Navigating
the Jungle of Money Transmission Licensing in the United States
In the bad old days prior to the Boston Red Sox
winning their first World’s Championship in 86 years (I refuse to employ a
certain oft-used phrase to describe this period of drought), one of the
criticisms most often levelled at the team was that they would go about their business on the field and then
exit the ballpark via “twenty-five players in twenty-five cabs”. The charge, largely unfair, was meant to
reflect the sense that the lack of post-game togetherness was indicative of
why the team was never able to reach a common destination (i.e. "a championship ring") at the end of the long
season.
Much the same criticism can be levelled at the current
set up for licensing money transmission businesses in the United States –
except you need to double the number of players from twenty-five to fifty in
order to cover each of the individual states.
They all purport to want to get to the same destination (the orderly
regulation of the money transmittal business) but they all employ separate means of getting there. There are efforts
underway to correct this (and we’ll explore some of them) – but as of right now
there is still a vast amount of repetition and confusion about how each
jurisdiction licenses, documents, regulates and sanctions the players in this
industry – and the resulting chaos is not good for American business.
It's not good for the foreign subsidiaries of American
businesses either – which is why the CEO of a foreign subsidiary of a U.S.
based payments business (myself) is writing this article. I’ve been in the payments industry for decades
now – and one of the greatest burdens that I have watched my U.S. colleagues bear
is the regulatory management obligations associated with multi-state
licensing. I am an American – but I’ve
represented U.S. businesses in Europe as General Counsel for many years – so
I’ve seen the impact of the multi-state conundrum from both an internal and
external perspective. Internally, it eats up people, money and time as the duty
of maintaining a presence in the various states calls on the resources of
departments that could be tasked with far more productive, work. Externally, to those of us who would like to
offer products globally, it means that whenever we present a new initiative to
our U.S. based parents – one of the elements that we have to factor into any
proposal is whether this will be cost effective in the States given the many
hoops that will have to be jumped through in order to get to market. In a Europe where cross-jurisdictional
passporting is the norm – it’s often hard to get people to understand how a
country that was formed 200 years before the EU really got up and running can
still be so fragmented when it comes to reciprocity amongst its component parts. It is as if the U.S. motto – “E Pluribus
Unum” or “out of many – one”, becomes “E Unum Pluribus” – “out of one – many”
when it comes to issues like “what do you have to do to get a money
transmission license”.
Of course, this is not the only area where the lack of
uniformity has caused problems with the American legal system. Since the end of the 19th century,
when interstate and international commerce became more prevalent (and more
immediate), there has been a highly organized effort to address this concern. For instance, the “National Conference of
Commissioners on Uniform State Laws”, originally formed in 1892, has pushed
continually for the adoption of uniform codes in areas ranging from commercial
contracting to the administration of probate.
Its most successful and well-known undertaking has been the promotion
of the Uniform Commercial Code (UCC), a standard set of laws adopted by most
states that regulates business arrangements concerning the transfer of goods,
perfection of security interests, leasing and other matters. Other attempts to get the various states to
fall into line with each other have not been as successful – but the effort has
nonetheless continued.
There are many reasons why states refuse to coordinate
their statute books. The loss of perceived “sovereignty” is one of them – but
there is also the very real fear that in a mostly uniform world slight
deviations can lead to forum shopping detrimental to those who don’t keep up –
so rather than take the chance on following the herd the legislatures prefer to
keep their options open when it comes to matters within their
jurisdiction. There is also the very
real problem of a deep-rooted establishment that tends to be very skillful at
protecting its self-interests. A uniform
Probate Code, for instance, might endanger the very well entrenched, if not
particularly efficient, bureaucracy that provide thousands of jobs across the
fifty states.
Which leads us to the story of the “fifty cabs for
fifty players” approach to money transmittal licenses. Despite a number of very sensible proposals
to standardize the licensing and regulation of money transmittal services there is
still a wildly disparate approach to this topic amongst the various states.
These efforts include proposals like the “Uniform Money Services Act” put
forward by the Uniform Law Commission; the “Uniform Money Transmission Modernization Act” proposed by
the Conference of State Bank Supervisors; and, in particular, the “Multistate
Money Services Businesses Licensing Agreement” (a program promoting increased reciprocity amongst
states recommended by the Nationwide Multistate Licensing System). All of these have strong arguments in
favor of their approaches. The problem
has been getting states to act on the proposals. They are not “sexy”, high profile pieces of
legislation – and they scare the people in charge of the existing protocols
into thinking the adoption of uniform standards might threaten their jobs.
These same people are not the holders of government positions because they lack influence amongst state legislators – so the task of getting these measures
to the legislative forefront can be daunting.
Still – the fight is worth it – and thinking lawmakers
should take up the cause. I speak as
someone who is put in the often unenviable position of defending the American
legal system to a skeptical foreign audience. “The U.S. is too litigious” I am
told. “The awards that get handed out
are ridiculous” I am informed. “The system where you can win the case and still
be saddled with huge attorney’s fees is unfair” exclaim the proponents of the
“loser pays” model used in places like the UK and Ireland. There are legitimate points in all of these –
but they ignore the larger picture. The
United States, while operating a legal system with flaws, also manages to end
up with something at the end of its process that is perhaps even more important
– impact.
That “flawed” system – it has resulted in seatbelts
being present in your cars, asbestos
being absent from your homes, flame proof clothing being on your children’s
back, lists of ingredients appearing on your food – and many other things that
arise simply because large corporates and other decision makers would rather
fix things than worry about subjecting themselves to that “unfair” court
system. So - I defend that aspect of the
American system. Flawed though it may be - it drives reform. “Impact”, the
ability to facilitate change and promote innovation, – matters.
But consider this - when the American legal system
fails to implement competitive, uniform laws such as those proposed in the
money transmittal/financial services realm – it loses that impact. Right now it is easier to form these sorts of
businesses in the Far East, Europe – even in the ANZ/Pacific Rim – than it is
in America. Sure, some will do it simply
because of the economic clout wielded in the U.S. – but much of the really
innovative, forward-thinking development is happening elsewhere – and a major
cause of this is the clunky, antiquated, not-fit-for-purpose morass that is the
interstate jungle of often duplicative, and sometimes downright conflicting, laws and
regulations.
