 days after the date of this
letter to identify any other information you believe should be redacted and the legal basis
for the redaction. Should you have any questions, please telephone Christine Del Toro of
my staff at (703) 905-3590.
Sincerely,
//signed//
Judith R. Starr
Chief Counsel
cc: David M. Vogt, Executive Associate Director, Office of Regulatory Programs
Deborah Silberman, Chief, MSB/Casinos/IRS Programs
2