Bitcoin ATM – California CryptoCurrency Bill SB401
California is debating a bill that would harm the bitcoin atm kiosk industry. The gist is the Arbitrary fee cap. The legislature picked a number they thought worked, there is no –to our knowledge –financial basis for the number. It might be derived somewhat from ATM fees, but we don’t know that for certain. There are many good things in the bill such as safeguards. The industry does seem prone to violations of all sorts and regulation and licensing can mitigate those liabilities.
Negative feedback on the transaction limits and fee caps which presumably would drive bitcoin ATMs “out of business” generally omit the specific details which isn’t very informative. What are the limits and caps now, and how are they supposed to change is probably our biggest question at this point. It appears to us restricting max transactions to $1000 a day per customer is part of it. Also $5 or 2% fee.
We also thank Joe Sawicki and KIOSK Information Systems for encouraging informative discussions. If you can contribute, please email Craig @ [email protected]
- California State Senate SB401 – Steering the Future of Crypto Kiosks in the Golden State
- What’s At Stake
- Hackers drain bitcoin ATMs of $1.5 million by exploiting 0-day bug
- Bitcoin ATM firm allegedly profited from crypto scams via unlicensed kiosks: Prosecutor
- Bitcoin ATM Co. Skipped Out On $10M Kiosk Deal, Suit Says – Law360
Background for SB401
- SB401 requires kiosk operators to be licensed by the California Department of Financial Protection & Innovation (DFPI), a significant change considering kiosk operators are currently not required to obtain a license from the state. Additionally, as we previously discussed, the bill would require kiosk operators to comply with certain specific per customer transaction limits and fee caps.
- As introduced by Senators Toni Atkins and Monique Limón, both members of the Democratic Party, the bill could have significant implications for the crypto industry as a whole, potentially setting a precedent for other states to follow and lead to increased regulation of the industry. While the bill aims to protect consumers from fraud, scams, and other risks associated with digital financial asset transactions, it could also make it more difficult for crypto kiosk operators to do business in California, or drive them out of the state entirely. The outcome of the hearing remains to be seen and the future of digital financial asset transaction kiosks in California is uncertain.
Video of Testimony by BitAML President
- March 22nd, First letter deadline (Senate)
- March 29th Opportunity to Call in to the hearing to record opposition (we will send more information about this soon but the details are below).
- Next hearing is June. (Assembly) There will be another opportunity to submit letters in May and another opportunity to Call in.
- The call in option will be during the hearing, which is at 1:30 on 3/29.
- One can watch the Senate Banking & Finance hearing live at the Senate’s website.
- The call in number to testify under the opposition side will be loaded on the committee website likely next week (not there yet). We assume the Senator will bring the bill up on the later end of the hearing because she has to chair the rest of the committee, but no true way of knowing.
- Here are instructions or when the number is listed.
Before and After
Current bitcoin kiosk regulations
Post-passage bitcoin atm regulations
- A robust and vetted TOS
- Verification that the wallet presented at the time of transaction is in the control of the customer
- Proper warnings displayed to consumers on the kiosk screen before they complete a transaction (e.g., references to popular scam typologies, the irreversibility of crypto transactions, etc.)
- Systems and controls designed to detect red flags associated with predatory elder abuse, romance scams, pig butchering etc.
- Ensuring conspicuous contact details for the operator are displayed on the kiosk screen and/or stickers affixed to the machines in the event that consumers have questions, complaints, or require further information
- Ensuring that the total transaction cost and fee(s) are displayed on the screen in a simple manner that may be easily understood by the consumer.
- Detailed line-item, printed receipts available to all customers, which documents the transaction amount and breaks out any-and-all fees
- Commitment to cooperating with, and educating, members of law enforcement
- Putting forth arbitrary blanket transaction limits or fee caps is likely not the most effective risk-based mechanism for preventing frauds and scams.
- From actual bill
- 3902. An operator shall not accept or dispense more than one thousand dollars ($1,000) in a day from or to a resident via a digital financial asset transaction kiosk.
- 3903. (a) An operator shall provide an option for a resident to exchange any amount of a digital financial asset for fiat currency.
(b) If the resident has a balance of fiat currency with an operator that exceeds one thousand dollars ($1,000), the operator shall not dispense more than one thousand dollars ($1,000) in a day at the resident’s request.
- 3904. An operator shall not collect charges, whether direct or indirect, related to a single digital financial asset transaction that exceed the greater of the following:
(a) Five dollars ($5).
(b) Two percent of the United States dollar equivalent of digital financial assets involved in the transaction.
Current ATM regulations
- Bank-owned ATMs are different than non-bank owned
- Total ATM fees vary from city to city, ranging from $5.38 in Atlanta at the high end to $4.21 in Los Angeles. [Bankrate Jan23]
- Licensing requirements
- California Money Transmitter — here is the FAQ
- Non-bank owned ATMs have a different set of ATM operating rules and regulations to follow; and are a lot simpler.
- These machines are only allowed to dispense cash; no deposits are accepted at these locations.
- They must display, on the ATM, the logos of the types of cards that are accepted at their machine.
- The owners of the ATM can charge customers a fee for their transaction; however it must clearly be posted at the machine as well as on-screen during the withdrawal transaction.
- All non-bank owned machine owners are required to file an annual notice of ownership which is typically done through the ATM processor they signed up with.
- Some States have their own set of non-bank regulations, check with your ATM Company to be sure they manage this process for you.
- California — Generally, tax does not apply to automated teller machine (A.T.M.) charges when an access device (commonly known as a debit card or credit card) is used to make a cash withdrawal from, or to engage in any other transaction that is not subject to tax at, an A.T.M. The transaction is not regarded as a sale of tangible personal property but is a nontaxable financial transaction.
