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Lawmakers in Massachusetts have enacted a landmark bill that will bring all money transmitters, including peer-to-peer (P2P) apps such as Venmo, PayPal and Cash App, under a single licensing regime for the first time.

On Thursday (January 2), Massachusetts Governor Maura Healey signed into law , better known as the Domestic Money Transmission Bill.

In Massachusetts, prior to this bill, only entities engaging in foreign money transmission were required to obtain a licence.

Under the Domestic Money Transmission Bill, any entity that sells or issues payments instruments or stored value, or that receives money for transmission from a person or entity located in Massachusetts, must obtain a licence.

In a  announcing the enactment of the bill, Healey made clear that one of its aims is to protect users of P2P apps, which were previously unregulated within the state.

“With this new law, consumers in Massachusetts will now have protection when transferring money to friends and businesses through payment apps,” she said.

“The use of apps like Venmo and PayPal has skyrocketed over the years, with billions of dollars exchanging hands, so the importance of this legislation cannot be understated.”   

When the act comes into effect in September 2025, covered entities will be required to obtain a licence from, and will be subject to supervision by, the Massachusetts Division of Banks (DOB).

In effect, this will bring Massachusetts in line with most other US states, where domestic money transmission is already subject to specific regulation.

This bill also levels the regulatory playing field across businesses by establishing consistent supervision of non-bank firms that offer the same services as banks.

Other changes include adopting a “networked supervision” framework, which allows regulators across multiple states to collaborate on supervisory and enforcement efforts.

“The Domestic Money Transmission Bill is a win-win for consumers and businesses across the Commonwealth,” said Layla D'Emilia, undersecretary of the Massachusetts Office of Consumer Affairs and Business Regulation.

“Not only will consumers now have protection when using apps like Venmo, CashApp, PayPal and others, but businesses will benefit from the move toward uniform nationwide standards that enhance regulatory efficiencies and help reduce the regulatory burden on the industry.”

The bill contains several key provisions that are designed to protect users from fraud and scams — a growing concern among regulators with regard to P2P apps.

As stated in Section 8. (a)(1), the bill allows licensees to withhold money received for transmission if the licensee has a “reasonable basis” to believe that the sender may be a victim of fraud.

Licensees can also withhold payments if they have a “reasonable basis” to believe that a crime or violation of law, rule or regulation has occurred, is occurring, or may occur.

Inspiration for the bill

The Domestic Money Transmission Bill is closely based on the  (Model Act), a template piece of legislation created by the Conference of State Bank Supervisors (CSBS) in 2021.

The Model Act offers a single set of nationwide standards that aim to modernise the supervision and regulation of money transmitters.

These include recommendations on licensing, capital requirements, permissible investments, regulatory reporting, and auditing and transparency, among other issues.

As of October 30, 2024, 26 states had adopted the Model Act in full or in part.

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Money transmitters licensed in at least one state that has already adopted the Model Act collectively account for 99 percent of reported money transmission activity.

CFPB to prioritise fraud-fighting in 2025

The passing of the Domestic Money Transmission Bill comes amid growing concern among regulators that users of P2P apps in the US are not sufficiently protected against fraud and scams.

Last month, as covered by �������ϲ���̳, the Consumer Financial Protection Board (CFPB) sued the operator of Zelle, the country’s largest P2P app, and three of its largest owner banks.

In the complaint, the CFPB alleges that J.P. Morgan, Bank of America and Wells Fargo “rushed out” Zelle with insufficient protections, after being “threatened” by competing payment apps.

“By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves,” said Rohit Chopra, CFPB director.

The regulator claims that weak identity verification measures used by the three banks allowed criminals to scam funds from Zelle users with ease. 

The lawsuit also states that fraudsters exploited the lack of information sharing between banks on the Zelle network, allowing them to carry out scams across multiple institutions before being detected.

Meanwhile, despite receiving hundreds of thousands of fraud complaints, the banks allegedly failed to identify and address patterns of abuse.

In response, Zelle operator Early Warning Services described the lawsuit as “meritless”, while a Bank of America spokesperson pointed out that 99.5 percent of Zelle transactions are completed without issue.