Legislature(2015 - 2016)BARNES 124
04/01/2016 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB271 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 271 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 271-MONEY SERVICES BUSINESS: REQS; LICENSING;
4:41:24 PM
CHAIR OLSON announced that the only order of business would be
HOUSE BILL NO. 271, "An Act relating to a money services
business; relating to transmitting value that substitutes for
money; relating to licensing requirements and registration
through the Nationwide Multistate Licensing System and Registry;
relating to surety bonding requirements; authorizing certain
licensees to contract to use subdelegates for reloading funds
onto stored-value cards; relating to record retention, reporting
requirements, and enforcement provisions; relating to
exemptions; relating to money services Internet activities;
relating to definitions regarding the transmitting value,
currency, and money transmission business activities; and
providing for an effective date."
4:41:50 PM
KEVIN ANSELM, Director, Division of Banking & Securities,
Anchorage Office, Department of Commerce, Community & Economic
Development (DCCED), provided a PowerPoint presentation
entitled, "Alaska Money Services Act HB 271," which was a brief
overview of what money services businesses are and the purposes
of the bill. Ms. Anselm said money services businesses are,
either currency exchange or money transmission. Currency
exchange means the receipt of revenues from the exchange of
money of one government for money of another government, and
money transmission means the selling or issuing of payment
instruments, including checks, money orders, traveler's checks,
prepaid or stored value cards, sending money via Western Union,
or moving money from a deposit account to a loadable card [slide
2]. The purpose of HB 271 is to modernize the [Alaska Uniform
Money Services Act], update the definition of money
transmission, including virtual currencies, and incorporate
alternative payment systems and instruments such as Apple Pay
and Square, Inc.
4:44:53 PM
CHAIR OLSON asked whether there would be an impact to group
medical reimbursement.
MS. ANSELM replied no. She then returned to the presentation
and noted that when the Act was originally passed in 2007,
virtual currency was not considered, thus the division does not
regulate virtual currency.
REPRESENTATIVE LEDOUX asked for a definition of virtual
currency.
MS. ANSELM explained that virtual currency is a digital
representation of value, mined through a computer program using
an algorithm. For example, using a mathematical formula, a
limited amount of virtual currency - such as bitcoin - can be
mined over time.
CHAIR OLSON added that virtual currency is available all over
the world with an access number and a security code.
MS. ANSELM agreed and observed that virtual currency is secret
in that people are identified only by a number, which is not
attached to a name. She cautioned that these currencies are
associated with untoward transactions, and that bitcoin is
commonly used in Alaska.
REPRESENTATIVE LEDOUX stated that currency is backed by gold or
the full faith and credit of a country, and asked why bitcoin is
worth anything.
MS. ANSELM said, "Because someone thinks it is."
REPRESENTATIVE KITO stated that value is created by the scarcity
of bitcoin.
MS. ANSELM, in response to Representative LeDoux, further
explained that if someone thinks a commodity is worth a lot, for
a short time, it will be. She stressed that the division needs
to decide whether to regulate virtual currency and inform
consumers.
4:50:12 PM
CHAIR OLSON understood that there is a finite number of bitcoin,
and the price fluctuates dramatically. Theoretically, more
bitcoin can't be made.
REPRESENTATIVE LEDOUX surmised bitcoin is "used where you might
not want the government to know what you're doing, they're kind
of like a, a tech version of a Swiss bank account."
MS. ANSELM agreed. Other purposes of HB 271 are: to allow
licensees to contract with a delegate who may then use their
network of subdelegates to reload funds onto prepaid cards
without having a separate contract; to remove an out-of-state
business advantage that allows applicants licensed in another
state to submit minimal information, and pay only half the fee
an entity headquartered in Alaska pays [slide 3]. The bill
affects current money services businesses (MSBs) by simplifying
the licensing process as follows:
· requires use of the [Nationwide Multistate Licensing System
and Registry] (NMLS)
· replaces the net worth requirement with a surety bond
requirement that can be adjusted
· allows annual assessment fees to cover periodic examination
fees and ongoing administrative costs
MS. ANSELM noted that the present net worth requirement is
$25,000; however, a bond allows a business more coverage without
using as much capital [slide 4].
REPRESENTATIVE LEDOUX returned to the subject of bitcoin and
relayed that the new marijuana industry raises concerns about
how businesses will pay their taxes and utilize banks. She
asked whether bitcoin could be the solution for the marijuana
industry.
MS. ANSELM was unsure. Bitcoin is not recognized as a currency,
and the state would have to decide to accept bitcoin as a
payment for taxes. She restated that virtual currency is not
regulated by the state, and said she could not answer the
question.
CHAIR OLSON referred to a defunct underground web site where
bitcoin was accepted.
4:54:47 PM
REPRESENTATIVE HUGHES read the following [document not
provided]:
The use of bitcoin by criminals has attracted the
attention of financial regulators, legislative bodies,
law enforcement, and media. Criminal activities are
primarily centered around black markets and theft,
though officials in countries such as the United
States also recognize that bitcoin can provide
legitimate financial services. Bitcoin has drawn the
support of a few politicians, notably U.S. Senator
Rand Paul who accepts donations in bitcoin.
MS. ANSELM added that some states including California and New
York, are regulating virtual currency. She returned to the
presentation and said the bill would enhance consumer protection
as follows [slide 5]:
· adds a background check component
· requires licensees to comply with federal law
· increases the record retention schedule
· removes advance exam notification requirement
· updates enforcement provisions
MS. ANSELM further explained that the bill provides an
exemption for businesses that are not MSBs, such as insurance
companies, title companies, escrow agents, or attorneys that
engage in ancillary money transmission as part of their
lawfully conducted business [slide 5]. Provisions for
electronic payments are included, and the definition of payment
instrument would include a Mobile Wallet [slide 6]. The
provisions related to stored value cards are especially
important to local Alaska money transmitters because the bill
affects prepaid cards that are both open loop and reloadable.
