Client Alert

Are You a Money Transmitter in Florida?

18 Nov 2020

The Florida Office of Financial Regulation (“OFR”) has rejected a petition for a declaratory statement seeking confirmation that payment processing activity involving the receipt of funds and transmission of such funds does not require a Florida money transmission license. In doing so, the OFR has indicated that it does not believe that the Florida money transmission law exempts an “agent of a payee.”

The Petition for Declaratory Statement

TandP, LLC (“TandP”), a payment processor, petitioned for a declaratory statement (the “Petition”) from the OFR affirming that its payment processing activities do not constitute money transmission under Florida law and that TandP would not require a Florida money transmission license. In the Petition, TandP set forth two payment processing models: (1) data processing, and (2) payment processing. In both models, the merchant (i.e., the payee) appoints TandP as its agent pursuant to a written merchant agreement. Based on the Petition, it does not appear that the merchant has any contractual relationship with TandP’s financial institution partners.

In the data processing model, TandP creates transaction files and instructions that are submitted to a federal or state chartered financial institution and the bank directs the debiting and crediting of accounts for settling payments for transactions between merchants and customers. According to the Petition, no funds flow through a bank account held by TandP and no funds relating to these payment processing services appear on the TandP balance sheet.

Under the payment processing model, the Petition states that funds are settled through omnibus accounts maintained by TandP at its financial institution partners. TandP made what are now well-established arguments that its payment processing services provided on behalf of merchants, as a duly appointed agent, should not be subject to regulation as money transmission. For example, the Petition asserts that “[c]ommon law principles of agency suggest that the receipt of funds by the agent should be treated as tantamount to the receipt of funds by the principle [sic], and, thus, the agent is not receiving the customer’s (i.e., payor’s) payment as currency or monetary value for the purpose of transmitting same.” TandP also explained that, under its arrangement with the merchants, “[i]f TandP fails to provide funds to the merchant retailer, the merchant retailer’s sole recourse is against TandP – not the consumer. This follows from general principles of agency law since the agent is standing in the shoes of the principle [sic].” Therefore, TandP reasoned that its receipt of payment processing funds “is tantamount to receipt by the merchant retailer, [and] TandP does not engage in money transmission under the Florida statute.

Florida OFR Response to the Petition

With respect to the data processing model, the OFR agreed that a Florida money transmission license is not required “to the extent Petitioner is only transmitting payment instruction data or information” because “[t]he mere transmission of payment information by itself is not the transfer of currency, monetary value or payment instruments.”

With respect to the payment processing model, the OFR rejected TandP’s reasoning and concluded that a person must be licensed in Florida to the extent that it “receives funds which it then transmits to other persons.” Specifically, the OFR stated that “[w]hen a business enterprise interjects itself into a commercial transaction by transmitting payment instructions that cause funds to be sent to and deposited into an account owned, controlled, or in which the business enterprise may exercise control by the business enterprise, such as an ‘omnibus account,’ it is a money transmitter when the transfer or movement of funds was the purpose of [the business’] interposition.”

In elaborating, the OFR Order explains that “the transmission of payment information coupled with the transmission of funds is acting as a money transmitter if the purpose of the transmission is to move funds from one entity to another entity.” This analysis indicates that the OFR did not accept the implications of an agency arrangement for payment processing services, which arguably could have resulted in the OFR arriving at the conclusion that TandP’s activity does not constitute the receipt of funds by an intermediary for the purpose of transmitting those funds on behalf of a sender. Arriving at this conclusion would, in turn, have mooted the OFR’s continued focus on the necessity of an express agent of the payee exemption as a prerequisite to determining that the activity is not money transmission. But, the OFR Order does not directly address TandP’s argument in the Petition that the receipt of funds by an agent is tantamount to the receipt of funds by the principal.

The Order instead focuses on whether there is a statutory exemption for an agent of a payee under the Florida money transmission law. The Order concludes that there is no exclusion for a person that provides payment processing services because there is no express agency exemption in the statute—in contrast to exemptions for “banks, credit card banks and other depository institutions.” Therefore, according to the OFR, the money transmission statute, “by enumerating specific exemptions, exclude[s] from its operation exemptions not expressly mentioned.” In turn, the Order reasons, to recognize such an exemption would require the OFR to insert language into Florida’s money transmission statute that is not presently in the statute, which the OFR declined to do without evidence that the legislature contemplated such an exemption.[1]

Considerations for Payment Processors and Other Nonbank Financial Services Providers

One of the defining aspects of the payments revolution of the past few years—at least from a regulatory perspective—has been the question of whether a particular payments service is subject to regulation as money transmission. A recent trend has been toward states confirming that, under certain conditions, state money transmission licensing laws do not apply to services provided as an agent of the payee. While a number of states have amended their money transmission statutes or promulgated regulations to establish agent of a payee exemptions, other states have issued guidance affirming that a duly appointed agent of a payee is not engaged in activity that meets the definition of money transmission (provided that certain conditions are met). For example, both Kansas and Hawaii, whose statutes define money transmission to include “receiving money or monetary value for transmission to a location within or outside the United States,” reasoned that such broad definitions nevertheless did not encompass payments received as agent of the payee.

The approach taken by the Florida OFR is reminiscent of the Vermont banking department’s interpretation of its money transmission statute. Vermont had issued consent orders to payments services providers on the grounds that “Vermont does not exempt a payment processor or an agent of a payee from [money transmission] licensure.” Subsequently, the statute was amended to exempt payment processing activity that meets certain criteria.[2] While payment processors could also take into consideration the approach of the Inmar Petition (see footnote one), payment processors may now need a resolution similar to that in Vermont in order to secure an exemption under the Florida money transmission law.

[1] It appears that this position may be at odds with a prior response to a petition for a declaratory statement from Inmar (the “Inmar Petition”), Florida Office of Financial Regulation, Declaratory Statement and Final Order, Inmar Inc. and its Subsidiaries and Affiliates, No. 90874 (Sept. 10, 2018).  While heavily redacted, the Inmar Petition appears to assert that the Florida money transmission law should incorporate the exemptions set forth in the U.S. federal Bank Secrecy Act (the “BSA”) on the basis of the Florida legislature’s intent to rely on the anti-money laundering compliance program goals of the BSA in enacting the Florida money transmission law. Specifically, Inmar appeared to seek confirmation that the BSA exclusion from the definition of regulated “money transmission” activity for a person that “[a]ccepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds,” 31 CFR § 1010.100(ff)(5)(ii)(F), should be interpreted to have been intended to be incorporated into the Florida definition by the legislature. The unredacted portion of the OFR’s response simply states, “Under the circumstances set forth in the petition, petitioner will not meet the definition of a ‘money transmitter’ under the law.” Therefore, the basis of the OFR’s conclusion is not discernible, although it is notable that the TandP petition focused on the assertion that an agent of a payee does not meet the definition of money transmission under Florida law, and not on the Inmar Petition’s argument that the Florida money transmission law should be interpreted in a manner consistent with legislators’ intent to incorporate the BSA exemptions from the definition of money transmission.

[2] 8 V.S.A. § 2501(a)(9)(C).



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