Vermont Money Transmitters Face New Regulatory Environment

Just a year ago, the Banking Department of the Vermont Department of Financial Regulation issued a position that was to prove difficult for money transmitter operations. The position in question focused on money transmission law and noted that the law did “…not exempt a payment processor an agent of a payee from licensure.” This law actually caused quite a bit of conflict, but recent laws enacted were poised to change the environment still further.

The Banking Department’s stance left payment processors and those affected by it in an unpleasant position. Previously, many state banking departments had taken stances on the money transmission concept that were much looser. Effectively, many such departments affirmed that payment processing transactions and payee agencies weren’t “money transmission”, as far as the laws went, at least not of the sort subject to licenses and registration. The Vermont stance, meanwhile, effectively changed that.

A year later, things changed once more for the money transmission market, especially for those payee agencies and payment processors. Vermont Senate Bill 154 was recently signed into Vermont law by its governor, which brought the money transmission environment back in line with other states. Assuming certain conditions are met, payment processors now have a statutory exemption from money transmission licensing law in the state of Vermont.

The law, which goes into effect July 1, specifically excludes those “…that facilitate(s) payment for goods or services, not including money transmission itself, or bill payment through a clearance and settlement process using institutions regulated under the Bank Secrecy Act pursuant to a written contract with the payee and either payment to the person facilitating the payment processing satisfies the payor’s obligation to the payee or that obligation is otherwise extinguished.”

Vermont is now one of several states that have codified and formally recognized exemptions for payment processors. West Virginia set up a similar exemption that took effect June 7 of this year, and Michigan has had one active and in place since April 1. Several other states including Washington, North Carolina, Kentucky and Illinois have regulations in place specifically exempting the payment processor or the “agent of a payee” from money transmission licensing.

Vermont’s exemption, however, is somewhat unusual in that it mirrors federal law. Vermont’s exemption doesn’t specifically call for an agency appointment, but rather, either a written contract between the payee and the intermediary or that payment to the intermediary takes care of the obligation held between the payor and the payee.

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