Changes in Money Transmitter Licensing Laws
ComplianceJuly 14, 2015

Changes in money transmitter licensing laws – California Money Transmission Reform Act

The federal government, forty seven states, and the District of Columbia all require licenses for money transmitter businesses. The state laws apply broadly to businesses that receive money for the purposes of transmitting it. As the internet has evolved as a marketplace, more and more businesses are finding that they are subject to money transmitter laws and licenses.

Recent changes to the California law have eased license requirements for money transmitters. One of the primary goals of the California Money Transmission Reform Act is to “remove barriers to market entry to start-up payment technology companies.”. This amendment was motivated by emerging internet markets, including Bitcoins, and the unlicensed operation of money transmission by providers who could not meet the state’s minimum capital requirement.

The amendment cuts the minimum tangible shareholder’s equity required to be maintained by licensees in half from $500K to $250K. This would allow the number of companies meeting the minimum requirements of capital to significantly increase. However, the amendment also adds the ability for the Commissioner of the Department of Business Oversight (the Commission that oversees these companies) to act upon his own discretion when referring to certain guidelines. If the Commissioner decides to scrutinize any specific market on a higher level than others, that is perfectly legal. The Act pushed the lowering of capital requirement so previously unlicensed operators were able to obtain a license, opening up for a wider regulation of the markets.

Prior to the passage of the Reform Act, Payroll Companies were included in the registration requirements. Through vigorous lobbying by the National Payroll Reporting Consortium (NPRC), an organization of many of the largest payroll companies, these companies are now excluded. Business-to-business transactions such as payroll management are now exempt from registration requirements for money transmittal.1

A person is prohibited from holding itself out as conducting money transmissions in California unless properly licensed.2 Licensees must now file audit reports with the commissioner within 90 days after the end of their fiscal year. Various fees have been changed, including but not limited to, (1) a $5,000 application fee; (2) annual fee of $2,500; (3) annual branch office fee of $125; (4) annual fee of $25 per branch employee.

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