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09.12.17

What You Need to Know about Pa.’s Money Transmitter License Changes

By Todd Bryant, Bryant Surety Bonds

Money transmitters in Pennsylvania are facing a number of new licensing requirements in 2017 that also apply to transmitters are renewing their licenses.

Similar to other states, such as South Carolina which introduced a bond requirement last year, and Alabama, money transmitters in Pennsylvania are now required to obtain a money transmitter bond when getting licensed.

Read on for a brief overview of the changes to the licensing process and its requirements.

Provisions of Act 129

Act 129 amends the 1965 Money Transmission Business Licensing Law in the state. The new law creates major changes to the field of money transmission. It’s explicitly concerned with the regulation of transactions made on behalf of individuals, which makes it a consumer protection statute.

Money transmitters are defined by the statute as those individuals who “engage in the business of transmitting money by means of a transmittal instrument for a fee or other consideration with or on behalf of an individual.”

The law also introduces and amends provisions regarding the qualifications for licensure as a money transmitter, and how to apply for or renew a license. It further specifies the terms of the money transmitter license and the conditions under which it may be suspended, revoked or refused.

Among those, the revised money transmitter bond requirement and the newly introduced application fee stand out.

New Bond and Licensing Requirement

According to §6(a)(3) of Act 129, as of Jan. 2, 2017, Pennsylvania money transmitters must now obtain a $1 million surety bond in order to be eligible to get licensed in the state. While this amount is not new, previous legislation allowed for license applicants to deposit other types of security, such as notes and debentures. This possibility has now been repealed.

Moreover, the act also specifies that unlike previously, the Pennsylvania Department of Banking and Securities (DOBS) may in certain cases require applicants to obtain an additional bond if it deems the first bond to be inadequate.

According to §6(b.1), when required, this additional bond will be in “an amount up to the average daily outstanding balance of money received for transmission in this Commonwealth during the thirty days preceding the department’s requirement plus an additional ten percent of the amount of the average daily outstanding balance subject to the same conditions and the same right of execution provided for in clause (3) of subsection (a).”

Applicants for a Pennsylvania money transmitter license will now also be required to pay a $5,000 license fee. That same fee will also be due upon applying for a renewal of the license. According to §8, the term of the license will be determined by the department but will not be more than 14 months.

Why Do Money Transmitters Need Surety Bonds?

Since Act 129 is a consumer protection statute, the inclusion of a surety bond requirement is not surprising. The role of surety bonds is to protect the state and the public from business practices that are in violation of state statutes and regulations.

  • 6(a)(3) of the act says that the conditions of the bond are such that bonded transmitters will comply with the provisions of the act as well as the rules and regulations of the DOBS. Under the act, clients of the money transmitter or any person “aggrieved by the misconduct of a licensee” such as a “failure to carry out the terms of any transmittal instrument” may file a claim against the licensee’s bond.

When a claim is filed against a bond, the surety bond company which has issued the bond and is backing it financially will investigate the case, and determine whether and what amount of compensation to extend to claimants. Under the surety bond agreement, the bonded money transmitter must then repay the surety for the compensation it has extended.

The introduction of new bond requirements for money transmitters in Pennsylvania is in line with an overall trend across states to enforce stricter conditions on money transmitter license holders and applicants. As of Aug. 1, 2017, Alabama has also increased its surety bond requirement. Applicants in the state will now need to obtain a bond ranging from a minimum of $100,000 to as much as $5 million for certain cases.

While these requirements may present hurdles for some money transmitters, their ultimate aim is to create a safer market and to significantly reduce any potential damages that may arise for clients of money transmitters.

Todd Bryant is the president and founder of Bryant Surety Bonds, a Pennsylvania-based surety agency with years of experience in helping money transmitters get bonded and start their businesses. What do you think of the new requirements for money transmitters in Pennsylvania? Leave us a comment.

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