Ms. Anselm stated open loop and stored value cards are defined
as follows [slide 7]:
· monetary value is prefunded, reduced at each use, and can
also be increased
· includes electronic device or vehicle such as a card code
or a pin number
· redeemable at multiple, unaffiliated merchants or
automated teller machines (ATMs)
· does not include an electronic record that is primarily
intended to be redeemable only for goods or services from
a specific merchant
MS. ALSELM gave the example of an Olive Garden $50 card that is
not reloadable and does not require an MSB licensee to issue or
sell; however, a VISA/Green Dot card from a service center is a
reloadable card and an MSB licensee is required [slide 8].
4:59:06 PM
REPRESENTATIVE COLVER asked whether the proposed bill could be
written to eliminate or extend the expiration date on cards as a
consumer protection action, so that the funds do not revert back
to the seller when the card expires.
MS. ANSELM answered that gift cards and reloadable cards differ,
and gift cards are not covered by HB 271. She offered to
research this topic.
CHAIR OLSON recalled federal laws supersede in this regard.
MS. ANSELM directed attention to slide 9, entitled "The Current
Treatment of Subdelegates," which related to a particular
licensee in Nome, and the current complicated process necessary
to issue [the Alaska Prepaid Card dba Q-Card]. She said there
is a need to simplify this process as many residents use prepaid
cards in rural areas because they can be purchased in a village
store or supermarket, and used almost like a checking account to
pay bills. At this time, Alaska Prepaid Card contracts with
Western Union Financial Services, and Western Union is a
delegate at 32 locations in Alaska at Fred Meyer, Walgreens, and
Safeway stores. To comply with current law that does not allow
the use of a subdelegate for any purchase, Alaska Prepaid Card
must also contract with each individual location. In addition,
current law requires Alaska Prepaid Card to carry a bond to
include Western Union and each store, which is expensive.
CHAIR OLSON asked how much card users pay in fees to Alaska
Prepaid Card.
MS. ANSELM said she will provide that information.
REPRESENTATIVE HUGHES inquired as to whether streamlining the
process would reduce the user fees.
MS. ANSELM said it may.
5:04:15 PM
CHAIR OLSON asked whether "cash back" is a different [user fee]
charge.
5:04:34 PM
MS. ANSELM offered to provide a summary of service fees.
Returning to the treatment of subdelegates, she said the process
proposed by the bill allows Alaska Prepaid Card to maintain its
license, and Western Union Financial Services remains a
delegate; however, Alaska Prepaid Card would enter into a
separate contract with Western Union to create a licensee-
delegate relationship, and thereby utilize the delegates of
Western Union without separate contracts [slide 10]. The result
would be that the aforementioned Olive Garden card does not need
a delegate, licensee, or subdelegate, and the VISA/Green Dot
card would be a reloadable card, which requires an MSB licensee
or delegate to issue and sell, and requires an MSB licensee,
delegate, or subdelegate to reload [slide 11]. She continued
with the presentation, noting that slide 12 listed definitions,
and slide 13 listed the sections of HB 271 which will be
introduced along with a committee substitute for the bill. In
conclusion, Ms. Anselm informed the committee that since 2009,
the division has issued 18 MSB final orders, the majority of
which are related to unlicensed activity by unlicensed parties
engaging in money transmission or currency exchange in Alaska
[slide 14]. Furthermore, the division guards against fraudulent
activity, including that instigated by out-of-state MSBs.
CHAIR OLSON questioned whether the division has reciprocity with
other states in this regard.
MS. ANSELM said yes.
5:07:44 PM
REPRESENTATIVE COLVER asked whether there are reporting
requirements on fraudulent activity in order to assess "how big
the problem is."
MS. ANSELM assured the committee that the division is in contact
with the Financial Crimes Enforcement Network (FinCEN), U.S.
Department of the Treasury, and other state and federal
regulators.
REPRESENTATIVE HUGHES directed attention to slide 3, and asked
for an example of who is affected by the out-of-state business
advantage.
MS. ANSELM explained that right now, out-of-state MSBs have a
statutory advantage that the bill would repeal, thus out-of-
state MSBs would pay the same amount as Alaska MSBs.
REPRESENTATIVE HUGHES asked how much more doubling the fees
would garner the state.
MS. ANSELM advised that the fees have not been assessed. The
intent is for the division to better cover the cost of
regulating the industry, and she offered to compare the fees
collected now and what would be expected under the bill. Slide
15 illustrated the following mission statements:
Division of Banking and Securities:
Protect consumers of financial services and promote
safe and sound financial systems
Department of Commerce, Community & Economic
Development:
Promote a healthy economy, support strong communities,
and protect consumers in Alaska
[HB 271 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB271 Ver A.PDF |
HL&C 4/1/2016 3:15:00 PM |
HB 271 |
| HB271 Transmittal Letter.pdf |
HL&C 4/1/2016 3:15:00 PM |
HB 271 |
| HB271 Sectional Analysis.pdf |
HL&C 4/1/2016 3:15:00 PM |
HB 271 |
| HB271 Fiscal Note-DCCED-DBS-11-30-15.PDF |
HL&C 4/1/2016 3:15:00 PM |
HB 271 |
| HB271 Supporting Documents White Paper.pdf |
HL&C 4/1/2016 3:15:00 PM |
HB 271 |