Assembly Standing Committee on Banking and Finance

I also want to note that we are accepting written testimony through the position letter portal on the committee's website. And with that, we will move on to the hearing. Again, we don't have a quorum, so we will move forward as a Subcommittee. There are no items on the consent calendar. We do have file item number one, SB 401. And Senator Limon is present. Please let me see before you start and speak this Bill, SB 401. File item number one. Recommendation is do pass as amended to the Appropriations Committee. And those amendments are detailed in the committee analysis. So when you're ready, you can begin.

Great. Thank you, Chair. And thank you, Members. I want to first start by recognizing Chair Grayson and the work that the Chair has done around the crypto space. And so SB 401 hopes to build on some of that work and focuses on a narrow part of the crypto space known as crypto kiosk or crypto ATMs. Crypto kiosks are physical machines that allow consumers to purchase crypto assets using cash, debit or credit card or bank transfer.

These machines are often located in grocery and convenience stores and generally target consumers who are less knowledgeable of crypto markets than consumers who use online trading platforms. In addition to the investment risk inherent with the volatile crypto markets, crypto kiosks pose additional concerns related to criminal activity and high cost for consumers. We know that scammers and fraudsters are tricking victims into sending crypto assets using kiosk.

There is a recent LA Times article about scammers who tricked a senior into taking $75,000 out in cash of her bank account and depositing it into a crypto kiosks that allowed the overseas criminals to take possessions of her funds. In that same article, the Director of Victim Support at AARP's Fraud Watch Network said that crypto crimes like this are common among the 400 to 500 calls that they receive daily.

We also know that the FBI and DEA have flagged kiosk for their use in facilitating drug and human trafficking and allowing criminal organizations to move funds across borders. For these reasons, SB 401 places a transaction limit of $1,000 per customer per day. To limit the harms of larger frauds and organized criminal activity outside of illegal uses of crypto kiosks, we must confront the incredibly high fees that some of these operators charge.

We know that some operators are charging more than 30% markup on crypto assets that they sell. Consumers compare these fees to online stock brokerage accounts that often charge zero fees and have price spreads of less than 1%, or even online crypto trading platforms that typically keep their total fees below 2% of the transaction amount. To address the high fees, SB 401 proposes a fee cap of 10% or $5 per transaction, whichever is greater.

As cited in research from the Brooking Centers that is summarized in the committee analysis. We know that some operators already charge less than 10% than the 10% proposed cap, so it will economically be feasible for at least some of the market to adapt. Before I close, I want to flag that this is not a licensing Bill, which seems to be a source of confusion for some of the opposition.

As suggested in the analysis, I will be working with the chair to ensure that our two bills fit together and that the obligations for crypto kiosk operators are clear. On that note, I have heard concerns from independent ATM operators who offer limited crypto products alongside traditional ATM services, and I'm committed to addressing their uncertainty around licensure requirements. I'm also happy to accept the amendments specified in comment number eleven in the committee analysis. These are helpful suggestions that make this Bill even stronger. I'd now like to turn to our supporting witness, Robert Harrell from the Consumer Federation of California.

Please.

Thank you. Mr. Chairman and Members, Robert Herrell, Executive Director of the Consumer Federation of California. I also would like to thank the Chair and this committee a thorough analysis as always. Also Senator Limon and others who have been working on this issue for a while. You've heard me speak before this committee before about crypto in the larger context. I'll try not to be redundant on that, but some of the frauds and scams in some cases do involve these kiosks.

And so the Bill, we think, puts forward a very reasonable framework for regulation and fee limitation. Here the author mentioned some of the other products that arguably sometimes compete with these. In some cases, be it check cashing or payday lending, have in many cases a statutory required much lower fee cap. So we think a 10% fee is eminently reasonable and appropriate.

Sadly, if you look at a physical mapping overlay of where these crypto kiosks are located, it looks an awful lot like where payday lenders are located. That is to say, the sort of most common location of one of these is in a liquor store in a lower socioeconomic status neighborhood, usually a BIPOC neighborhood. And so we think there has been historically some targeting. The Senator mentioned research done by the Brookings Institute. They continue to do more research on this, which has been very helpful and informative. With that, I'm happy to answer questions, but I would urge the committee to support the Bill today. Ask for an aye vote. Thank you.

