Massachusetts is the first state of 2025 to sign its version of the Model Money Transmission Modernization Act into law. The model act is a set of nationwide standards for the supervision and regulation of money transmitters created by state and industry experts and approved by the Conference of State Bank Supervisors (CSBS) in 2021. Since then, 25 states have enacted legislation to adopt, in whole or in part, a version of the model act.
Both the governor and state commissioner of banks emphasized the need to protect consumers and pointed to the widespread use of peer-to-peer payment applications as an important reason for adopting the new law. While regulation of businesses offering peer-to-peer payment services may have been a goal, the new law is far more comprehensive than the current framework, which addresses cross-border money transmissions and the sale of checks or money orders.
Scope of the New Massachusetts Act
Historically, Massachusetts has only required entities engaging in the business of selling, issuing, or registering checks or engaging in foreign money transmission activities, such as facilitating cross-border transactions, to obtain licenses. The new law repeals the prior law and replaces it with a statutory framework influenced by the model act. The new law applies to any entity that provides transfers of money between individuals or entities within the United States if it does not otherwise qualify for an exemption.
Specifically, the new law regulates the following activities as “money transmission”: (1) the sale or issuance of payment instruments to a person in Massachusetts; (2) the sale or issuance of stored value to a person in Massachusetts; or (3) the receipt of money for transmission from a person in Massachusetts.
In addition to expanding the scope, the new law incorporates key provisions from the model act, including express exemptions for operators of payment systems providing processing, clearing, or settlement services and for entities acting as agents of payees in accordance with statutory requirements.
Comparison to Model Act
While closely modeled on the model act, the new law does differ from the model act in a few notable ways.
Expressly for consumer purposes only
The definition of “money transmission” in the new law refers to the provision of such services to individuals and corporate entities. At the same time, the definition is expressly limited to “transactions engaged in by a person for personal, family or household purposes.” This addition limits the scope of the new law to consumer purposes. In contrast, the model act does not specify the purpose of the transactions, implying that it applies to both consumer and commercial transactions.
Silent on payroll processing services
The new law did not adopt the model act’s explicit inclusion of “payroll processing services” in its definition of money transmission. However, it did not expressly exempt payroll services, as is the case in other states, such as California.
The Division of Banks has posted select opinions interpreting the current law, including one as recently as November 2024, providing guidance on the licensing requirements for payroll and employee benefit services. The division concluded the services provided by the payroll service provider were not licensable under the state’s laws on cross-border money transmissions because none of the services involved the “transfer of money to foreign countries,” although certain other check services were licensable under the state’s laws on the sale of checks or money orders.
In reaching this conclusion, the deputy commissioner of banks and general counsel cautioned that “legislation has been filed that would overhaul the licensing and regulation of money transmission and would include domestic money transmission within the licensure requirement.”
Although Massachusetts may interpret payroll processing services as falling under the category of commercial services exempted by the limitations on money transmission set forth in the new law, recent guidance has focused on the presence of foreign transmission activity as the determining factor in resolving the question of whether licensure is required.
Does not adopt virtual currency provisions
The new law did not adopt the virtual currency provisions of the model act. Opinions posted on the division’s website clarify that entities involved in virtual currency transactions, such as exchanges or kiosks, may not require a foreign transmittal agency license if their activities do not involve transmitting funds to foreign countries.
The division often concluded that these entities’ activities did not involve transmitting funds to foreign countries, which was the primary driver for requiring such a license. The division’s conclusions are based on the specific facts presented in each case, and different facts may lead to different outcomes. As Massachusetts begins regulating domestic transactions, it remains unclear whether the new law will be interpreted to apply to virtual currency transactions.
Impact on Current Licensees
Licenses obtained under the current law will remain in effect, but renewals for the year 2026 and after will need to be filed in accordance with the new law.
Existing licensees will need to comply with the requirements in the new law, including maintaining a surety bond, permissible investments, and meeting the tangible net worth requirements.
Effective Date
New laws take effect in Massachusetts 90 days after the governor signs the law, unless the new law is an emergency law or pertains to certain matters excluded under the Massachusetts Constitution, making the effective date of the new law April 1, 2025. The new law states that the majority of its requirements will take effect January 1, 2026. Persons engaged in money transmission in Massachusetts that are required under the new law to obtain licensure must file an application for licensure by June 1, 2026 and may continue their activities while their application is pending until the application has been approved, withdrawn, or denied.
Model Act Adoption Landscape
Many states have adopted the model act either wholly or in part since the CSBS approved the model act in 2021. These states include:
- Arizona
- Arkansas
- California
- Connecticut
- Georgia
- Hawaii
- Illinois
- Indiana
- Iowa
- Kansas
- Maine
- Maryland
- Massachusetts
- Minnesota
- Missouri
- Nevada
- New Hampshire
- North Dakota
- South Carolina
- South Dakota
- Tennessee
- Texas
- Vermont
- West Virginia
- Wisconsin
States' Partial Adoptions of the Model Act
The model act regulates money transmission by establishing licensing, financial security, and reporting requirements and includes exemptions for certain entity types. While the goal of the model act was harmonization in the money transmission industry, states have not uniformly adopted the model act, with some choosing to adopt only certain provisions and others choosing to exempt activities the model act defines as licensable.
One exemption that has seen inconsistent adoption is that of payroll processing services, with some states expressly exempting payroll processors, other states choosing to be silent on whether payroll processing services constitute money transmission, and a third approach, such as that taken in Iowa, where the state adopted an “agent of the payor” exemption that applies to payroll processing.
Additionally, the model act provides an option for states to impose uniform licensing and disclosure requirements on virtual currency business activity. Only a few states, including Maine and Minnesota, have opted to include the model act’s virtual currency provisions. Other states are continuing to regulate virtual currency activity either through new licensing regimes or through regulatory interpretations of their money transmission laws.
Despite improved alignment between the states, companies engaging or seeking to engage in money transmission activities must continue managing compliance individually for each state.
2025 Adoptions of the Model Act
Massachusetts is the latest state to regulate domestic money transmission. Nearly half the states that have adopted at least part of the model act did so in 2024. We anticipate momentum in adoption of the model act will continue this year. Some states, including Alaska, Idaho, and Virginia, have pending legislation to address whether the state will also adopt a form of the model act later in the year.
We further note that while states are continuing to consider adopting the model act, Kansas, South Carolina, and Wisconsin each have new money transmission laws based on the model act that went into effect January 1, 2025.
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