Agent of Payee – Payment Processing

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February 27, 2018

RE:     ____________________ and ____________________

Dear ____________________:

Thank you for your letter dated August 3, 2017 to Robert Venchiarutti, Deputy

Commissioner of the Money Transmitter Division of the Department of Business Oversight. As Counsel for the Legal Division, I have been asked to respond to this matter. Your letter requests a determination that the California Money Transmission Act (“MTA”) agent-ofpayee exemption applies to payment processing conducted by ____________________

(“__________”) in connection with ____________________’s (“__________”) bill payment service (the “Service”). Your letter also requests a determination that ____________________ is not engaged in money transmission under the MTA.

For the reasons discussed below, the Department concludes that the MTA does not apply to those transactions where ____________________ is receiving customer payments because it is acting as an agent of payee. Additionally, if ____________________’s role in the Service is limited

to providing data processing services, corporate services, marketing, business development, and technology solutions, ____________________ is not subject to the MTA. However, the language of the agreements between ____________________ and the billers does not make it clear to the biller that ____________________ never receives money for transmission. Therefore, the Department cannot confirm that ____________________ does not ever receive money for transmission.

Background

Bill Payment Service

____________________ is not a licensed money transmitter in California. Rather,

____________________ contracts with billers to accept payments from the biller’s customers.[1] In the Service described in your letter,[2] customers transmit payments using

____________________’s website, mobile application, interactive voice response system, or customer service application, or another online, mobile, or interactive voice response that the biller hosts or owns.

When using the Service, the customer agrees that ____________________ and its affiliate, ____________________, (collectively, “____________________”) can process the payment and charge his or her credit card or debit the customer’s bank account. The payment is processed through an Automated Clearing House and credited to the biller’s bank account.

Contractual Language

In light of regulatory changes in various states regarding which payment processing models would not be considered reportable as money transmission, ____________________ and ____________________ clarified the nature of ____________________’s contractual relationship with its billers. In 2016, ____________________ required its existing billers to sign an acknowledgement letter. This letter stated, in part, that:

“    1. The funds comprising the Customer Payments are [biller’s] property.

  1. ____________________ and [____________________] are acting as [biller’s] authorized agents for the limited purpose of receiving Customer Payments from Customers on the [biller’s] behalf and [biller] expressly authorizes ____________________ and [____________________] to receive Customer Payment funds on [biller’s] behalf.
  2. Payment from Customer to ____________________ or [____________________] shall be considered payment to [biller], extinguishing Customer’s payment obligation to the [biller] (in the amount paid by Customer) as if the

Customer had paid the [biller] directly. Such is the case even if the Customer Payments is not received by [biller] from ____________________ or [____________________].

  1. ____________________, and not the individual Customer, is solely liable to

[biller] for Customer Payment funds if ____________________ or

[____________________] fails to remit Customer Payment funds to [biller].”

In your letter, you stated that, as of March 30, 2017, all of the existing billers had acknowledged and agreed to these terms, or entered into an amendment to their agreement containing substantially similar statements as the acknowledgement letter. For any new billers, an addendum to the form agreement that these new billers sign designates ____________________, as agent of the biller, to be joined as a party to the agreement for the limited purpose of receiving customer payments. The addendum contains substantially the same four terms quoted from the acknowledgement letter above.

Roles of ____________________ and ____________________ in Providing the Service

In your letter, you explained that ____________________ is not currently involved in the receipt of funds.[3] Rather, it only provides data processing services, corporate services, marketing, business development, and technology solutions by designing, operating and servicing the systems that allow customers to make payments. You explained that although technology owned by ____________________’s parent, ____________________, receives payment instructions from customers, it is ____________________ that processes the payments.

You also explained that the funds never are held in ____________________’s name, treated as an asset of ____________________, or available for ____________________’s use. Instead, the funds are held in ____________________ accounts and reflected on ____________________’s financial statements.