Thank you so much for your testimony. And do we have any other witnesses in support in the hearing room. Please step forward to the Mic. State your name, organization and position. Seeing none, we will now turn to witnesses in opposition. And if you are lead witnesses in opposition, please feel free to come. And you may begin when you're ready.

Good afternoon. Thank you. Jamie Minor, representing Blockchain Advocacy Coalition. And while we have great respect for the author and all the work you've done on this Bill, we have an oppose unless amended position so BAC represents companies and nonprofits that span the virtual asset and blockchain sector. Unfortunately, as written, SB 401 Unfairly targets a specific technology that allows everyday consumers to participate in the digital asset economy.

It sets an arbitrary fee cap, as you've heard about, that does not exist for similar products and does not take into account that the industry is still scaling and developing. So, first, some background. While crypto kiosks are commonly referred to as Bitcoin ATMs, they are much different than an ATM, and they operate more closely to a currency exchange or a kiosk at the airport. Therefore, the capital costs to maintain a kiosk are much different.

Crypto kiosks do not provide access to a person's own funds, nor do they custody funds like an online exchange or hosted wallet. They serve only as a point of sale for purchasing or selling crypto in a convenient, fast and safe way. Our coalition has two major problems with the Bill as written. First, unfortunately, the fee cap in the Bill is unworkable and operationally infeasible. There are unique costs associated with the operation of these machines, including heavy compliance costs and cash management costs.

To give perspective, processing costs to utilize the blockchain network alone can increase on a whim and range from two to $60 per transaction. Kiosk operators assume the risk to offer the purchase of crypto in a quick and seamless way to their customers. Secondly, the transaction cap set in the Bill does nothing to prevent fraud. In fact, the proposed language could make fraud easier as less information is collected and reported to regulators about the customer. If the transaction amount is under $1,000.

BAC supports a licensing framework for crypto kiosk operators that will deter bad actors. We've offered robust amendments that include mandating numerous disclosures, fraud and scam prevention plans, and other consumer protections. We've also offered a fee and transaction cap that we feel is workable for the industry and will allow the market to stay in California, compete for business, and drive costs down as is. The Bill would result in a de facto ban on many crypto kiosks, and they would cease to operate in California. This could result in a loss of $15 to $25 million annually to small business shop owners that house these machines and all of the other tax revenue that comes from the industry. So for these reasons, we must respectfully oppose unless amended. Thank you.

Thank you so much. Two minutes.

Good afternoon. And thank you, Mr. Chairman and committee Members. My name is Joe Ciccolo. I'm the founder and President of BitAML, based here in Roseville, California. We are a regulatory compliance consultancy serving the crypto financial services industry since 2015. Over the past eight years, we've worked with hundreds of crypto financial services providers, including kiosk operators. Crypto kiosks in California are subject to robust regulation at the federal level to ensure that these businesses operate in a safe and secure manner.

These regulations help to prevent, detect and deter illicit transactions while also providing protection for consumers. This is why, as pointed out in the analysis, the most recent crime report conducted by Chainalysis, a blockchain forensics software vendor utilized by federal and national security agencies, highlights that only 1% of fraud and scam cases in the crypto ecosystem are conducted via a crypto kiosk. Among others, crypto kiosk companies must comply with the Bank Secrecy Act, or BSA.

Under BSA, these companies must verify the identity of their customers, retain customer transaction records, train all employees on anti money laundering, and undergo regular independent audits and federal examinations conducted by the IRS. These and many more regulatory requirements and compliance expectations are enforced by the Financial Crimes Enforcement Network, or FinCEN, a Bureau of the US. Treasury. Kiosk operators must detect, investigate and report potential suspicious and or unusual activity by filing suspicious activity Reports or SARS with FinCEN.

To quote the Secret Service, whose field teams operate a financial crimes task force, quote blockchain is an amazing opportunity to track the flow of money, end quote. Customer and transaction records maintained by kiosk operators, including surveillance pictures of the customer, can be shared with law enforcement in a matter of seconds. The operators we work with and represent want to make sure consumers feel safe using their machines, and we support a licensing regime specific to California.

However, we think that there are other protections that could be considered and that have been offered which will actually protect consumers as opposed to barring these machines from operating in our state. Thank you.

Thank you so much for your testimony. Are there any other folks present in opposition? Simply step up to the mic. State your name, organization and position.

