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A recent Pennsylvania Department of Banking and Securities’ advisory about potentially requiring independent sales organizations and processors to obtain money-transmitter licenses could pose problems for the payments industry.
“It’s the wrong execution of the right idea,” Scott Talbott, senior vice president for government affairs at the Electronic Transactions Association, tells Digital Transactions News. In September, the Pennsylvania agency issued a letter from Robin L. Weissmann, its secretary, encouraging payment processors, ISOs and their banks to “ensure that the process of collection and receiving donations in which they are engaged is in compliance with the money-transmission laws of the Commonwealth.”
First, the background on the letter. The issue involves donations made to charitable, religious or political non-profit organizations. A company collects the donor’s identification and payment information to create what the state calls a transmittal instrument, which is used to debit the consumer’s payment account.
That is an issue because companies conducting money transmittals must supply Pennsylvania with a $1 million bond and have a minimum net worth of $500,000, standards which many ISOs that service charitable organizations do not meet. The state’s letter says federal law is “irrelevant to a determination that one is acting as a money transmitter for purposes of state law and the need to comply with state law.”
Comment from the state agency about the letter was not available.
But Talbott says if the proposal advances it could have a number of effects on the merchant-acquiring industry. One is that it could present a conflict between federal and state law, creating confusion for payments companies. Typically, federal law supersedes most state legislation. Pennsylvania’s approach throws that into question.
Another potential effect is the liability impact if the companies that collect money on behalf of a charity and remits that money—called payment facilitators—are brought under the wings of ISOs and processors and forced to get money-transmitter licenses, he says. That creates a liability problem, he says.
A third possible effect is that ISOs and processors will shy away from doing business in states requiring them to get money-transmitter licenses. A related concern is that should Pennsylvania get its way, other states may follow, resulting in what Talbott calls a misapplication of existing money-transmitter laws “with potentially hazardous results.”
The ETA, a Washington, D.C.-based trade group representing the acquiring industry, is sponsoring a webinar Nov. 9 for state agencies that handle money-transmitter licensing.
The association’s concern about Pennsylvania’s position does not preclude supporting those entities seeking a money-transmitter license, Talbott says, nor tackling fraud. “We’re on the same page,” Talbott says. “Our goal is to provide an overview of how modern payments works in light of money-transmitter licensing laws. There are more effective, targeted ways to achieve their goals of protecting the citizens of Pennsylvania.”
