Bill Summary – FastDemocracy

HB-5798, As Passed House, December 12, 2024
                                       SUBSTITUTE FOR
                                    HOUSE BILL NO. 5798
          A bill to regulate the business of money transmission; to
    require the licensing of persons engaged in the business of money
    transmission; to prescribe the powers and duties of certain state
    and local officers and entities; to prescribe penalties and civil
    sanctions; and to repeal acts and parts of acts.
                     THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
                                        ARTICLE 1
                              SHORT TITLE AND PURPOSE
       Sec. 1. This act may be cited as the "money transmission
 modernization act".
       Sec. 3. This act is designed to replace existing state money
 transmission laws currently codified in the money transmission
 services act, 2006 PA 250, MCL 487.1001 to 487.1047. It is the
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 intent of the legislature that the provisions of this act
 accomplish all of the following:
       (a) Ensure states can coordinate in all areas of regulation,
 licensing, and supervision to eliminate unnecessary regulatory
 burden and more effectively utilize regulator resources.
       (b) Protect the public from financial crime.
       (c) Standardize the types of activities that are subject to
 licensing or otherwise exempt from licensing.
       (d) Modernize safety and soundness requirements to ensure
 customer funds are protected in an environment that supports
 innovative and competitive business practices.
                               ARTICLE 2
                              DEFINITIONS
       Sec. 5. As used in this act:
       (a) "Acting in concert" means persons knowingly acting
 together with a common goal of jointly acquiring control of a
 licensee whether or not under an express agreement.
       (b) "Authorized delegate" means a person a licensee designates
 to engage in money transmission on behalf of the licensee.
       (c) "Average daily money transmission liability" means the
 amount of the licensee's outstanding money transmission obligations
 in Michigan at the end of each day in a given period of time, added
 together, and divided by the total number of days in the given
 period of time. For purposes of calculating average daily money
 transmission liability under this act for any licensee required to
 do so, the given period of time must be the quarters ending March
 31, June 30, September 30, and December 31.
       (d) "Bank secrecy act" means the bank secrecy act, Public Law
 91-508, and the regulations promulgated under that act.
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       (e) "Closed loop stored value" means stored value that is
 redeemable by the issuer only for goods or services provided by the
 issuer or its affiliate or franchisees of the issuer or its
 affiliate, except to the extent required by applicable law to be
 redeemable in cash for its cash value.
       (f) "Control" means the power to vote, directly or indirectly,
 at least 25% of the outstanding voting shares or voting interests
 of a licensee or person in control of a licensee, the power to
 elect or appoint a majority of key individuals or executive
 officers, managers, directors, trustees, or other persons
 exercising managerial authority of a person in control of a
 licensee, or the power to exercise, directly or indirectly, a
 controlling influence over the management or policies of a licensee
 or person in control of a licensee. A person is presumed to
 exercise a controlling influence when the person holds the power to
 vote, directly or indirectly, at least 10% of the outstanding
 voting shares or voting interests of a licensee or person in
 control of a licensee. A person presumed to exercise a controlling
 influence under this subdivision can rebut the presumption of
 control if the person is a passive investor. For purposes of
 determining the percentage of a person controlled by any other
 person, the person's interest must be aggregated with the interest
 of any other immediate family member, including the person's
 spouse, parents, children, siblings, mothers- and fathers-in law,
 sons- and daughters-in-law, brothers- and sisters-in-law, and any
 other person who shares such person's home.
       (g) "Department" means the department of insurance and
 financial services.
       (h) "Director" means the director of the department or the
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 director's designee.
       (i) "Eligible rating" means a credit rating of any of the 3
 highest rating categories provided by an eligible rating service,
 whereby each category may include rating category modifiers such as
 "plus" or "minus" for S&P, or the equivalent for any other eligible
 rating service. Long-term credit ratings are deemed eligible if the
 rating is equal to A- or higher by S&P, or the equivalent from any
 other eligible rating service. Short-term credit ratings are deemed
 eligible if the rating is equal to or higher than A-2 or SP-2 by
 S&P, or the equivalent from any other eligible rating service. In
 the event that ratings differ among eligible rating services, the
 highest rating applies when determining whether a security bears an
 eligible rating.