ATMs located within banking institutions must meet certain requirements under federal law. Any analog surveillance system operated by the banking facility must use a commercial or industrial grade videotape. The tape should only be used once from beginning to end within a 30-day period. The videotape can be recorded over after this period of time, however, the same tape should not be used more than 12 times in total and must be replaced within 365 days from the date of its first use. Once the tape has been used, the banking facility must hold onto it for at least 45 days.
Lighting Regulations and Statutes
Banks and other institutions that operate ATMs must comply with U.S. federal laws, namely the Federal Electronic Funds Transfer Act and the Bank Protection Act. These laws, however, primarily address the security of the ATMs themselves rather than the ATM users’ safety. Currently, there is no federal law that requires minimum-security standards to protect ATM users. To remedy this, several states, including California, Texas, Florida and New York, have passed their own laws regarding security standards for ATMs. Most of these state laws set minimum standards for lighting, landscaping, visibility, security, reviews and customer safety tips.
Non-Bank Owned ATMs
ATMs that are not owned by a state or federal agency must abide by a different set of rules and regulations. Unlike banking ATMs, these machines must only be used for dispensing cash and under no circumstances can accept deposits. Non-bank owned ATMs must display a logotype or identification symbol alerting the customer as to whether or not his card will be accepted. Owners may impose a surcharge, as long as they clearly disclose it to the consumer both by a sign on the ATM and electronically on the terminal screen. It is possible for anyone to own a cash-dispensing ATM, provided they file a notice of ownership with their local commissioner within 60 days of ownership. Non-bank ATM owners must also file an annual notice of ownership.
Template for opposing, due March 22, which you can quickly complete and submit to Committee.
March 14, 2023
The Honorable Senator Monique Limon
Chair, Senate Banking & Finance Committee
1021 O Street, Suite 6510
Sacramento, CA 95814
RE: SB 401 (Limon): Cryptocurrency Kiosks— OPPOSE
Dear Chair Limon,
On behalf of XXXX we respectfully write in opposition to SB 401, which, as written, would eliminate the cryptocurrency kiosk industry in California or drive it underground.
Cryptocurrency kiosks, oftentimes referred to as crypto ATMs, operate as a convenient, fast, and familiar currency exchange, offering everyday people the opportunity to purchase or sell cryptocurrency at their local convenience stores, grocery stores, or bodegas.
SB 401 sets up a licensing regime for the industry, which will allow the CA Department of Financial Innovation & Protection to approve, audit, and collect information about all crypto kiosk operators in the state. This regime is welcomed by the industry and the consumers that use them. However, SB 401 also sets up an arbitrary fee cap and transaction limit amount, which given the capital costs of owning, installing, maintaining, and operating a crypto kiosk, would drive these machines out of our communities and out of the state. It will also take the small business retailer income, tax revenue, and financial inclusion consumer benefits along with them.
Why do people use Crypto Kiosks?
Crypto kiosks are accessible and convenient, offering one of the fastest modes available to purchase cryptocurrency—allowing those looking for an on-ramp to diversify their investment portfolios to do so in a familiar and expeditious way. Additionally, cryptocurrency is becoming increasingly popular to remit funds cross-borders—an appeal to many that do not have access to a bank account or need to send funds quickly to family and friends overseas. 25% of users that remit funds internationally have used cryptocurrency (CITE), and many are increasingly finding that crypto kiosks are the faster and even more affordable way to do so versus traditional money remittance services.
How do crypto kiosk machines work?
Crypto Kiosks Are Safe
SB 401 unfairly targets the crypto kiosk industry, suggesting they are contributing to consumers being defrauded or scammed but this does not solve the root of the issue, which is a lack of understanding generally by the population about scams. Scam and fraud activity are enormous problems across the entire financial services industry. However, the volume of funds people get scammed at a crypto kiosk is de minimis1 compared to central exchanges, money remittance companies, Zelle, and bank accounts2.
Unlike many other financial services, cryptocurrency has unparalleled transparency, which allows law enforcement and kiosk operator companies to coordinate together to freeze assets and return money to victims that come forward. Unlike cash, the blockchain is an open ledger; therefore, all transactions can be traced. Kiosk operators and law enforcement use blockchain analytic tools that can trace the movement of cryptocurrency across the blockchain. Many can identify and blacklist digital wallet addresses affiliated with fraud and do so when needed.
Crypto Kiosks Contribute to our Communities.
The most considerable capital expense of owning and operating a crypto kiosk is the rent an operator pays to house the machine at a local retail business. This can be anywhere between $300-700 per month, which in addition to increased foot traffic and purchases while the customer is visiting the location, is significant income to many small, frequently minority-owned retail businesses across California. California has over 3,6463 crypto kiosks in California, which equates to over $21 million in rent payments to small business retailers alone. This amount does not include the additional supply chain operation costs, including armored vehicle services, security, maintenance/repair, manufacturing, and banking. These costs are not incurred by online exchanges, which send profits overseas or out of state versus redirected back into our state and communities.
Cryptocurrency is a relatively new financial service technology and has no doubt had challenges as it involves and gains more mainstream users in an uncertain economic time–making headlines and increasing the response of lawmakers to create regulations to protect consumers. However, SB 401 will do nothing to solve fraud/scams in the industry, and if anything, will allow scammers to use less traceable services or tools not captured on a public blockchain. Additionally, the arbitrary fee cap will not allow operators to compete and maintain a consumer-friendly market, nor will these machines be able to operate in the state— as the bill does not account for the extremely capital-intensive cost of converting a currency to cash and vice versa instantaneously. For these reasons, we must oppose SB 401.
Thank you for your consideration.