Money Services Act Summary

As the marketplace for financial services has become increasingly more diverse and competitive, consumers have been faced with an ever-expanding universe of businesses and industries offering currency exchange, money and wire transfers, and check cashing services. The purveyors of these services, however, are generally not subject to the same level of state and federal regulatory scrutiny as traditional state- and federally-chartered banks.

Broadly speaking, the Uniform Money Services Act, promulgated by the National Conference of Commissioners on Uniform State Laws in 2000, provides that a person may not engage in specific regulated activities (money transmission, check cashing, and currency exchange) unless they hold a qualifying license or are an authorized delegate of a person holding a qualifying license. Licensing is set up as a three-tiered structure -- if a person is licensed to engage in money transfer services, he or she can also engage in check cashing and currency exchange without having to obtain a separate license for that purpose; if a person is licensed to engage in check cashing, he or she can also engage in currency exchange (but not money transfers); if a person is licensed to engage in currency exchange, he or she may only engage in currency exchange services.

In the case of money transmission services, the act specifies the disclosures that must be made in an application for licensure, including information about the licensee (criminal convictions, prior related business history and operations in other states, and material litigation), information about proposed authorized delegates, sample payment instruments, banking information, and any other information reasonably required by the state regulator. Corporate and publicly traded entities are each subject to special, additional disclosures, and state regulators retain the express power to waive, or add to, the disclosure requirements under the act. Money transfer applicants must satisfy certain security requirements (typically by providing bonds in specified amounts), must meet threshold net worth requirements, and are required to pay statutorily-defined license fees. While the act suggests particular amounts for these purposes, enacting states may substitute fees and security requirements appropriate for each jurisdiction. Applicants must also retain security thresholds for 5 years past the date of transaction, and are subject to regular licensure review and renewal (with additional disclosures and fees).

The express disclosure requirements applicable to check cashing and currency exchange license applicants are generally less elaborate than those required of money transfer license applicants (for example, there is no express security requirement, nor a separate disclosure standard applicable to corporate and publicly-traded entities), but may be expanded by the regulator to include, but not exceed, the information required of money transfer licensees.

All three categories of licensee, and their authorized delegates, are subject to an annual examination by the regulating agency with 45 days notice. The regulating agency may also examine licensees and delegates without notice where there is reason to believe the licensee or delegate is engaging in an unsafe or unsound practice or has violated the act or regulations adopted under the act. If the regulation agency concludes that an on-site examination is necessary, the licensee shall pay the reasonable costs of that examination. Licensees are required under the act to file material changes to information disclosed in an application with 15 business days (including any change in control), to file quarterly business update information (names of authorized delegates and responsible persons all locations in the state where business is conducted under the license), and to file a report within one business day concerning a bankruptcy, reorganization, or receivership petition, the cancellation or impairment of a bond or other security, the commencement of a proceeding to revoke or suspend its license in any jurisdiction, or a felony charge or conviction against any licensee or any executive officer, manager, director, or authorized delegate of a licensee. Licensees are required to maintain at all times investments with a market value greater than or equal to the aggregate amount of all outstanding payment instruments, stored value obligations, and transmitted money. The act specifies a list of permissible investments for this purpose, and provides that these investments are held in trust for the benefit of purchasers and holders, even if commingled, in the event of bankruptcy or receivership of the licensee.

Regulating agencies are empowered under the act to suspend and revoke licensees (and delegate designations), to issue cease and desist orders, to enter into consent orders, and to assess civil penalties. The act makes it a felony to intentionally make a false statement, misrepresentation, or certification in connection with a record filed or maintained under the act, and provides that it is either a misdemeanor or felony (depending on the amount of compensation earned) for any person to knowingly engage in these regulated activities without a license. The act requires regulating agencies to comply with state administrate procedure acts, and provides for hearings.

It is important to note that while the act is broadly inclusive, it does not apply with respect to state and federal governments or their instrumentalities, subdivisions, or contractors, to banks, securities broker-dealers, boards of trade, or providers of related payment, clearance, and settlement services, or to operators of payment and clearance systems between or among other excluded entities. In addition, the act does not apply with respect to the payday loan business, nor does it apply with respect to other businesses or entities that may incidentally transport physical currency or instruments in the normal course of business.