Payment processors and nonprofits are being sent warning letters from the Pennsylvania State Banking and Securities Department, telling them to be on the lookout for unlicensed money transmitters. The letter is a sign of increased scrutiny of payment processing activity on behalf of charities accepting payments from Pennsylvania consumers, and processors and charities doing business in the state.
According to a press release promoting the letter sent to charities by the Department:
In order to protect businesses, organizations, and consumers, Pennsylvania law requires that electronic payment service companies, along with other money transmitters, maintain a minimum net worth of $500,000 and carry a $1 million bond. Proper licensure of all money transmitters assists state and federal governments with ensuring compliance with the federal Bank Secrecy Act, thereby preventing the use of the banking system to support illegal or criminal activities.
About 48 states have some form of money transmitter statute; however, the trigger definitions vary by state. As a result, activities that may be considered money transmission in one state may not be in another. State law requirements also typically include a bond, specific disclosures in consumer contracts, recordkeeping, and examination. In addition, federal law requires money transmitters to register with the U.S. Department of Treasury Financial Crimes Enforcement Network (FinCEN) and adhere to specific reporting and recordkeeping requirements. As a result, companies doing business in more than one state have the daunting task of navigating a complex, expensive, and evolving regulatory environment.
Charitable solicitation activities are regulated at the state level. States generally define "charitable solicitation" to mean a direct or indirect request for contributions for a charitable organization or for a charitable purpose. Solicitations may include an oral or written request, an announcement for a special performance or event for which contributions are requested, grant solicitations, or a statement that a portion of a sale of goods or services will benefit a charitable purpose. Currently, 40 states and the District of Columbia require charitable organizations to register with the state charity agency prior to soliciting contributions, unless the organization is otherwise exempt. Charitable solicitation laws and registration and reporting requirements vary by state.
The charitable registration process generally requires a charitable organization to file a state registration form, along with a copy of the organization's most recent Internal Revenue Service Form 990; financial statements; governing documents such as the organization's articles of incorporation and bylaws; an IRS determination letter; copies of contracts with professional fundraisers, fundraising counsel, or commercial co-venturers, if applicable; and a filing fee, which ranges anywhere from $25 to several hundred dollars, depending on the state. Once registered, most states require charitable organizations to renew their registration annually.
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Payment processors, charities, and others engaged in fundraising should consult with legal counsel to determine their legal and regulatory obligations, thus minimizing the risk for fines and penalties for noncompliance.