eBook | Regulatory Guide To Money Transmission & Payment Laws In The U.S

The New Year Marks New Money Transmission Developments in Michigan and California

Money transmission is going to undertake some forms of change in both Michigan and California. Both have to do with what is know as an “agent of payee” and how the definition of the term. In the state of Michigan has passed through legislation in which transactions enacted by an “agent of payee” are not subject to regulation through the state’s money transmission licensing law. In the state of California, the DBO (Department of Business Oversight) feels it more necessary to better identify what activity is free from money transmission licensing.

In Michigan, an “agent of payee” is described to be a person “appointed by a payee to collect and process payments as the bona fide agent of the payee”. Starting from April 1st, 2019, changes to the Michigan Money Transmission Services Act may allow some companies the ability to exempt themselves from payee status should they be able to sufficiently prove to the director of the Michigan Department of Insurance that certain criteria are met. Such criteria are as follows:


  • There is a written agreement between the agent and the payee “directing the agent to collect and process payments on the payee’s behalf”

  • “The payee holds the agent out to the public as accepting payments on the payee’s behalf”

  • When the agent receives the payment it is “treated as received by the payee”


While the idea and practice of money transmission is widespread throughout the country, it is defined differently based on the state in question. Since the rules can be far reaching and cover a lot of ground, knowing what and who is impacted by the law is critical. The matter at hand centers around non-bank payments service providers, whether they can provide services under the current money transmission laws and whether they would require money transmission licenses to do so.

Recently, a ruling was handed down in the state of California in regards to what was and was not exempt under the existing money transmission laws of the state. Whereas the company that contested the laws felt as if it was exempt because it “receives funds from a consumer /payor and delivers the funds to a merchant/payee” as per an already in place contractual agreement, the state concluded that under the existing laws the company was not exempt.

Money transmission laws are ever present, and companies are looking to find ways to circumvent them as best they can to avoid falling under the laws’ umbrella. While some states (and applicable companies) are defining the laws better to fully understand them, other companies are looking for loopholes in the jargon to avoid them.

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