More States Adopt Nationwide Standards for Regulating Money Transmitters

April 25, 2023

Money transmitters handle trillions of dollars worth of transfers for US consumers each year. The industry is growing, and the number of money transmitters operating nationwide grew by 13% in 2021. However, with this growth comes growing pains, as money transmitters are forced to navigate unique licensing and regulatory requirements for each state they operate in. In an attempt to create a set of nationwide standards and guidelines for governing money transmitters, The Conference of State Bank Supervisors (CSBS) released the Model Money Transmission Modernization Act (the Act) to help create uniformity in state regulations. An increasing number of states are adopting all or some of the Act’s provisions, replacing the existing surety bond and insurance requirements with those outlined in the Act.

In this article, we explain what the Model Money Transmission Modernization Act is, why more and more states are adopting it, and what its implementation means for insurance agents.

What is the Model Money Transmission Modernization Act?

The Model Money Transmission Modernization Act is a sample legislation released by the CSBS with the aim of replacing states’ current money transmission laws. The Act was written by industry and state experts and approved by the CSBS Board of Directors in August of 2021. The CSBS claims that widespread adoption of the Act will lead to an increase in both consumer protection and economic growth.

What Does It Do?

The Act seeks to implement one set of standards for the licensing and regulation of money transmitters, thus eliminating the current inefficiencies plaguing state agencies and money transmitters seeking licensure in multiple states. Currently, each state has its own unique licensing process for money transmitters, meaning that businesses seeking licensure in all 50 states will have to go through 50 unique application processes. Having one set standard that all states use will reduce the amount of time and effort it takes for money transmitters to obtain multiple state licenses and make it easier for states to work together when regulating money transmitters operating within their borders. Additionally, the CSBS claims that consistent standards among states will lead to better risk detection and ultimately increase consumer protection within the industry.

What Does it Say About Surety Bonds?

The model legislation requires money transmitters to purchase a surety bond in an amount equal to 100% of their average daily money transmission liability in the state or $100,000, whichever is greater. The Act caps the required bond amount at $500,000 but states that money transmitters may exceed this amount to remain compliant with a provision that requires them to maintain permissible investments of not less than the aggregate amount of its money transmission obligations. Additionally, the Act states that money transmitters that decide to purchase a surety bond with a limit of at least $500,000 are not required to calculate their average daily money transmission liability in the state.

What Does it Say About Insurance?

Nothing. The Act does not require money transmitters to purchase any form of liability insurance as a prerequisite to obtaining a business license. Certain states, like Indiana, currently require money transmitters to purchase errors and omissions insurance before receiving a license. However, Indiana SB 458 seeks to repeal existing statutes and implement the Act, therefore repealing the E&O insurance requirement. As such, the nationwide adoption of the Act would repeal similar insurance requirements in other states and potentially reduce the number of policies agents are able to sell to money transmitters. However, most reputable money transmitters will purchase professional liability insurance regardless of whether or not they are forced to.

Which States Are Adopting It?

The following states have either already adopted all or part of the Act or have proposed bills that do so:

• Alaska 
• Arkansas
• Arizona
• California (A.B. 1116, A.B. 1498)
• Connecticut
• Georgia (H.B. 55, Act 748)
• Hawaii (S.B. 1325, H.B. 1027)
• Illinois
• Indiana
• Iowa (H.F. 431, S.F. 421)
• Maryland
• Massachusetts
• Minnesota
• Missouri
• Nevada
• New Hampshire
• North Dakota
• Rhode Island (H.B. 5533, Banking Bulletin 2022-1, Banking Bulletin 2022-2)
• South Dakota (S.B. 43, S.B. 47)
• Tennessee
• Texas
• Utah
• West Virginia (S.B. 345, Ch. 181)

The CSBS contains a list of active and pending legislation adopting the Act, which can be found here.

The Bottom Line

The CSBS claims that the nationwide adoption of the Model Money Transmission Modernization Act will make it easier for money transmitters to obtain multiple state licenses, allow states to better coordinate the supervision of money transmitters operating within their borders, and provide consumers with increased protection. But how does it affect insurance agents? Well, that depends on where the agent is licensed to provide coverage. The Act would increase the required surety bond amounts (and therefore lead to more premium) in some states, and decrease the minimum required bond amount (and therefore lead to less premium) in others. Additionally, the act does not require money transmitters to purchase E&O insurance, and the full adoption of the Act in states that currently have this requirement will repeal it. However, the ease of obtaining multiple state licenses may encourage more money transmitters to do so, thus increasing the amount of available premium for money transmitter bonds.

How Can an Insurance Agent Obtain a Money Transmitter Surety Bond?

BondExchange makes obtaining a Money Transmitter bond easy. Simply log in to your account and use our keyword search to find the “money transmitter” bond in our database. Don’t have a login? Gain access now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone at (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.

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