Mr. Chair, Members John Winger on behalf of the California Fuels and Convenience Alliance, who represent a lot of committee Members.

Tyler Gerlach on behalf of California Asian Pacific Chamber of Commerce in respectful opposition. Thank you.

Thank you very much. Seeing no other opposition present, we do have a quorum. Or we do have enough Members for a quorum. Secretary, will you please call the role?

Grayson. Here. Grayson? Here. Chan. Here. Bauercan? Cervantes. Dixon? Dixon here. Mike Fong? Mike Fong? Here. Gabriel Petrie Norris? Petrie Norris? Here. Soria Waldron? Waldron here. Wicks Wilson? Wilson here.

Very good. We've established a quorum. We've heard from opposition, and now we'll bring it back to committee questions. Vice Chair Chen.

Thank you, Mr. Chair. I want to thank the Senator for bringing this Bill. I think the state of California is still grappling with cryptocurrency in terms of what our role is in this arena. I do have some questions, however, in the analysis, there is some data that talked about small business loans as well as loans going from 15% to 36%. And I know that is, I believe, not comparable to this category, as I believe in these ATMs for cryptocurrency, it's voluntary.

So I want to understand, or better understand, how do we come up with this 10%, as some of the other loans I've seen from payday to again, small dollar lending range from 15 to 36. Again, I don't think it's an apples to apples comparison, but how do we come up with this 10%, which is, I think, drastically lower than these other analogies that were given in the analysis? Thank you.

Right, so I'll just start by saying that I wasn't necessarily comparing this to payday, but I'm happy to if that's the direction that the committee would like to go in. I think that those are different things. And so, as we've stated, you can do this same piece online for at 2%. And so when we think of 10%, we actually think that that's reasonable compared to doing the same thing online, which you would have a much smaller fee.

So I think that that's probably a really meaningful data point that describes why we are at 10%. Certainly the recommendation that's been given us to go to 25%, we think that that's pretty high. That's what the opposition brought to us and probably not the direction that we're going in. And this is a pretty hefty fee at 25% right, for the transaction. And so we think that when you look at how else you can do this transaction in other platforms, going from 2% to 10% leaves some Wiggleworm there.

Thank you, Senator. If I may, Mr. Chair, I do have another question, actually, for the opposition. I understand that some of the individuals that you represent and ultimately it's a business and they have to make an ROI and they have to function, but where do these fees go when there are fees that are given for a client consumer? What are these fees for?

Yeah, great question. I think appreciate the analogy in that it's not quite apples to apples. This is, again, an exchanging a currency. And because it's done via cash in the moment, those costs are much different than online via an exchange that again, has just a different business model. So most of the costs go to honestly compliance, making sure that they're complying with the Bank Secrecy Act with federal regulations that are applied by Finsen. But it's expensive to manage.

Cash costs go up with gas, with transportation costs, so that's also a bulk of the fees. And then just the volatility bitcoin can go up 30% in one day. So these operators have to have that on hand in the moment, they have to assume some of that risk. If you look at where Bitcoin is, I think it's like at 85% year to date today, but last week it was at 50%. So they have to assume that risk.

And there's also risk in the transaction fee because it all depends sorry, accessing the blockchain network, because that can range from two dollars to sixty dollars in a moment based on how many people are accessing that blockchain at the same time. So all of these are risks that are assumed by these operators and therefore we're looking for a little bit of flexibility in the fee as they continue to ramp up, as there continues to be economies of scale and that keeps them in the state in a safe and consumer protecting way.

Thank you. Mr. Chair. One final question, and given some of the responses I had just for the author, has there been an opportunity to speak with the opposition and perhaps moving forward, or opportunity in terms of discussion of that 10% cap?

Oh, we've had quite significant, I think, conversations through the beginning. The transaction piece you saw and you voted for last year in a Bill, so you've seen that part before. And we'll continue to have a discussion. Will we be able to reach a point where the opposition removes our opposition? I'm not actually sure, but we will continue to have discussions on any and all issues.

Thank you. Senator.

Any other questions? Yes, we do.

Thank you, chair, just a quick question. I'm trying to sort out this transaction fee. So who receives the fee? A regulatory agency or the crypto company?

So it's the consumer that's actually purchasing the crypto. They're charged a fee. It's kind of like a convenience fee because it's done via cash at wherever grocery store, wherever they are in their community.

