Opinions Letter – Payment processing service not exempt as agent of payee

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STATE OF CALIFORNIA

Department of Business Oversight

GOVERNOR   Gavin Newsom   ·   COMMISSIONER   Jan Lynn Owen 

January 18, 2019

Re:  _ – Request for Interpretive Opinion

Dear _______________:

Thank you for your email to the Licensing Division of the Department of Business Oversight dated June 15, 2018, as supplemented by your emails dated July 17 and August 29, 2018.  As Senior Counsel for the Legal Division, I have been asked to respond to your request.  ______________________________ (“_______________”) is requesting a determination of whether its payment processing service qualifies for the agent of payee exemption1 under the California Money Transmission Act (“MTA”).2

BACKGROUND

_______________ contemplates offering a service (“the Payment Service”), which would enable Chinese consumers traveling to the United States to purchase goods and services at participating merchants in California.  To facilitate this process, _______________ has separate agreements with ______________________________,  (“_______________”), a China-based payment processing affiliate of the ______________________________, and ______________________________ (“______), a  China-based payment processing company.  This new service would enable Chinese consumers traveling to the United States to pay for goods and services at participating merchants in California using their respective _______________ or ______ accounts and thereby avoid the inconvenience of exchanging Chinese currency for U.S. Dollars prior to purchasing.

_______________ represents the flow of funds for this transaction as follows: The mobile payment company (_______________ or ______) deducts (“__________”) from the user’s account in China and transfers ____________________ to the mobile payment company’s partner bank in China.  That Chinese partner bank then exchanges Chinese RMB into U.S. Dollars and wires the U.S. Dollars into _______________’s operational account with ____________________ (formerly named ____________________) in San Diego, California.  _______________ then transfers those funds to the merchant’s bank account.

MONEY TRANSMISSION ACT

  • Code, § 2010, subd. (l).
  • Code, § 2000 et seq.

Financial Code section 2003, subdivision (q), defines “money transmission” to include receiving money for transmission.  Section 2003, subdivision (u), defines “receiving money for transmission” to mean receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means.

Financial Code section 2030 prohibits a person from engaging in the business of money transmission in this state unless the person is licensed or exempt from licensure or is an agent of a person licensed or exempt from licensure.

Financial Code section 2010, subdivision (l), exempts from the MTA transactions in which the recipient of the money is an agent of the payee pursuant to a preexisting written contract, and delivery of the money to the agent satisfies the payor’s obligation to the payee.  For purposes of Section 2010, subdivision (l), “agent” has the same meaning as that term is defined in Civil Code section 2295.[1]  Agent is defined as one who represents another, called the principal, in dealings with third persons.4  “Payee” means the provider of goods or services, who is owed payment of money from the payor for the goods or services.[2]  “Payor” means the recipient of the goods or services, who owes payment of money to the payee for the goods or services.6

Agent of Payee Exemption Does Not Apply to _______________’s Payment Service.

The agent of payee exemption requires a transaction to have a payor and a payee. The flow of funds in the Payment Service, however, precludes application of the exemption because there is no payor within the definition provided in the MTA. The flow of funds begins with money flowing from a Chinese national’s bank account in China to _______________’s or ______’s partner bank in China. This money then goes from _______________’s or ______’s bank in China to _______________’s bank in the United States. 

The first instance of money transmission in connection with this transaction occurs when _______________ receives money in the United States because the definition of “money transmission” requires that money is received in the United States.[3] Although there has been a payment from the Chinese consumer to _______________ or ______ in China, there is no money transmission until money is received by _______________. Because there is no money transmission prior to money entering the United States, receipt of funds by _______________ is the beginning of the flow of funds for purposes of analyzing the transaction under the MTA.

In order for the agent of payee exemption to apply to this transaction, there must be a payor.  Under these facts, however, there is no payor.  The Chinese consumer cannot be the

payor because there is no money transmission until money has been received in the United States. Without a payor, the requirements of Financial Code section 2010, subdivision (l) are not satisfied.

The Public Interest Exemption.

Financial Code section 2011 authorizes the Commissioner to exempt from the MTA any person or transaction if the Commissioner finds such action to be in the public interest and the regulation of such person or transaction is not necessary. The California Code of Regulations provides factors the Commissioner may consider in analyzing whether to grant such exemption.[4]

_______________ has not requested an exemption under Section 2011.  If _______________ wishes to request such exemption, please provide all relevant facts, documents, and legal arguments to support its request. 

If you have any questions, please feel free to contact me at _______________.

 

Sincerely,

 

Jan Lynn Owen Commissioner

Department of Business Oversight 

 

                By

 

 

 

JLWR:ss

 

 

 

 

 

 

 

[1] Fin. Code, § 2010, subd. (l)(1). 4 Civ. Code, § 2295.

[2] Fin. Code, § 2010, subd. (l)(2). 6 Fin. Code, § 2010, subd. (l)(3).

[3] The definition of “money transmission” requires that money is received in the United States. See Financial Code §2003, subd. (u).

[4] 10 CCR 80.3002, subd. (b).