Opinion: States Have Potential to Transform the Regulatory Landscape for Payments

Scott Talbott, Senior Vice President of Government Relations, Electronic Transactions Association

The payments industry has been developing and deploying technology to make payments more secure, faster, and, frankly, exciting. This explosive growth and innovation has attracted the attention of legislators and regulators seeking to understand this myriad of new offerings.

Policymakers in D.C. and across the country are looking at the modern payments industry with an eye towards regulating it, taxing it, or increasing their cost of doing business. Now is the time for industry officials to work with policymakers to shape good public policy.

One area state policymakers are examining is money transmitter laws. Regulations on money transmitters are changing rapidly and are changing how the payments industry operates. Two states — New Mexico and South Carolina — passed new money transmitter laws and a handful of states amended their existing laws to regulate the electronic payments space. Below is an analysis of various states’ efforts to regulate money transmitters.

Washington State
In December of 2015, the Division of Consumer Services of the Department of Financial Institutions (DFI) in the State of Washington issued an interpretive statement declaring that merchant processing is money transmission under the state’s Uniform Money Services Act. Processors must either obtain license or apply for a waiver. The new rules became effective a few weeks subsequent on January 1, 2016.

Many in the industry, including the Electronic Transactions Association (ETA), were concerned by the novel approach, short time implementation frame, and the disconnect by the statement between the role of payment processors and the Act, especially seemingly ignoring existing payment processor exception in the Act.

ETA led the efforts to work with the DFI to amend the Act to clearly carve out payment processors. In early January, the state legislature began moving a bill, with an eye towards sending it to the Governor for his signature. We are hopeful the governor will sign the bill into law.

New York

The New York Department of Financial Services has issued proposed regulations to require banks and money transmitters to tighten up their AML programs. The rules require an annual board resolution or senior compliance officer statement outlining the steps taken to ascertain compliance with the transaction monitoring and filtering requirements.


Pending before the Pennsylvania legislature is a bill to amend the money transmitter law (HB850). The bill has been passed by the House and is being considered by the Senate. The good news is that the bill creates an exemption for agents of the payee.

Some of the other provisions of the bill, however, have raised concerns which we have addressed in a letter to the members of the Senate Banking and Insurance Committee. ETA objected to a provision that would give the Department of Banking and Securities authority to deny or restrict a money transmitter license if any employee of the applicant, regardless of the employee’s position, has been convicted of a crime of moral turpitude or a felony or owes the state money. ETA also objected on security grounds to a provision that would give the Department the unqualified right to remove documents, files or records from the licensee’s premises.

Additionally, like Washington State, the Pennsylvania Department of Banking and Securities issued an advisory that could have required independent sales organizations and processors, including payment facilitators, to register as money transmitters.

The Department is focused on consumers making donations to churches, charities, or other non-profit organizations, where a payment facilitator collects donors’ contribution and then remits it to the charity.

States Attempting to Tax the Modern Payments Industry

Regulation of an industry can take many forms, whether it’s a new law or regulation establishing licensing or reporting requirements. States, many facing budget shortfalls, are also looking to the modern payments industry as a source of revenue.

Regardless of whether the payments company has a direct relationship with the consumer, these taxes increase the cost of doing business and often result in higher prices for consumer goods and services. We currently have two examples of states attempting to tax the payments industry.


Legislation was introduced in the 2017 legislative session to place a fee on all wire transfers sent outside the state of Georgia. The proposed bill would require financial institutions to collect a fee on every money transmission transaction and provide tax disclosures for consumers. The taxpayer would be allowed a state tax credit on the fee imposed equal to the fee paid. ETA opposes this bill.

Washington State

The Department of Revenue is considering applying the state’s Business and Occupations tax to payment processors.

The participants in the modern payments world are working hard to deliver faster, more secure, payments solutions to consumers and merchants. State policymakers are increasingly looking to our industry to establish public policy, generate tax revenue, and regulate our space. We must continue to work with policymakers to encourage a policy environment that simultaneously protects consumers and creates an environment that fuels marketplace innovation and economic growth.

ETA is the leading organization advocating for the payments community. At a time of unprecedented change, ETA’s government relations efforts are enormously important to our industry. But ETA’s efforts don’t end in Washington — we work in all 50 states to help defeat harmful bills and advance beneficial ones. State policymakers have a huge impact on how we do business. And this influence is only growing stronger.