Like a service fee?

Yeah, like a service fee for the think about it, if you're converting your dollars to pesos at an airport, that's probably the closest analogy.

So the 10% is a burden on the user and so this is a new technology. Is that considered too high? Or the author was saying 25%. How have you determined 10%? 25%? And the company has to recoup their startup costs, just as the Assemblyman was saying. So how do we arrive at a figure that allows them to do the recoup and then allows the consumer to not be burdened by overly burdensome transaction fees? If I understand all this correctly, this is all new.

Yes, it is new, and I think that's part of the issue here. These operators are still scaling. You think about a traditional ATM, it's been around for decades. So it's really the market that's driving down those fees. Like why would I pay $2 or why would I pay $8 at one operation when it's $2 at another? You shop around. There really hasn't been a lot of time for that to happen.

These fees can range from ten to 30% and I think a lot of it does depend on that volatility that I mentioned earlier. But at the end of the day, competition will drive down these costs in our eyes. Again, you can go across the street to another ATM if it has a lower fee, so the customer can make that decision. We have offered 20%. We think that's right in the middle, between ten and 30%, where you see the range, but hope to continue conversations with the author and with the committee.

This is a market that will determine the marketplace will determine where that rate falls. Is that where yeah, absolutely.

It's not a mandatory fee by any means. Again, they vary just depending on the costs of the business operation at that moment.

But to specify that in this law, proposed law or this Bill, you have to come to an agreement of where you're going to start and going to start and as you in our startup mode, is that where this comes from?

It's our preference not to have a fee cap, obviously in statute, but understand that's the will of the committee and we want to work with the author to find something that's workable for operators in the state and that will still drive competition, allow them to exist and drive those costs down for everybody as this business model evolves.

But if we establish law for 10%, do we need a new law? When the marketplace how do we put that into the marketplace? If we're mandating a 10% transaction fee in the law? Maybe that's the problem.

Yeah, I think that's our concern is putting something in statute now.

Okay. All right, thank you very much.

Through the chair.

Just yes, please go ahead.

Clarify that. This Bill started at 2%. We increased it to 10%. This is not a loan product. Right. So this fee, when you think of a fees that are put for anything that's a loan, you may not get that money back. So you tend to see higher rates. So this is simply a service fee, as you've called it. And so if it's a service fee and you have comparable service fees at 2% to do the exact same thing, we think 10% is reasonable.

We really do think 25 and 35% is too high when you have the same kind of space that's doing the same thing to achieve the same outcome for 2%. So I think that that is really important to note that the reason is that we're looking at 10% is for the good of the consumer rather than the company themselves. Thank you.

Thank you. Any other questions? Yes, Senator. Member Petrie Norris.

Thank you, Senator. So just picking up on, I think, two points in the discussion. First around the fee cap and then actually I have another question around the dollar cap, but in terms of the fee cap, what are some comparable caps that exist for service fees in other financial services?

So ATMs are typically $2, $3. Right. And that's an ATM for a traditional bank, and you're taking out your own money. You have this exact same thing where you're exchanging online, which is 2%.

And is there any distinction between what's happening online for 2% and what's happening at the kiosks right now?

Distinction as in what's actually happening?

Like what someone's doing?

Yeah. I mean, it's in cash perspective.

What am I getting from the fact.

That you don't have to have a bank account, you can do it in cash and it's convenient. It's kind of like you buy AirPods at the airport, right, because you forgot yours. You charge a convenience fee for that to happen in the moment. A lot of folks that are looking to make these purchases want them done in a quick, expedient way. And so this allows them to do that and allows them to do that with cash. So that's not something that is done on an online exchange, for example.

Okay. Why are you introducing the daily cap for fraud reasons?

As I stated in my comments, we have found that there was recent LA Times article that talked about someone that just took out $75,000 in cash and then that went to the fraudsters abroad. So if you have a cap, then you won't have communities. And right now, a lot of our elder communities have been fallen victim of abuse of saying, take this cash, put it in this thing at this gas station, and then they lose their money. So it's really the $1,000 daily.

It's a daily $1,000. To exchange from cash to the currency is really there for fraud purposes. And we know that the FBI and DEA also have been looking into cases because when you're doing all cash transactions, there just tends to be more fraud. And so it's just for the consumer, it's very timely.

