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Unify the Money Transmission Regulatory Framework Under the Department of the Treasury

2,552 Views / Posted by Aaron Greenspan

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Right now, each state legislature determines whether or not to regulate "money transmission," which is often (but not always) defined as the act of routinely holding onto funds that belong to others with the intent of sending those funds somewhere else, whether domestically or abroad. The ad hoc system of regulation has led to different application fees, license fees, background check requirements, net worth requirements, surety bond requirements, documentation requirements, and auditing requirements, all of which can end up costing around $20 million to comply with in aggregate nationwide. Ironically, all of this expense only ends up insuring consumers who use registered money transmitters. The riskiest money transmitters, who do not bother complying with state or federal laws, are not covered by the surety bonds that registered transmitters are required to obtain, and the FDIC insures only bank accounts.

In summary, the system is totally broken. Standards are desperately needed in order to 1) protect consumers better than the current patchwork can, and 2) allow new entrants with new technologies to lower the price of financial services in general. The Department of the Treasury has already issued some standards through its Financial Crimes Enforcement Network (FinCEN), but the states generally ignore them. Congress needs to explicitly pre-empt state laws so that FinCEN can actually make some sense of this mess and keep people safe.
Supporters: Aaron Greenspan, Jonathan Wallis
Opponent: David Sauter
Section

Laws and Regulations, United States Code
18 U.S.C. § 1960: Title 18, Part I, Chapter 95, Section 1960 (Changes)

Current LawChangesProposed Law

(a) Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.

(b) As used in this section--

(1) the term "unlicensed money transmitting business" means a money transmitting business which affects interstate or foreign commerce in any manner or degree and--

(A) is operated without an appropriate nationwide money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law,issued by the United States Department of the Treasury, whether or not the defendant knew that the operation was required to be licensed or that the operation was so punishable;

(B) fails to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section; or

(C) otherwise involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity;

(2)(D) fails to contribute the term "money transmitting" includes transferringrequisite funds on behalfto a pooled insurance program maintained by {pick one: [the United States Department of the public by anyTreasury][the Federal Deposit Insurance Corporation]}, intended to protect and all means including but not limitedinsure consumer deposits at money transmitters, at a progressive contribution rate proportional to transfers within this country or to locations abroadany funds held in trust by wire, check, draft, facsimile, or courier; andsuch a business.

(3)(2) the term "money transmitting" includes transferring funds on behalf of the public by any and all means including but not limited to transfers within this country or to locations abroad by wire, check, draft, facsimile, or courier;

(3) the term "State" means any State of the United States, the District of Columbia, the Northern Mariana Islands, and any commonwealth, territory, or possession of the United States.States.; and

(4) The United States Department of the Treasury shall issue regulations concerning conditions of licensure including at least a federal criminal background check, digital fingerprinting of corporate officers, information technology security standards, and financial auditing requirements.

(c) Until such time as the United States Department of the Treasury begins issuing nationwide licenses, licensure of a money services business in any State shall constitute a "licensed" money transmitting business for the purposes of this section.

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Problem Banking Monopolies: Between 1990 and 2010, thirty-seven banking institutions were consolidated into four: Bank of America, Wells Fargo, Citigroup and JPMorgan Chase.
Unfortunately, breaking up the big banks back into a greater number of smaller, local banks would inevitably again lead to the most successful of these banks purchasing and consolidating their weaker competitors into fewer, larger entities, and allowing these few private institutions to continue their reign over the financial sector keeps the power of most of our citizens' money in the hands of the shareholders of these companies.
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Problem Arbitrary State Money Transmission Laws Grant Monopoly Powers To Banks and Credit Card Companies
As banks are becoming increasingly dependent on technology, and technology companies are increasingly capable of offering financial services, there is a gray area of financial regulation related to money transmission by non-banks that is becoming increasingly important. For historical reasons, each state regulates money transmission differently, with some imposing requirements on companies that make it virtually impossible for any new business to get a license. In Pennsylvania, for example, new money transmitters must secure $1 million worth of surety bonds; in Maryland, the application fee is $2,000 or $4,000 depending on whether or not one applies in an even or odd year.

The difficulty inherent in obtaining state money transmission licenses means that new technology companies are forbidden by law from competing with the banks--some of which have paid lobbyists a lot of money to get these laws on the books in the first place. When there isn't any competition in an industry, it becomes far too easy for the incumbents to abuse their power through price increases and poor service.

See http://www.thinkcomputer.com/corporate/whitepapers/heldhostage.pdf for more background.
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