Money Transmission Services Act FAQ
- What is the Money Transmission Services Act?
2006 PA 250 created a new act entitled the Money Transmission Services Act (MTSA), to provide a regulatory framework for both the paper and electronic transmission of money. The existing Sales of Checks Act (repealed by the MTSA) provided for the licensing and regulation of entities involved in the paper transmission of money. This act modernizes Michigan’s law to recognize the realities of the market for money transmission by also regulating electronic and wire transmission.
- Who is subject to the MTSA?
Beginning January 1, 2007, all entities providing money transmission services must obtain the appropriate license from DIFS and comply with the provisions of the act. The phrase “money transmission services” is defined to mean the selling or issuing of payment instruments or stored value devices or the receiving of money or monetary value for transmission. Certain entities and transactions are exempt from the MTSA, as set forth below.
- Who is NOT subject to the MTSA?
The act does not apply to any of the following:
- The United States or a department, agency, or instrumentality of the United States.
- Money transmission services provided by the U.S. Postal Service or a contractor on behalf of the U.S. Postal Service.
- A state, county, city, or other governmental subdivision of a state.
- A depository financial institution, office of an international banking corporation or branch of a foreign bank, bank holding company or subsidiary, subsidiary or affiliate of a depository financial institution, or a subsidiary of affiliate of a holding company of a depository financial institution, if the depository financial institution maintains its main office or a branch office in this state, a credit union service organization, corporation organized under the Edge Act, or a bank service company organized under the Bank Service Company Act.
- Electronic funds transfer of governmental benefits for a federal, state, county, or governmental agency by a contractor on behalf of the United States, or a department, agency, or instrumentality of the United States or a state or governmental subdivision, agency, or instrumentality of a state.
- A board of trade designated as a contract market under the Commodity Exchange Act or a person that in the ordinary course of business provides clearance and settlement services for a board of trade, to the extent of its operation as of or for that board.
- A registered futures commission merchant under the federal commodities laws, to the extent of its operation as a merchant.
- A person that provides clearance or settlement services under a registration as a clearing agency or an exemption from registration granted under the federal securities laws, to the extent of its operation as a provider under this subdivision.
- A person registered as a securities broker-dealer under federal or state securities laws, to the extent of its operation as a registered broker-dealer.
- An operator of a payment system, to the extent that it provides processing, clearing, settlement, or other similar services between or among persons excluded by this section in connection with wire transfers, credit card transactions, debit card transactions, stored value transactions, automated clearinghouse transfers, or other similar funds transfers or transactions.
- A person involved in the provision solely of delivery, online, or telecommunications services or network access.
- A person that issues a stored value device or other tangible object that is redeemable by the issuer only in goods or services.
- To conduct business under the MTSA, what must the entity already engaged in the business or wanting to enter the business do?
To conduct business under the MTSA, the entity must be licensed under this act by December 31, 2006 or have a class 1 license under the Consumer Financial Services Act, 1988 PA 161, MCL 487.2051 to 487.2072.
- What information must an applicant for a license provide to the Director?
All of the following:
- A list of any criminal convictions in the previous 10 years.
- Any material litigation in which the applicant was involved in the 10-year period.
- What other specific information must the applicant provide in its application?
All of the following:
- In addition to the basic information required for all applicants for a license under any of our consumer finance statutes, the applicant must provide a list of the money transmission services previously provided (if the applicant was already providing such services) and the money transmission services the applicant intends to provide in Michigan.
- The applicant must also provide a list of the applicant’s proposed authorized delegates and a list of addresses of the locations where the applicant and its authorized delegates propose to engage in providing money transmission services.
- The applicant must also provide information concerning any bankruptcy or receivership proceedings affecting the applicant.
- The applicant must also provide a description of the source of money and credit to be used by the applicant to provide money transmission services.
- If the applicant is not a natural person, it must provide the name, all assumed or trade names, and all business addresses of the applicant.
- For a complete list of information required in the application for a license, you should read sections 12 and 13 of the MTSA or carefully read the information requested on the application form.
- Is the application fee nonrefundable?
- What criteria must an applicant satisfy to have the surety bond qualified?
The following criteria must be met:
- The surety bond must be issued by a bonding or insurance company authorized to do business in this state.
- The surety bond is in a principal amount of at least $500,000.00 and not greater than $1,500,000.00. The amount is determined by the Commissioner based on the number of locations and authorized delegates of the applicant in this state.
- The surety bond must be payable to the Commissioner for the benefit of any individuals who are Michigan residents and who are creditors or claimants of the applicant and its authorized delegates through purchase instrument.
- What is the net worth requirement for an applicant for a license under the act?
All of the following:
- Section 13(1)(a) of the MTSA provides that if subdivision (b) does not apply, the financial statement must show its net worth exceeds $100,000.00.
- For an applicant that provides money transmission services at more than one location or through authorized delegates, the net worth must equal at least the sum of $100,000.00 plus an additional $25,000.00 for each location or authorized delegate or $1,000,000.00, whichever is less.
- When does a license expire?
Annually on December 31.
- Can the Director conduct an investigation or examination of a licensee or any of its authorized delegates?
- Is the information obtained during the investigation or examination confidential?