We did a virtual town hall on crypto fraud. I should have paid closer attention, and then I know, and then the opposition's response has said that it actually is not going to accomplish the goal of mitigating fraud. In fact, you think it could exacerbate fraud. Can you help us understand why you think that?

Yeah, happy to elaborate on that. So with regard to Suspicious Activity Reports or SARS, it's a mandatory filing if the activity is suspicious and or unusual and where the underlying amount is $2,000 or more. So if we're capping it at $1,000 and we have smaller transactions, there may be a situation where that operator is not compelled to file a SAR for that suspicious activity.

There's also other thresholds set at the federal level, and this is where it gets kind of tricky if we're going to do at the state level, where it's already been established at the federal level through exam cycles and hard and fast rules from government. So, for example, at $3,000 or more, the operator is obligated to collect the Social Security number of that particular customer for record keeping and for tax purposes and reporting. So California would not have the benefit of that information, the tax authorities to follow up on.

And there was a report done by Chainalysis, which is the major news, or they do all the data and research for the industry and government uses them as well. Found that only 1% of fraud, as Joe mentioned, is using a kiosk. Because think about it, if you're going to launder money, you're not going into a well lit convenience store where you're on camera. The operator requires you to enter your phone number, requires you to enter a number of pieces of personal information.

So there are a lot of layers that protect against fraud and make it so that we can work with law enforcement to catch those bad actors. So again, that's our concern that if you lower that amount, less information will be collected to catch the fraudster if that doesn't in fact happen.

Understood. So right. I think I hear you saying that there may be some kind of interactions with other existing regulations that perhaps the author can work with you.

To be clear, they're collecting information about the victims, not the perpetrators. So I just want to be clear and also at the thousand, there is nothing stopping them from continuing to collect the information on a voluntary basis. And the 3000 and the 2000 mentioned also could be aggregates. So this is 1000 per day. So if you're going in there at the 3000 mark, you could trigger that.

Senator, would your witness also like to respond, please?

I would like to jump back Assembly Member Petrie Norris to the percentage transaction. It is our view in the consumer community that if someone wants $1,000 in Bitcoin, they should not have to pay $300 or $250 per transaction as a convenience fee. Those seem to be to us outrageous sums. I personally don't love 10%, which translates to $100. But remember, as the Senator said, it started out at 2%. And so I think you have to use kind of a reasonable test here.

Again, remember, these are kiosks that overwhelmingly tend to be in communities where there's a lower level of information about crypto. According to law enforcement, those are the communities that tend to have been targeted more. I'm not saying all of those are happening at crypto kiosks, but that's the context that I think is really important for those of us in the consumer advocacy community for Members to bear in mind.

Thank you, Assembly Member. Assembly Member Wilson.

Thank you. And I appreciate the context that we just heard in regard to that where the kiosks are located, are located in areas where the people tend to be targeted. Right. And so this is an avenue to be able to use it because it is by virtue cheaper to do things online. Just like if I go to my bank and I transfer money on my online app, it costs me nothing.

If I do those kind of things at an ATM, I'm more likely to have to pay a transaction fee to be able to do those things. But at the same time, when we are talking about ATMs and kiosks, most of the time there's not in statute a regulation of a percent or what the transaction fee can be. Sometimes if I'm at a regular bank in my neighborhood, I might pay $3 if I use it on a network.

However, if I go to a hotel or if I go to some random place, I pay a lot more, right? And there's nothing in statute that say that. So I wonder why we would put in statute costs related to this. Kiosk and I read the analysis and saw that, but I'm still struggling even with the back and forth on why there's a need to be able to do the transaction fee part. I do get the dollar amount, which helps mitigate potential fraud or abuse.

But I don't see the fact that the cost of business and the volatility that we already see with cryptocurrency and not realizing the impact that it could have with providing cash or not, that cost burden wouldn't be onto the consumer who's doing a voluntary transaction. It's not like you have to buy this investment. It's not like an ATM, even where it's your money, it's cash in the bank and you need access to your money.

And that seems like we would regulate that even more than this because I have to access my money, right, to be able to live versus to do a voluntary transaction. So I'd like to understand that more because that's the piece that I struggle with on this particular Bill is related to the percent.

Yeah, so we actually do have some things in law. So we have laws on fee caps, for example, on checking cashiers checks. So we cap that at 3.5%. So you're able to do it with no photo ID and only 3% of customers use a photo ID. Did I say that right? No, hold on, the cap is 3.5%.

