New surety bond laws frequently go into effect long before any negligible impact is felt within the industries they intend to regulate.
California’s Money Transmission Act (CMTA) went into effect on January 1, and its impact on the local market is now emerging. Among the law’s stipulations is a requirement for money transmitting companies to post a $750,000 surety bond. The state established the high surety bond requirement to keep fly-by-night companies out of the market.
The law also requires new licensees to have a high tangible net worth to offset expected losses and support its operational needs at all times. According to a July 1 American Banker.com article, about 10 companies have already closed as a direct result of the law.
The most recent closure was FaceCash, a company that chose to halt operations without even applying for a license under the new requirements.
American Banker.com said,
“Think Computer Corp., the mobile-payments company behind an application that relies on facial recognition to confirm a user’s identity, shut down its California FaceCash merchant network because of the state’s new money-transmission law.”
FaceCash requires clients to link their FaceCash account to a valid bank account, which classifies it as a money transmitting service under California statutes.
Within the past few weeks, FaceCash executives decided the company would not be able to qualify for a license under the CMTA even though they said the company had the financial credentials necessary to qualify for the $750,000 surety bond.
In an official statement FaceCash said,
“the unfortunate reality is that the California Department of Financial Institutions requires licensees to have far more than the dollar figures specified by the statute.”
Some reports, however, have speculated that the company opted to discontinue its mobile payment option after realizing the surety bond requirement applied to the funds kept in clients’ accounts.