California Money Transmitter Bond: A Comprehensive Guide

This guide provides information for insurance agents to help money transmitters obtain California Money Transmitter Bonds

At a Glance:

• Lowest Cost: $7,500 per year or $750 per month based on the money transmitter’s credit
• Bond Amount: Between $500,000 to $2 million (more on this later)
• Who Needs It: All business entities seeking to obtain a money transmitter license in the State of California
• Purpose: To ensure the public will receive compensation for any damages should the money transmitter fail to comply with licensing law
• Who Regulates Money Transmitters in California: The California Department of Financial Protection and Innovation

Background

California Statute 2030 requires all money transmitters operating in the state to obtain a license with the Department of Financial Protection and Innovation. The California legislature enacted the licensing laws and regulations to ensure that money transmitters engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, money transmitters must purchase and maintain a money transmitter surety bond to be eligible for licensure.

What is the Purpose of the California Money Transmitter Bond?

California requires businesses to purchase a Money Transmitter as part of the application process to obtain a money transmitter license. The bond ensures that the public will receive compensation for financial harm if the business fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the money transmitter breaks licensing laws.

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

BondExchange makes obtaining a California Money Transmitter Bond easy. Simply login to your account and use our keyword search to find the “money” 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 (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

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How is the Bond Amount Determined?

California Statute 2037 dictates that money transmitters who sell or issue payment instruments, or any form of stored value, must purchase a surety bond with a limit of $500,000, or 50 percent of the average daily outstanding payment instrument and stored value obligations in California, whichever is greater. The bond limit may not exceed $2 million.

Alternatively, money transmitters who receive money for transmission must purchase a surety bond in an amount greater than the average daily outstanding obligations for money received for transmission in California. The bond must be at least $250,000 and may not exceed $7 million.

If a money transmitter engages in both of these business functions, they must purchase the bond with the higher limit.

Is a Credit Check Required for the California Money Transmitter Bond?

Surety companies will run a credit check on the owners of the money transmission business to determine eligibility and pricing for the California Money Transmitter bond. Owners with excellent credit and work experience can expect to receive the best rates. Owners with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the owner’s credit.

How Much Does the California Money Transmitter Bond Cost?

The California Money Transmitter surety bond can cost anywhere between 1.5% to 7.5% of the bond amount per year. Monthly subscription options are also available. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on a $500,000 bond requirement.

$500,000 Money Transmitter Bond Cost

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does California Define “Money Transmitter”?

California Statute 2003 defines money transmitter as any business entity that performs one or more of the following business functions:

• Sells or issues payment instruments.
• Sells or issues stored value.
• Receives money for transmission

BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.

How do Money Transmitters Apply for a License in California?

Businesses in California must navigate several steps to secure their money transmitter license. Below are the general guidelines, but money transmitters should refer to the NMLS’s application guidelines for details on the process.

Step 1 – Meet the Net Worth Requirements

Applicants for the California Money Transmitter License must first amass a tangible net worth (assets – liabilities) of at least $500,000. Money transmitters must submit a CPA audited financial statement verifying their net worth when submitting their license application. Start-up companies are only required to submit an initial statement of condition.

Step 2 – Request an NMLS Account

The California Money Transmitter License application is submitted electronically through the Nationwide Multistate Licensing System (NMLS). To submit a license application, applicants must first request to obtain an NMLS account.

Step 3 – Complete the Application

All California Money Transmitter License applications can be completed online through the NMLS. Completed applications will include the following items:

• • Audited financial statements indicating a tangible net worth of at least $500,000
  • A full list of all the agents who are authorized to conduct money services businesses on the applicant’s behalf. Applicants must use the NMLS UAAR Functionality when uploading this list.
  • FinCen registration number (if applicable)
  • The company’s independently reviewed AML/BSA policy
  • A company business plan containing the following information:
    • Products
    • Target markets
    • Fee schedule
    • Operating structure the applicant intends to employ
    • A list of other states in which the applicant is licensed to engage in money transmission
    • A comprehensive marketing plan
  • Certificate of Good Standing issued by the California Secretary of State
  • Sample documents (if applicable)
    • Form of receipt for transactions that involve money received for transmission
    • Form of payment instrument or instrument upon which stored value is recorded
  • Flow of funds structure for each type of business transaction conducted
  • A management chart detailing the leadership hierarchy of the company
  • An ownership chart detailing the amount ownership structure of the company
  • DFPI Form 5025
  • DFPI Form 2
  • Resolution from the company’s board of directors authorizing the license application
  • A minimum of two banking references
  • Pro forma financial statements for the company’s first three years in business
  • Detailed description of how the applicant will comply with OFAC laws
  • Background check authorizations for each company owner and executive officer
  • DFPI Form 550
  • DFPI Form 4030

Applicants for the California Money Transmitter License must pay a $5,000 application fee when submitting their license application.

Step 3 – Purchase a Surety Bond

After submitting their license application, money transmitters must purchase and maintain a money transmitter surety bond in the following amounts:

• • For money transmitters who sell or issue payment instruments: $500,000, or 50 percent of the average daily outstanding payment instrument and stored value obligations in California, whichever is greater. Bond amount may not exceed $2 million
  • For money transmitters who receive money for transmission: An amount greater than the average daily outstanding obligations for money received for transmission in California. The bond must be at least $250,000 and may not exceed $7 million.

If a money transmitter engages in both of these business functions, they must purchase the bond with the higher limit.

How Do California Money Transmitters Renew Their License?

Money Transmitters can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application.

What Are the Insurance Requirements for the California Money Transmitter License?

The State of California does not require money transmitters to obtain any form of liability insurance as a prerequisite to obtaining a Money Transmitter License. Transmitters must purchase and maintain a money transmitter surety bond

How Do California Money Transmitters File Their Bond?

Money Transmitters should submit the completed bond form, including the power of attorney, electronically through the NMLS. The money transmitter surety bond requires signatures from both the surety company that issues the bond and the money transmitter. The surety company should include the following information on the bond form:

• Premium on the bond
• Bond term
• Legal name and address of entity/individual(s) buying the bond
• Surety company’s name and state of incorporation
• Bond amount
• Date the bond goes into effect

What Can Businesses Do to Avoid Claims Against the California Money Transmitter Bond?

To avoid claims on the Money Transmitter Bond, businesses must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage, or allow representatives of the business to engage, in any acts of fraud
• Ensure the full payment of all funds to users of your service

What Other Insurance Products Can Agents Offer Money Transmitters in California?

California does not require money transmitters to obtain any form of liability insurance. However, most reputable businesses will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for California Money Transmitter Customers?

The NMLS conveniently provides a public database to search for active money transmitters in California. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.