Senate Standing Committee on Banking and Financial Institutions

We have four bills on today's agenda before we--one, two, three, four. We don't yet have quorum, so we will go ahead and hold off on quorum and we will start as a subcommitee, and we will start and welcome Assembly Member Grayson who will be presenting Assembly Bill 1116. You may begin when you are ready.

Thank you.

The types of eligible securities a licensee can own. In conclusion, AB 1116 is a good governance measure that embraces reasonable changes to California's money transmission law to make administration of the program easier for everyone, and with that, I respectfully ask for an aye vote at the appropriate time.

Thank you so much, Assembly Member Grayson. We will now move on to lead witnesses in support. Do we have any lead witnesses in support? Seeing none in the room or we will move to here--we do. We do have Chrome. Thank you. We will move to any other witnesses in support in 2100. And now we will move on to lead witnesses in opposition, and as our witness comes up, I do want to ask for a roll call just so we could establish quorum, please.

Senator Limon? Here. Limon, here. Niello? Here. Niello, here. Bradford? Here. Bradford, here. Caballero? Min? Here. Min, here. Nguyen? Portantino? Here. Portantino, here.

Great. Now we have quorum and we will now have you go ahead and begin with your testimony.

Thank you, Madam Chair and Members. Margaret Gladstein here on behalf of Paypool, not in opposition. To be very clear, I was a little slow in case there were--I did see some other supporters. We have a support if amended position. Paypool has concerns about the provision in AB 16 that require licensees to maintain a tangible net worth based on total assets. We understand that this is an important part of consumer protections in the model bill. However, Paypool does not handle consumer funds.

They are the leading tax payment processor in the U.S. 98 percent of their business is making tax payments to federal, state, and local government agencies, including the FTB cities and counties, and entities like the PUC. They work with 45 of the Fortune 100 companies.

Because Paypool receives and transmits billions of dollars of tax payments, sometimes in a single day or two, the increased net worth requirements of the bill would require the companies to go from 500,000 dollars in shareholder equity today to more than potentially 30 million dollars in tangible net worth in less than two years.

That's effectively 30 million dollars cash on hand. In California, Paypool annually processes more than 200,000 dollars to transactions worth over 11 billion dollars to more than 450 taxing jurisdictions.

The bill does allow the commissioner the flexibility to grant a waiver from net worth requirements, but Paypool would prefer some legislative clarity so that they know that they continue to provide benefits to both taxpayers and the receiving entities that get those tax payments. I do anticipate one question you have, which is, what is Paypool doing in other states that have adopted the model law?

Unfortunately, the company was not engaged in that process in other states, hasn't been engaged in the legislative process, and nor did they engage with CSBS. The only place the law has taken effect is in South Dakota, and they don't have any clients there. In other states, they're talking to the regulators and seeking a solution. We are not suggesting a specific amendment at this time.

We've had extensive conversations with both your staff and the author's staff, and I thank them for that, and we do hope to find a path forward that will enable Paypool to continue to operate and the taxing entities to receive their payments in a timely and efficient manner.

Great. Thank you, and now we will move to any witnesses wanting to testify via the teleconference service. Can we please, Moderator, prompt any individuals wanting to testify in either support or opposition of AB 1116, please? And we will begin.

Thank you very much, Madam Chair. As she stated, if you are in support or opposition to Assembly Bill 1116, please press one followed by zero. One followed by zero at this time. And one moment, Madam Chair. We do have one queuing up. 93, you are open. Please go ahead.

Chair Limon and Members of the Committee, RJ Cervantes calling on behalf of the Electronic Transactions Association in support. Thank you.

And there's no other participants that queued up, Madam Chair.

Great. Thank you very much, Moderator. Members, we're going to bring it back to Members for any questions, comments, discussions. We have a motion from Senator Min to move the bill and Vice Chair Niello.

Clarification question for Margaret. You mentioned in other states where the similar legislation has been passed and Paypool is doing business, are they not doing business anymore? And you indicated they're having discussions with regulators as to what to do about it.

Yeah, that's correct. The law has been passed in a number of the states, and I believe the analysis does a nice job of outlining that. It hasn't taken effect yet. Again, they were late to the party and so they are now talking to those regulators about how they'll be able to comply with the law. So they're seeking an exemption in those states or trying to find a solution.

Thank you.

All right, Members. Seeing no other questions or comments, thank you, Assembly Member Grayson, for bringing this forward. I know that you'll continue to be in conversations with the tweener position support about what this looks like as you go forward. Would you like to close?

Yes. Thank you, Madam Chair and Committee Members. I do remain committed. Open office, open mind. We are on a fact finding-mission to learn more about this one particular transmitter and making sure that we do find a pathway forward to be able to--and we have already provided flexibility, as was pointed out with FPI, to be able to make those exemptions on an exceptional basis, and so whatever we can do to help move that forward in a more clear way, that's our goal, and we look forward to getting to a landing spot. So with that, I respectfully ask for an aye vote.

Great. Thank you so much. We have a motion from Senator Min, and this bill is 'do pass but first amended and re-refer to the Committee on Appropriations.' We can call the roll.

Motion is 'do pass but first amend and send to Appropriations.' Senator Limon? Aye. Limon, aye. Niello? Aye. Niello, aye. Bradford? Aye. Bradford, aye. Caballero? Min? Aye. Min, aye. Nguyen? Aye. Nguyen, aye. Portantino? Aye. Portantino, aye. We have six.

Great. That bill has six votes. Thank you very much.

Thank you, Madam Chair. Thank you.

Consent calendar? We have three bills on the consent calendar. AB, two, three, one. AB, three, eight, six, and AB 1312. Do we have a motion to adopt the consent calendar? Thank you. Senator Bradford moves makes the motion. And can we please call the roll for the consent calendar?

[Roll Call]

Great. So that the consent calendar has six votes, and we will leave the roll open for Members to add on. Thank you.

All right, so we are going to open the roll and we will start with consent. The consent calendar is AB 231. AB 386, and AB 1312. Please call the roll.

For the consent calendar. Senator Limon voting yes. [Roll Call]

Great. We have seven votes for that. Next we will move to AB 1116 by Assembly Member Grayson.

Motion is do pass. But first, amend and rerefer to the Committee on Appropriation. [Roll Call]

All right, so with that Bill, AB 1116 has seven votes, and with that, we will go ahead and adjourn our hearing.