So that is just one example of something where we do have it in law and we've put it and most of the time when we do decide to put something, I think into law is with some evidence that there's a reason to. And so I think for me, the reason that kind of has led me to this is that the fraud, I think we probably could debate whether 1% of fraud is whether it really is 1% of fraud or not.

But some of the types of fraud that are being committed I think also speak to really there are global concerns, national concerns, state concerns about how these machines are being used to traffic. And so I think it merits looking at other spaces that we have, where we have put pieces in law to try to cap that.

So just. To clarify. So there's in statute, we have an example of in statute for cashier's check, but not related to the closest type of thing of kiosk of ATMs.

Well, in statute I will say that I've had bills on ATM fees. So it's certainly, I think, a legislative conversation.

But we don't have anything law versus we've had introductions of bills related to ATM

Theres Federal preemption issues there. We've certainly heard our President talk about ATM fees and broader fees as a whole.

And then thinking about fraud, as you talked about in response, can you talk to me about how fraud relates to the percent of the fee related to the kiosk? Because I get it to the amount in dollar, but I'm not seeing the connection when talking about this is used to prevent fraud as it relates to the percent that it cost that you're paying in this convenience fee. So are you saying that the kiosk companies are committing fraud?

No. Okay. I think that for me the technology is being used for fraud by some not unlike online or anything else. And so I think when you look at pieces that are important for consumers to be protected from fraud, I think you're looking at the transaction fee, but also as a consumer protection, generally speaking, the fee for the transaction, the service fee I think is also really important. So losing 300 dollars to one thousand dollars transaction is, I think, pretty hefty.

So I think that this is more of a broader conversation about where we land on better consumer, I think, use. And so for me, I think that when you look at 10%, I think that that seems reasonable for a service fee to exchange dollars. And I think that if you look at other places where we do have fees, we talked quite a bit about loans, for example. That is, you talked about your own money you're borrowing and you may not get that money back. That is not a risk inherent in this particular technology. And so without that risk, I'm not sure why we would want a higher transaction service fee.

I guess when I look at the service fee and the big sticking point for me is the cost of doing business. And so typically that cost of doing business is rolled over to the consumer. That part of it is a concern is that the convenience fee or whatever should be related to the cost of doing business and the risk inherent in a risk inherent in doing business, which in this particular case cryptocurrency is still a pretty volatile business. And the amount of there is no backing.

It's a blockchain, right? But then there is a requirement to have so much cash if you're receiving cash and giving cash. Because I know some of the kiosks are all about purchasing investments and not necessarily giving cash back, but some very much are. And I don't know the percentage breakup between the two but are about giving cash. So I'm still concerned about the transaction.

The other measures make sense to me in terms of consumer protection, but in this when we don't see it in other places and I think that to Cashier's check, it's slightly different because all I'm doing is taking cash and I'm giving you and you're getting the ability to use cash back. There's only so much inherent in that. So I don't consider that an apples to apples comparison in this case.

But I appreciate your willingness to legislate in this space and I appreciate the fact that this is a volatile market and being able to weigh in and try to figure out what's the way to protect consumers because it is such an odd thing that most people don't understand. And I'll be honest, I don't every time I try to wrap my brain around cryptocurrency, a new thing comes up that I'm like I completely do not understand this medium. But thank you.

I just wanted to show my appreciation for that. But that percentage fee, the transaction fee is like a sticking point for me. It concerns me that there's a cost to doing business. But I also haven't seen from the opposition in this regard what it costs to do it. And it's hard to look up what the real cost is and how that changes. So it just seems a bit odd to regulate that particular piece of it well.

And I just will say that there are folks who do it at the percentage that we have it. So I think that this is not a Bill eliminating them. And so I think to the question about what it cost, I think that that's a fair thing to bring up. But we also know that there are folks who do it. So clearly there is some leniency.

If there are folks that are already in the industry that can do it at that percent, then it begs probably a different question about why it's costing some so much more than what it costs the folks.

Assembly Member Bauer-Kahan.

Thank you. And I apologize that I wasn't here for your presentation, Senator. I was running a bit late. But glad to be here for the conversation. So I'm going to piggyback on a question from our colleague from Irvine. I guess I'm a little confused. I see only two purpose is for these kiosks. To me, money laundering is a very clear one. I just want to be black and white about that.

