As of August 9, 2024, Illinois joins Maryland, South Dakota, Wisconsin, Kansas, Maine, Vermont, South Carolina, Missouri, and Connecticut as the latest state this year to have enacted legislation or regulations stemming from the Model Money Transmission Modernization Act (the “Model Act”), which is set to supersede Illinois’s current Transmitters of Money Act. “Illinois consumers need money transmission services that follow clear, standardized regulations and demonstrate consistency across different payment companies and state lines,” said Illinois State Senator Laura Ellman (D-Naperville), who championed the newly adopted law in Illinois. “This law addresses conflicting state law requirements through a transparent set of rules that will work across state lines.”

Key Regulatory Features

The crux of Illinois’s new Uniform Money Transmission Modernization Act (the “Act”) revolves around the establishment of a new regulatory framework aimed at enhancing the safety, efficiency, and reliability of money transmission services. The new law will prohibit entities from engaging in money transmission or advertising, soliciting, or portraying themselves as offering money transmission services in the State of Illinois unless they are licensed or qualified for an exemption.

A pivotal change is the introduction of new stringent licensing requirements, mandating transparent operations and accountability from entities engaged in money transmission. Among these new requirements is maintaining at all times a tangible net worth of the greater of $100,000 or 3% of total assets for the first $100,000,000, 2% of additional assets for $100,000,000 to $1,000,000,000, and 0.5% of additional assets for over $1,000,000,000. The new requirements aim to ensure that only thoroughly vetted operators, who can demonstrate financial stability and operational integrity, participate in the state's financial ecosystem.

Additionally, the Act specifies the roles and responsibilities of authorized delegates to ensure compliance with both state and federal laws. It mandates rigorous reporting by licensees, including the submission of audited financial statements and detailed records of money transmission activities, facilitating the Secretary of Financial and Professional Regulation's role in conducting compliance examinations. Furthermore, the Act establishes the Transmitters of Money Act (TOMA) Consumer Protection Fund, aimed at providing restitution to consumers who suffer monetary losses due to regulatory violations, highlighting a significant focus on consumer protection.

The Act will take effect on January 1, 2026, allowing entities a lengthy grace period to align their operations with the new standards. Licensed money transmitters currently operating under the old framework will be allowed to continue their operations, contingent upon license renewal under the new regulations.

Industry Implications

While Illinois joins twenty-four states in embracing the regulatory framework of the Model Act, the quest for a standardized approach across all states remains challenging. The Model Act, developed by the Conference of State Bank Supervisors (“CSBS”), represented a concerted effort to update and harmonize the regulation of money transmission services across the country; however, adoption of the Model Act has varied. Some states have opted to incorporate only selected provisions, with others enacting nearly the full suite of recommendations. This has led to a patchwork of regulations that still requires navigation on a state-by-state basis, underlining the complexity of achieving complete uniformity in the financial regulatory landscape. For example:

• South Carolina, South Dakota, Missouri, Wisconsin, and Kansas have adopted statutes closely tracking the Model Act, albeit with some modifications. For instance, Kansas has set specific requirements for renewal applications, while South Dakota distinguishes itself by addressing virtual currency services within its licensing requirements.
• Maine, although following the Model Act's guidelines, has established a fixed surety bond amount and includes non-consumer money transmission services under new receipting requirements, highlighting how states tailor federal recommendations to suit their unique perspectives on consumer protection.
• Wisconsin reverses its stance on licensing for non-physical presence money transmission services, acknowledging the Model Act's broader definition of covered activities.
• States like Vermont, Connecticut, and Maryland have partially adopted the Model Act, maintaining significant portions of their existing regulations and adding or omitting provisions based on local policy objectives.

The legislative efforts in Illinois and elsewhere signal a foundational shift towards more standardized, transparent, and adaptable financial regulations. Yet, the journey towards full harmonization in money transmission law continues, marked by both strides forward and the complexities inherent in reconciling diverse regulatory philosophies.