       (j) "Eligible rating service" means any nationally recognized
 statistical rating organization, as that term is defined by the
 United States Securities and Exchange Commission, and any other
 organization designated by the director by rule or order.
       (k) "Federally insured depository financial institution" means
 a bank, credit union, savings and loan association, trust company,
 savings association, savings bank, industrial bank, or industrial
 loan company organized under the laws of the United States or any
 state of the United States, when such bank, credit union, savings
 and loan association, trust company, savings association, savings
 bank, industrial bank, or industrial loan company has federally
 insured deposits.
       (l) "In this state" means at a physical location within this
 state for a transaction requested in person. For a transaction
 requested electronically or by phone, the provider of money
 transmission may determine if the person requesting the transaction
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 is "in this state" by relying on other information provided by the
 person regarding the location of the individual's residential
 address or a business entity's principal place of business or other
 physical address location, and any records associated with the
 person that the provider of money transmission may have that
 indicate such location, including, but not limited to, an address
 associated with an account.
       (m) "Individual" means a natural person.
       (n) "Key individual" means any individual ultimately
 responsible for establishing or directing policies and procedures
 of the licensee, such as an executive officer, manager, director,
 or trustee.
       (o) "Licensee" means a person licensed or required to be
 licensed under this act.
       (p) "Material litigation" means litigation, that according to
 United States generally accepted accounting principles, is
 significant to a person's financial health and would be required to
 be disclosed in the person's annual audited financial statements,
 report to shareholders, or similar records.
       (q) "Monetary value" means a medium of exchange, whether or
 not redeemable in money.
       (r) "Money" means a medium of exchange that is authorized or
 adopted by the United States or a foreign government. Money
 includes a monetary unit of account established by an
 intergovernmental organization or by agreement between 2 or more
 governments.
       (s) "Money transmission" means selling or issuing payment
 instruments to a person located in this state, selling or issuing
 stored value to a person located in this state, or receiving money
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 for transmission from a person located in this state. Money
 transmission includes payroll processing services. Money
 transmission does not include the provision solely of online or
 telecommunications services or network access.
       (t) "MSB accredited state" means a state agency that is
 accredited by the Conference of State Bank Supervisors and Money
 Transmitter Regulators Association for money transmission licensing
 and supervision.
       (u) "Multistate licensing process" means any agreement entered
 into by and among state regulators relating to coordinated
 processing of applications for money transmission licenses,
 applications for the acquisition of control of a licensee, control
 determinations, or notice and information requirements for a change
 of key individuals.
       (v) "Nationwide multistate licensing system and registry"
 means the nationwide multistate licensing system and registry
 developed by the Conference of State Bank Supervisors and the
 American Association of Residential Mortgage Regulators and owned
 and operated by the State Regulatory Registry, LLC, or any
 successor or affiliated entity, for the licensing and registration
 of persons in financial services industries.
       (w) "Outstanding money transmission obligations" must be
 established and extinguished in accordance with applicable state
 law and means any payment instrument or stored value issued or sold
 by the licensee to a person located in the United States or
 reported as sold by an authorized delegate of the licensee to a
 person that is located in the United States that has not yet been
 paid or refunded by or for the licensee, or escheated in accordance
 with applicable abandoned property laws, or any money received for
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 transmission by the licensee or an authorized delegate in the
 United States from a person located in the United States that has
 not been received by the payee or refunded to the sender, or
 escheated in accordance with applicable abandoned property laws.
 For purposes of this subdivision, "in the United States" includes,
 to the extent applicable, a person in any state, territory, or
 possession of the United States, the District of Columbia, the
 Commonwealth of Puerto Rico, or a United States military
 installation that is located in a foreign country.
       (x) "Passive investor" means a person to which all of the
 following apply:
       (i) The person does not have the power to elect a majority of
 key individuals or executive officers, managers, directors,
 trustees, or other persons exercising managerial authority of a
 person in control of a licensee.
       (ii) The person is not employed by and does not have any
 managerial duties of the licensee or person in control of a
 licensee.
       (iii) The person does not have the power to exercise, directly
 or indirectly, a controlling influence over the management or
 policies of a licensee or person in control of a licensee.