Subject to certain exceptions, the following person shall keep secret all facts and information obtained in the course of their duties:
- Each former Director.
- Each current and former deputy, agent, and employee of the agency.
- What are the exceptions to the confidentiality of this information?
The above persons may be required by law to report on, take official action concerning, or testify in any proceeding regarding a licensee or the activities of a licensee.
The act does not prohibit the furnishing of information or documents to any federal, foreign, or out-of-state regulatory agency with jurisdiction over a licensee.
Additionally, the act is not applicable to any disclosure made in the public interest by the Director, at his or her discretion.
- How long must a licensee or any person subject to the act maintain its financial records and other records that DIFS can examine or investigate?
For at least three years.
- What investments are permissible?
The following investments are permissible:
- Certificate of deposit.
- Senior debt obligation of a federally insured depository financial institution.
- Bankers acceptance.
- Bill of exchange.
- Investment bearing a rating of 1 of the 3 highest grades as defined by a nationally recognized organization rating securities.
- Security obligation of U.S. or a department, agency, or instrumentality of the U.S.
- Investment in an obligation guaranteed fully as to principal and interest by the U.S.
- Investment in an obligation of a state or governmental subdivision, agency, or instrumentality of a state.
- Receivable payable to the licensee from its authorized delegate pursuant to contracts that are not past due or doubtful of collection if the total amount of receivables do not exceed 20 percent of the total permissible investments.
- A share or certificate issued by an open-end management investment company registered with the Securities and Exchange Commission and whose portfolio is restricted by investments set forth in the first eight bullet points above.
- What other investments are permissible?
All of the following:
- An interest-bearing bill, note, bond, or debenture of a person whose shares are traded on a national securities exchange or a national over-the-counter market, if the total investments do not exceed 20 percent of the total permissible investments of a licensee and the licensee does not at one time hold investments under this subdivision in any 1 person totaling more than 10 percent of the total permissible investments.
- A share of a person traded on a national securities exchange.
- A national over-the-counter market.
- A share or certificate issued by an open-end management investment company registered with the U.S. Securities and Exchange Commission.
- A demand-borrowing agreement made to a corporation or subsidiary of a corporation whose securities are traded on a national securities exchanges if the total amount of principal and interest outstanding under the demand-borrowing agreements does not exceed 20 percent of the total permissible investments of a licensee and
- The licensee does not at one time hold principal and interest outstanding under demand-borrowing agreements with any one person aggregating more than 10 percent of the licensee’s total permissible investments.
- Any other investment the Director designates by order or declaratory ruling, to the extent specified by the Director.
- How under the MTSA is the term authorized delegate defined?
Authorized delegate means a person that a licensee designates to provide money transmission services in this state on behalf of the licensee.
- What does material litigation mean?
The term means litigation that according to generally accepted accounting principles, is significant to an applicant’s or a licensee’s financial health and must be disclosed in the applicant’s or licensee’s audited financial statements, reports to shareholders, or similar records.
- Must an authorized delegate engaged in the money services business be licensed under the MTSA?
No license is required for a person to act as an authorized delegate if it is acting on behalf of an entity licensed under the act or a class 1 licensee under the Consumer Financial Services Act.
- Must an agreement between a licensee and an authorized delegate be in writing?
- Must the agreement between the licensee and the authorized delegate require the authorized delegate to operate in compliance with this act and other applicable law?
- Must the licensee furnish in writing to each authorized delegate policies and procedures sufficient for compliance with applicable laws?
- Must an authorized delegate remit all money owed to the licensee according to the terms of the contract between the licensee and the authorized delegate?
- If a licensee has its license revoked or suspended after being notified by the Director, must the licensee send a notice to its authorized delegates directing them to cease offering money transmission services on behalf of the licensee?
Yes the authorized delegate must immediately cease providing money transmission services as an authorized delegate of the licensee.
- Does the MTSA apply to foreign currency exchange?
No, the MTSA does not apply to foreign currency exchange if the exchange is strictly limited to the exchange of currency. If, on the other hand, the entity was not only going to provide currency exchange services, but also engage in the business of money transmission services, the entity would need to obtain the appropriate license.
- How long does the Director have to approve or deny a completed application?
The MTSA requires the Director to approve or deny a completed application within 120 days.
- When must the renewal application and license fee be received by DIFS each year?
The renewal application and license fee must be received annually by December 1.
- Is the Director or his or her employees authorized to investigate on-site to determine whether the applicant is eligible for a license?
The act authorizes employees of DIFS to go on-site to determine whether the applicant is eligible to be licensed. Among the factors the employees conducting the investigation must consider are the financial condition and responsibility, financial and business experience, character, and general fitness of the applicant.
- Is the Director authorized to conduct a similar investigation of each control person of the applicant?
Yes, the MTSA authorizes the Director to conduct an investigation of each control person of the applicant.
- How will applicants and licensees know what amounts the fees will be?
If the applicant or licensee has Internet access, then the applicant or licensee can check the DIFS website.
- If the applicant or licensee does not have Internet access, then what should it do?
The applicant should call DIFS toll-free at 877-999-6442.
The answers provided are not meant to be a substitute for legal advice.