1. 17th National Forum on Prepaid Card Compliance
Keith J. Barnett, Esq.
January 30, 2017

2. Payment Processors and Money Transmitters
Federal Law – Payment Processor Exemption
A money transmitter is not a person who “[a]cts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller.” 31 CFR § (ff)(5)(i)(A) and (B)

3. Payment Processors and Money Transmitters
FinCen Test for the Exemption
Does the entity providing the service facilitate the purchase of goods or services, or the payment of bills for goods or services (other than money transmission itself)?
Does the entity operate through clearance and settlement systems that admit only BSA-regulated financial institutions?
Does the entity provide the service pursuant to a formal agreement with the seller or creditor that provided the goods or services and receives the funds?
**It is a federal crime to act as a money transmitter, as that term is defined under state law, without a money transmitter license.

4. State Money Transmitter Laws – Laws Are Not Changing, But Interpretations Are
Pennsylvania – Money transmitter licensing requirements for certain payment processing activities
“No person shall engage in the business of transmitting money by means of a transmittal instrument for a fee or other consideration without first having obtained a license from the Department of Banking [and Securities] nor shall any person engage in such business as an agent except as an agent of a person licensed or exempted under this act.” 7 P.S. § 6102.

5. Payment Processors And Charitable Donations – September 29, 2015 Pennsylvania Memo
Does the payment processor?
Collect a donor’s banking account number or credit card account number, the dollar amount to be transferred, and whether it is a recurring or one time transfer?

6. Payment Processors And Charitable Donations – September 29, 2015 Pennsylvania Memo
Collect bank account information from the third-party recipient, including the third-party recipient’s financial institution, the associated banking account number and the amount to be deposited?
Use the collected information to create a transmittal instrument that contains the instructions for debiting a donor’s banking account or charging a debt to a Donor’s credit card in order to deposit those funds into the account of the third-party recipient?
If yes, then the payment processor must have a money transmission license in Pennsylvania.
“‘Transmittal instrument’ means any check, draft, money order, personal money order or method for the payment of money or transmittal of credit, other than a merchandise gift certificate sold in the regular course of business by a vendor of personal property or services.”

7. Reconciling the Pennsylvania Interpretation With Federal Law
“[T]he purpose of state licensing as a money transmitter is to provide protection for the Donor’s funds through the net worth and bond requirements of the statute. This is in contrast to a money services business or money transmission under federal law.”

8. Washington – December 7, 2015 Interpretive Statement on Payment Processors
“Payment processing is money transmission as defined in the Act.” “‘Money transmission’ means receiving money or its equivalent value to transmit, deliver, or instruct to be delivered the money or its equivalent value to another location, inside or outside the United States, by any means including but not limited to by wire, facsimile, or electronic transfer”

9. Washington – December 7, 2015 Interpretive Statement on Payment Processors
Money transmitter is not “an operator of a payment system only to the extent that it provides processing, clearing, or settlement services, between or among persons who are all excluded by this section, in connection with wire transfers, credit card transactions, debit card transactions, stored-value transactions, automated clearinghouse transfers, or similar funds transfers.”
Payment processors must obtain money transmission licenses unless they apply for and receive a waiver.

10. Washington and Payment Processors
Waivers are allowed if they pass a modified version of the federal exemption test:
The payment processor must facilitate payments for goods, services or bill payments by receiving money or its equivalent value from the consumer and delivering it to the merchant;
The payment processor operates through a settlement system that admits only BSA-regulated financial institutions;

11. Washington and Payment Processors
Waivers are allowed if they pass a modified version of the federal exemption test:
The payment processor company operates pursuant to a formal agreement with the merchant; and
The formal agreement creates an agency relationship between the merchant and payment processor.
**A payment processor of virtual currency, to the marijuana industry, or whom holds value beyond the time period necessary to complete the purchase of a good or service is not eligible for the waiver.