       (iv) The person does either of the following:
       (A) Attests to subparagraphs (i), (ii), and (iii), in a form and
 in a medium prescribed by the director.
       (B) Commits to the passivity characteristics of subparagraphs
 (i), (ii), and (iii), in a written document.
       (y) "Payment instrument" means a written or electronic check,
 draft, money order, traveler's check, or other written or
 electronic instrument for the transmission or payment of money or
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 monetary value, whether or not negotiable. Payment instrument does
 not include stored value or any instrument to which either of the
 following applies:
       (i) It is redeemable by the issuer only for goods or services
 provided by the issuer or its affiliate or franchisees of the
 issuer or its affiliate, except to the extent required by
 applicable law to be redeemable in cash for its cash value.
       (ii) It is not sold to the public but issued and distributed as
 part of a loyalty, rewards, or promotional program.
       (z) "Payroll processing services" means receiving money for
 transmission under a contract with a person to deliver wages or
 salaries, make payment of payroll taxes to state and federal
 agencies, make payments relating to employee benefit plans, or make
 distributions of other authorized deductions from wages or
 salaries. Payroll processing services does not include an employer
 performing payroll processing services on its own behalf or on
 behalf of its affiliate, or a professional employer organization
 subject to regulation under other applicable state law.
       (aa) "Person" means any individual, general partnership,
 limited partnership, limited liability company, corporation, trust,
 association, joint stock corporation, or other corporate entity
 identified by the director.
       (bb) "Receiving money for transmission" or "money received for
 transmission" means receiving money or monetary value in the United
 States for transmission within or outside the United States by
 electronic or other means.
       (cc) "Stored value" means monetary value representing a claim
 against the issuer evidenced by an electronic or digital record,
 and that is intended and accepted for use as a means of redemption
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 for money or monetary value, or payment for goods or services.
 Stored value includes, but is not limited to, prepaid access, as
 that term is defined by 31 CFR 1010.100. Notwithstanding the
 foregoing, stored value does not include a payment instrument or
 closed loop stored value, or stored value not sold to the public
 but issued and distributed as part of a loyalty, rewards, or
 promotional program.
       (dd) "Tangible net worth" means the aggregate assets of a
 licensee excluding all intangible assets, less liabilities, as
 determined in accordance with United States generally accepted
 accounting principles.
                                 ARTICLE 3
                               EXEMPTIONS
       Sec. 7. This act does not apply to any of the following:
       (a) An operator of a payment system to the extent that it
 provides processing, clearing, or settlement services, between or
 among persons exempted by this section or licensees, in connection
 with wire transfers, credit card transactions, debit card
 transactions, stored-value transactions, automated clearing house
 transfers, or similar funds transfers.
       (b) A person appointed as an agent of a payee to collect and
 process a payment from a payor to the payee for goods or services,
 other than money transmission itself, provided to the payor by the
 payee, provided that all of the following apply:
       (i) There exists a written agreement between the payee and the
 agent directing the agent to collect and process payments from
 payors on the payee's behalf.
       (ii) The payee holds the agent out to the public as accepting
 payments for goods or services on the payee's behalf.
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       (iii) Any payment for the goods and services is treated as
 received by the payee on receipt by the agent so that the payor's
 obligation is extinguished and there is no risk of loss to the
 payor if the agent fails to remit the funds to the payee.
       (c) A person that acts as an intermediary by processing
 payments between an entity that has directly incurred an
 outstanding money transmission obligation to a sender, and the
 sender's designated recipient, provided that all of the following
 apply to the entity:
       (i) It is properly licensed or exempt from licensing
 requirements under this act.
       (ii) It provides a receipt, electronic record, or other written
 confirmation to the sender identifying the entity as the provider
 of money transmission in the transaction.
       (iii) It bears sole responsibility to satisfy the outstanding
 money transmission obligation to the sender, including the
 obligation to make the sender whole in connection with any failure
 to transmit the funds to the sender's designated recipient.
       (d) The United States or a department, agency, or
 instrumentality thereof, or its agent.
       (e) Money transmission by the United States Postal Service or
 by an agent of the United States Postal Service.
       (f) A state, county, city, or any other governmental agency or
 governmental subdivision or instrumentality of a state, or its
 ag