Payee Agents under the MTA

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June 26, 2014

 

Re:       __________________________ – Opinion Request

 

Dear ____________:

 

This is to follow up on your request that the Department of Business Oversight

(Department) make a determination of whether _________________ is engaged in a business which is regulated by the California Money Transmission Act (commencing with FC 2000) (MTA).  As used herein, the term “FC” means “Financial Code Section.”  

It is the Department’s understanding from your letter, and our telephone conversations and emails, that __________ is engaged in providing point of sale terminals, mainly to small businesses.  Businesses with ____________ that have entered into a Marketplace Terms of Services Agreement (Marketplace Agreement) with __________ may purchase certain software products (Applications) through their ______________ terminals.  The Applications can only be used on the _______________.  The Applications are licensed and delivered through the ______________.  Payments for the Applications, including any periodic payments of subscription fees for the use of the Applications, are also collected by ___________ through the _________________.  Some subscriptions fees can be billed in advance of usage of the Application.  

The Applications have been developed by either _________ (including its affiliates) or a thirdparty-developer (Developer).  In either case, the use of each Application is governed by an End User Application License.  In the case of Applications developed by Developers, __________ enters into a Developer Distribution Agreement with each Developer, pursuant to which, among other things, ________ is authorized to distribute the Developer’s Applications and to remit payments for the sale of the Applications to the Developer, for which __________ provides payment processing.  _________ acts as an agent for the Developer when it provides customers with an Application and the End User Application License through the ________.  ___________ is not a party to the license between the customer and the Developer.  The End User Application License is a direct license between the Developer and each customer, not a sublicense through _________.  A Developer is solely responsible for its Applications, including any claims that customers may have relating to the Applications.  Customers pay for the Applications by credit or debit cards through the _____________ in accordance with the Marketplace Agreement.  The payments are handled through a standard payment card network settlement process and the limited license to use the Application is immediately delivered in “real time” by _________ to customers.  __________ then apportions each payment between itself and the Developer and sends the Developer its share.  

Based upon all the foregoing, it appears that _________ engages in receiving money for transmission via its ___________ customers.  Thus, __________ must be licensed under the MTA in order to provide, in California, the software application license and delivery services described in your letter.  It is the Department’s view that ________ is receiving money for transmission when _________ accepts payments for the Developer as the authorized agent of the Developer even if payment to _________ constitutes payment to the Developer.  That the transaction is complete, from the customer’s perspective, at the time money is tendered to _________ because the customer’s payment obligation to the Developer is extinguished when the customer pays _________ is not determinative of whether the Provider is engaged in money transmission under the MTA.   

Pursuant to FC 2003(s), “receiving money for transmission” is not defined by the respective liability of the transaction’s parties; it is defined as “receiving money… for transmission.”  The fact that the customer’s liability to the Developer is satisfied when the customer’s bill is paid has no bearing on whether money is being received for transmission.  Moreover, whether or not _________ is acting as a payment agent for a Developer, ______ is nonetheless transmitting money between the customer and the Developer.  All of the Developer’s agents in the transaction (i.e., _______) hold the Developer’s funds before transmitting the money to the Developer.  

In summary, _________ stands as the intermediary between the customer and the Developer, transmitting monetary value between them.  The conduct of transmitting money from one person to another person falls squarely within the meaning of money transmission under the MTA.  Thus, any Developer transactions involving the payee-agent structure require licensing under the MTA.  There is no statutory exemption from the MTA for an agent of a payee.[1]

Please be advised that Assembly Bill 2209, introduced in the 2013-2014 regular session of the Legislature, provides for a statutory exemption from the MTA for certain transactions involving agents of a payee.  Should this bill be passed by the Legislature and signed by the Governor this year, it would become effective on January 1, 2015.    

This opinion is based solely on the facts presented in your correspondence, and the Department’s understandings of those facts.  The Department may reach a different conclusion under other facts and circumstances.  This letter does not express any opinions regarding the payment processing activities of ________ or ________ on behalf of merchants that use _______ point of sale terminals and the customers of those merchants.  If you have any questions or comments, please contact me at 213.897.2172.

 

This opinion will be made public on the Department’s internet website as required by FC 2174(b).  The Department will redact ________ name in the version of the opinion that is posted on the Department’s website.

 

Sincerely,

 

JAN LYNN OWEN

Commissioner of Business Oversight

 

                            By

 

                                        WALLACE M. WONG 

                                        Senior Counsel 

 

WMW:jg

 

 

[1] See also Payee-Agent and Factoring Arrangements under the MTA, Department of Business Oversight, March 3,

  Available at: http://www.dbo.ca.gov/Laws_&_Regs/dfi_orders_files/2014_MTA_redacted_letter.3.4.14.pdf