May 10, 2011

California DFI: CA Money Transmission Act Does Not Apply to Credit Counseling Agencies

2 min

A new California Department of Financial Institutions ("CA DFI") Staff Opinion Letter makes clear that nonprofit credit counseling agencies ("CCAs") that offer and provide debt management plans ("DMPs") to California consumers are not considered to be engaged in "money transmission" and therefore are not required to be licensed under the recently enacted California Money Transmission Act ("CA MTA").

The DFI Staff Opinion Letter confirms that CCAs are exempt from the requirements of the CA MTA on multiple grounds. In particular, the DFI Staff Opinion Letter states:

"It would…be duplicative to require licensing of CCAs under the Money Transmission Act. Moreover, such licensing would result in CCAs being subject to two regulatory schemes and would confuse jurisdiction. Finally, CCAs' business of money transmission is incidental to its credit counseling activities.

For these reasons, there [sic] are hereby exempted from the provisions of Chapter 14, Division 1 of the FC, as being in the public interest and the regulation of which is not necessary, the offering and providing of DMPs to California consumers by CCAs."

The CA MTA was signed into law on September 30, 2010. The CA MTA expanded the state's regulation and licensure requirements for money transmitters. Click here to read an earlier Venable alert on the CA MTA.

The DFI Staff Opinion Letter is consistent with the regulatory approach taken by other state regulators. While state regulation of money transmission and money service businesses varies by state, virtually all states highly regulate CCAs that provide DMPs under separate statutory regimes. Further, the Financial Crimes Enforcement Network ("FinCEN") of the U.S. Department of Treasury has stated that it generally will not deem a CCA, engaged in the transmission of funds in connection with a DMP, a money transmitter for purposes of Department of Treasury regulations found at 31 C.F.R. § 103.11(uu).

Venable has been at the forefront of the implementation of the CA MTA by the DFI, and regularly assists credit counseling agencies in navigating the maze of federal and state laws that regulate them.

Jonathan L. Pompan, Of Counsel in the Washington, DC office of Venable LLP, represents providers of consumer financial products and services and others in a wide variety of areas including advertising and marketing law compliance, as well as in connection with Federal Trade Commission and state investigations and law enforcement actions.

For more information, please contact Mr. Pompan at 202.344.4383 or