That if I have a bunch of cash that's illegal, the easiest way to handle it would be to peer, to show up at a kiosk where I can give cash rather than do it on the Internet, where there's a ton of where there's a trail. So I would assume, as noted in the analysis, that money laundering is a huge piece of this. And the fact that these companies are and you say no but I don't know that you know that, to be frank with you. I mean, you say it's 1% of fraud, but I don't know that you actually know where the sources of every dollar that's coming into your kiosks are. But maybe I'm wrong.

Most operators at every transaction, they will get the person's phone number. They have footage of them. So with just their phone number, they're able to get their name and their address. So again, that's why you have found that where the data is on money laundering, it is not in these there's a lot of risk for a money launder to show up in person, to have to show their ID and to launder money because law enforcement is more they can more easily track them down, bottom line.

So that's really why you haven't there are instances, of course, and I think when they first started, maybe five, six years ago, this was more of a concern. But because of the amount of due diligence that has gone into KYC protocols when it comes to these operations that we're willing to codify that those were our amendments, you actually don't see a lot of it. I know you think cash, so you just think bad actor, but because of the amount of information that's collected, it's not an issue.

Yeah, I would query, given that handing cash over to get bitcoin, how much we know about the source of this cash. And I don't know that having someone's phone number tells us whether or not they were engaging in human trafficking to get that money or some other thing we want to stop. And I don't know that we have the information, to be frank with you, to know for sure. But anyways, the other thing that the analysis cites, I think, is this democratization of finance that really has something that's been held up by cryptocurrency over the years.

And I guess that's where I understand where the Author is coming from, is if what we're trying to do here is democratize, then we are likely targeting these kiosks to individuals who, in my course of the time both with the Senator as chair and this current chair, we've worked hard to ensure that those low income, unbanked communities are not being the subject of predation. And that, I think, is the crux of what she's trying to do. With the caps on percentage and otherwise.

10% seems incredibly doable to me. Again, looking at what ATMs that have to have a physical presence as well charge. I mean, on a $20, that's $2, that seems plenty, I just think and again goes up from there. So I guess I'm confused. If what is happening here is to money laundering legal activity, then I don't want it to happen.

If what is happening is the Democratization and access by Low income Californians, then I want them to have the protections of not being taken advantage of with high Usury percentages on what should be, to the Senator's point, just a convenience fee. So I support this. But just wanted to open that up because I guess from everything I'm hearing, that seems to be what's going on here.

Thank you. Assembly Member, any other questions or concerns? Seeing? None. Senator Limon, would you like to give a closing statement?

Sure. I appreciate the conversation and dialogue, and certainly we've been at know, I think, trying to talk about just crypto consumer protections for quite some time. And I think for me, this is important, certainly, because we now understand and as each year goes by, we all have constituents in our district who find themselves through fraud. And so, like anything else, we look at ways that we can ensure we minimize that harm and that impact. And so that also means that we put some limit, boost to some boundaries, some belt and suspenders around some of the items that are out there, whether it's technology or whether it's transactions. And so with that, I do respectfully ask for an aye vote to support SB 401.

Thank you very much, Senator. And I do want to state that thank you for bringing this measure forward. And you and I have worked extensively on this subject in multiple areas, and you've been an excellent partner. So with that, I'm looking for a second. So we have a motion from similar Member Bauer-Kahan Second from Assembly Member Cervantes. We do have a motion second. Secretary, please call the roll

SB 401. The motion is due pass as amended and referred to Committee on Appropriations. Grayson aye. Grayson. Aye Chen. Chen? No. Bauer-Kahan. Bauer-Kahan. aye Cervantes. Cervantes aye Dixon. Dixon. No. Mike Fong. Mike Fong. aye Gabriel Petrie Norris. Petrie Norris. aye Soria Soria aye waldron Waldron? No. Wicks Wilson. Wilson. It has seven votes.

Your Bill has seven votes. We will keep it open for absent Members. It does get out of the committee. Secretary, will you reopen roll.

SB 401? The motions do pass as amended, referred to Committee on Appropriations. Gabriel Wicks. Wicks aye has eight votes.

Bill has eight votes. It gets out and out of this committee. And we have completed our agenda for today's hearing. We will be moving on and adjourning this meeting.