Money Transmission Act

The Money Transmission Act provides that a person shall not engage in the business of money transmission in California unless the person is licensed or exempt from licensure under the MTA, or is an agent of a person licensed or exempt from licensure.[4] Financial Code section 2003, subdivision (q) defines “money transmission” in relevant part as receiving money for transmission. Financial Code section 2003, subdivision (u) defines “receiving money for transmission” as receiving money or monetary value in the United States for transmission within or outside of the United States by electronic or other means.

As explained in your letter, ____________________ receives customer payments from customers and holds the funds in a ____________________ bank account. ____________________ therefore receives money for transmission under Section 2003, subdivision (u). ____________________ is already licensed under the MTA, and the transactions it processes for the Service are subject to the reporting requirements of the MTA, unless there is an exemption for those transactions.

Agent of Payee Exemption

Financial Code section 2010, subdivision (l) exempts from the MTA transactions in which a money transmitter acts as the “agent of the payee.” Under this subdivision, the transaction is exempt if the transmitter acts as an agent of the payee under a preexisting written contract and delivery of funds to the transmitter satisfies the payor’s obligation to the payee for the goods or services[5] provided.

The acknowledgement letter and the addendum are written agreements stating that, when ____________________ receives money for transmission: (a) ____________________ is acting as the biller’s authorized agent for purposes of receiving customer payments; and (b)

____________________’s receipt of payment from the customer satisfies the payor’s (customer’s) obligation to the payee (biller). The transactions that ____________________ processes for this Service satisfy the requirements of Section 2010, subdivision (l) because ____________________ act as the agents of the payee pursuant to a preexisting written contract. Therefore, the MTA does not apply to the transactions where ____________________ receives the customer payments as the biller’s agent.

Determination Whether ____________________ is Receiving Money for Transmission

Your letter requests a determination that ____________________ is not engaged in money transmission under the MTA. As stated earlier, you explain that ____________________ currently only provides data processing services, corporate services, marketing, business development, and technology solutions by designing, operating and servicing the systems that allow customers to make payments. Based on that description, your conclusion that ____________________ is not currently engaged in money transmission seems accurate.

However, the language of the agreements between ____________________ and the billers does not make it clear to the biller that ____________________ does not ever receive money for transmission. Rather, as you pointed out in your letter, the agreements contemplate the possibility of ____________________ receiving the funds instead of ____________________. As such, the Department cannot confirm that ____________________ does not ever receive money for transmission.

Conclusion

The Department finds that the Service falls within the MTA’s definition of “money transmission;” however, the MTA does not apply to those transactions where

____________________ is receiving payments because ____________________ is acting as an agent of the payee pursuant to Financial Code section 2010, subdivision (l). The Department’s determination is limited to ____________________’s activities related to receiving money for transmission for the Service, and does not extend to ____________________’s other activities. Based on the information you provided, the Department cannot confirm that ____________________ never receives money for transmission.

This opinion is limited to the facts and circumstances described above regarding the application of the MTA. Should any of the facts or circumstances change, the Department’s opinion may also change.

Should you have any questions, please contact the undersigned at ____________________.

Sincerely,

Jan Lynn Owen

Commissioner

Department of Business Oversight

By

Julie L. Jacob

Counsel

[1] In your letter, you noted that in a limited number of circumstances, ____________________ is the contracting party.

[2] You acknowledged that ____________________ may separately contract with financial institutions, or its service providers, to act as a “back office processor” and facilitate the processing of the financial institutions’ bill payment services. This letter does not address that type of service.

[3] The acknowledgement letter and addendum contemplate ____________________, and not just ____________________, as acting an agent of the biller for purposes of receiving customer payments. However, in your letter, you explained that ____________________ is not receiving funds, but that if funds start to instead be processed through ____________________ bank accounts, ____________________ may seek confirmation from the Department that an exemption to the MTA licensing and reporting requirements applies. This letter does not address that hypothetical situation.

[4] Fin. Code, § 2030, subd. (a).

[5] This letter does not opine whether the goods and services provided by each biller are the type contemplated in Financial Code section 2010, subdivision (l) because the Department is currently drafting regulations to clarify this topic. Therefore, the Department is not considering this factor in its opinion regarding whether this Service qualifies for the agent of payee exemption.

Last updated: Oct 14, 2019 @ 5:21 pm