An Agent of the Payee is a person, entity, or other intermediary specifically appointed by a payee to process and collect payments on their behalf.
What is an Agent of the Payee Exemption?
In most states, an agent of the payee is able to operate due to special exemptions to money transmission laws. This is a fairly complex topic, so let’s look a few definitions to help clarify:
- Money Transmission: Money transmission is generally defined as the act of receiving currency (or other value that substitutes for currency) from one party for the purpose of sending it to another party. Examples of currency substitutes could include money orders, stored value cards, and cryptocurrency.
- Money Transmission Laws: Federal and state laws and regulations that govern the act of money transmission.
- Money Transmitters: A type of ‘money services businesses’ as defined by the Financial Crimes Enforcement Network (FinCEN). In many cases, money transmitters are required to register with FinCEN and obtain money transmission licenses.
- Agent: A representative on behalf of another person, company, or entity in third party dealings. The agent is responsible for collecting and processing payments for whomever they represent.
- Payee: The person providing the goods and services, this person is owed payment by the payor. The payee does not provide any money transmission services.
- Payor: The recipient of the goods and services, this person owes payment to the payee for those goods and services.
Agents of the payee can act as money transmitters—moving money on behalf of a provider of goods and services—without having to actually register as money transmitters due to an exemption in FinCEN’s money transmission laws. This exemption, however, is also subject to state regulations and the exemption does not apply in every state. Currently, 22 states allow for money transmission by an agent of the payee under the exemption and 3 states offer the exemption on a case-by-case basis.
Though it can apply to an individual, the agent of the payee exemption most often applies to companies that handle payments on behalf of a provider of goods and services. Marketplaces like Uber and Airbnb are relevant examples of such businesses.
For example, Airbnb collects payments from guests solely for the purpose of sending them to hosts via regulated payment networks like ACH—thus they are transmitting money on behalf of their hosts and renters. Because of the nature of this type of money transmission—facilitating payments solely for the delivery of goods and services sold on their platforms—it falls into the category of “incidental transmission” and will often be eligible for the agent of the payee exemption (i.e. not requiring those businesses to file for money transmitters license).
Compliance is a crucial function for any company that moves money on behalf of their customers. Dive into the fundamentals behind key compliance processes like KYC, KYB, transaction monitoring, and more.
- 1Compliance Risk Management
- 2Customer Due Diligence
- 3Customer Identification Program
- 4Financial Crimes Enforcement Network (FinCEN)
- 5Know Your Business (KYB)
- 6Office of the Comptroller of the Currency (OCC)
- 7Personal Identifiable Information (PII)
- 8Politically Exposed Person
- 9Specially Designated Nationals
- 10Suspicious Activity Report
- 11What is AML Compliance?
- 12What is Know Your Customer (KYC)?
- 13What is OFAC?
- 14What is PCI DSS Certification?
- 15What is SOC 2?
- 16What is Section 314(a)?
- 17What is Section 314(b)?
- 18What is a Currency Transaction Report?
- 19What is an Agent of the Payee Exemption?
- 20What is an Identity Verification API?
- 21What is the Bank Secrecy Act (BSA)?
- 22What is the Electronic Fund Transfer Act?
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