Agent of Payee Exemption – Online Platform for Goods or Services

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IN REPLY REFER TO: _________

FILE NO: _________

October 10, 2019

Re: ________Request for Interpretive Opinion (Agent of Payee Exemption) –

 

Dear Mr.___________ :

 
Thank you for your letter dated June 4, 2019, supplemented by _________’s letter dated August 15, 2019, requesting an interpretive opinion from the Department of Business Oversight (“Department”) as to whether _______ (“_______”) is exempt from the requirement to obtain a license under the Money Transmission Act1 (“MTA”).

Background

__________ provides an online platform (“Platform”) through which __________ bands (“Bands”) may sell band inventory, including _______, to their fans (“Customers”) in exchange for Customers’ payments. To provide flexibility to Platform users, ________ offers three different options for these transactions.

Under Option One, the Bands sell inventory directly to the Customers, and the Customers pay the Bands directly for the inventory without using ___________ as an intermediary. For this option, _________ does not collect any money from the parties to the transaction other than an administrative fee from the Bands for using the Platform.

Under Option Two, the Bands authorize ________ to sell inventory to Customers on behalf of the Bands, bill the Customers for these purchases, and collect payments from the Customers pursuant to a pre-existing written contract between ________ and the Band (“Band Agreement”). The Band Agreement appoints ____________ as Band’s agent to collect payments from Customers who purchase inventory sold by the Band through the Platform and states __________’ receipt of Customer’s payments due to the Band for inventory sold through the Platform satisfies the Customers’ obligation to the Band. Once ________ receives payment from the Customer, _________ forwards this money to the Band after deducting its own fees.

Option Three is the same as Option Two, except the Band can also use the Platform to order inventory from a third-party supplier (“Supplier”) to help fulfill orders made by the Customer. After a Customer orders and purchases the inventory, the Band orders this inventory from the Supplier. ___________ first receives payment on behalf of the Band, as it does in Option Two, but then, pursuant to the Band’s instruction, ________ pays the Supplier pursuant to _________’ pre-existing written contract with the Supplier (“Supplier Agreement”). The Supplier Agreement appoints __________ as Supplier’s agent to collect payments owed by the Band for inventory furnished by the Supplier and states ________’
receipt of payments due from the Band for Supplier’s inventory satisfies the Band’s payment obligation to the Supplier.

Money Transmission Act

Under the MTA, a person shall not engage in money transmission in California, unless the person is licensed, exempt from licensure, or an agent of a person licensed or exempt from licensure.2 “Money transmission” includes: (1) selling or issuing payment instruments, (2) selling or issuing stored value, or (3) receiving money for transmission.3 “Receiving money for transmission” is defined as “receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means.”4

Section 2010 establishes various statutory exemptions from the MTA and, in subdivision (l), exempts transactions where the recipient of money or monetary value is an “agent of the payee.” This agent-ofpayee exemption requires: (1) “a transaction in which the recipient of the money or other monetary value is an agent of the payee pursuant to a preexisting written contract”; and (2) “delivery of the money or other monetary value to the agent satisfies the payor’s obligation to the payee.”5 For purposes of this exemption, “agent” has the same meaning as that in Civil Code section 2295, “payee” means “the provider of goods or services, who is owed payment of money or other monetary value from the payor for the goods or services,” and “payor” means “the recipient of goods or services, who owes payment of money or monetary value to the payee for the goods or services.”6

Analysis

Under Option One, ______ does not engage in money transmission because it does not sell or issue payment instruments, sell or issue stored value, or receive money for transmission. Instead, _______ collects an administrative fee from the Band for using the Platform to connect with Customers.

Under Option Two, ________ engages in money transmission by receiving money from Customers for transmission to the Band. However, based on the information provided, the Department concludes ________’ activities under this option qualify for the agent-of-payee exemption. The proposed language in the Band Agreement shows the Band is the Payee, the Customer is the Payor, and _________ is the agent of the Band (i.e., agent of the payee). Moreover, Schedule B of the Band Agreement states ________’ receipt of funds from the Customer satisfies the Customer’s payment obligation to the Band.

Under Option Three, when it acts as the agent of the Supplier, ________ is engaged in money transmission by receiving money for transmission to the Supplier. However, based on the information provided, the Department concludes _________’ services to the Supplier also qualify for the agent-of-payee exemption. The proposed language in the Supplier Agreement shows the Supplier is the Payee, the Band is the Payor, and ________ is the agent of the Supplier (i.e., agent of the payee). Moreover, according to Section 3.1 of the Supplier Agreement, ___________’ receipt of funds owed by the Band satisfies the Band’s payment obligation to the Supplier for the inventory sold.

Conclusion

The Department finds the services provided by _________ under Options 2 and 3 fall within the MTA’s definition of “money transmission”; however, the MTA does not apply to these transactions because __________ is acting as an agent of the payee pursuant to Section 2010, subdivision (l).

This opinion is limited to the facts and circumstances described above regarding the applicability of the agent-of-payee exemption under the MTA. Should any of the facts or circumstances change, the Department’s opinion may also change.

Please contact me at ________or __________ with any questions.

Sincerely,

Manuel P. Alvarez
Commissioner
Department of Business Oversight

By ______________
Senior Counsel

cc: Robert Venchiarutti, Department of Business Oversight, San Francisco


1Fin. Code, § 2000 et seq. All references in this letter to “Section” are to the Financial Code.
2Fin. Code, § 2030, subd. (a).
3Fin. Code, § 2003, subd. (q).
4Fin. Code, § 2003, subd. (u).
5Fin. Code, § 2010, subd. (l).
6Fin. Code, § 2010, subd. (l)(1)-(3).

Last updated: Oct 17, 2019 @ 4:55 pm